In states around the country, there have been attacks on the net metering policies that support distributed resources, primarily solar power systems. Utilities claim these policies give solar system owners a pass on paying for the infrastructure that connects them to the grid. Advocates claim that net metering gives solar system owners appropriate compensation, on a kW-hour for kW-hour basis, for the excess generation they provide to the grid by offsetting electricity they get from the grid when the sun’s not shining.
In most states, the debate has led to a forced and unstable compromise, if not stalemate. In Arizona, the Corporation Commission (that state’s public utility commission) turned back utility demands for a prohibitive monthly charge on solar owners but did assess a charge of 70¢/kW per month (for example: a 5kW system would pay $3.50/mo) to support the distribution system. In Minnesota, the state allowed utilities to substitute a “Value of Solar” payment for net metering, but that option is not expected to be widely adopted by utilities because the calculated value of solar exceeds the retail value under net metering.
AEE supports net metering, but sees the state-by-state controversy over it as a symptom of a larger problem with utility revenue models. AEE’s 21st Century Electricity System program is working with utilities and regulators to develop new business models that align utility earnings with public policy objectives and new choices for consumers. Massachusetts has been a leader in this effort, most recently with the Department of Public Utilities’ order requiring utilities to develop grid modernization plans. Now, the Bay State has broken new ground on net metering reform as well.
Through a painstaking engagement process, with each side making concessions, agreement was reached between the utilities, business organizations (led by Janet Gail Besser, VP of Policy and Government Affairs of AEE’s Partner Organization, the New England Clean Energy Council) and environmental groups to achieve a landmark compromise. The new legislation, just filed as H. 4185, would accomplish the stated objectives of the Patrick Administration, including a deployment target of 1,600 MW of solar PV (four times current levels) by 2020, while addressing core concerns of the utilities.
The legislation would develop a long term, predictable market policy for net metering by uncapping net-metered systems (currently capped at 6 percent of peak load) and establishing a declining incentive system. The declining incentive system, successfully implemented in California, takes the place of a volatile SREC market to provide a predictable step-down in incentive payments as more systems are installed and the industry reaches maturity.
The legislation also creates a “minimum bill” for net metering customers. However, rather than a fixed payment every month (as in Arizona), the minimum bill allows the customer to get full credit for their net-metered generation over time. In a given month, a solar customer could not reduce their bill below the monthly minimum, but any additional net-metering savings will be carried over and applied to future months’ bills. The practical implication for solar owners will be to reduce their savings on bills in the summer (when solar generation is highest) and increase their savings on bills in the winter (when solar generation is lower), as they get full credit over the course of the year. This system addresses utility concerns about some customers paying nothing toward fixed costs, while addressing solar investors’ desire to get full retail value for the power they deliver to the grid.
Finally, the legislation distinguishes between “behind the meter” systems and “utility sided” systems. A utility-sided system is a net exporter of electricity to the utility grid and relies more fundamentally on the utility’s distribution system. “Virtual net metering” provides a credit to customers who invest in these systems – generally, those who can’t put solar on their own homes or businesses because they rent the property, or the property is not a good candidate for solar because of shading or orientation. Virtual net metering opens solar as an opportunity to millions who are currently excluded, at the same time broadening the market for the solar industry. For virtually net-metered systems, customers are credited the retail rate less the distribution portion of the standard rate.
In 2013, the Massachusetts solar industry grew 50 percent over the previous year, to $789 million worth of installations. In the past few years, the state has vaulted to sixth nationally in installed solar capacity (ahead of sunny southwestern states such as Colorado and New Mexico), with more than 8,400 people working in the industry. Solar has become an economic powerhouse in the Commonwealth.
All sides did not get everything they wanted in this legislation, and discussions continue on some details, but the bill is one of the first to break the log-jam on net metering, expanding the market potential and providing certainty for solar customers and companies while addressing a key point of contention. Once the bill is approved by the legislature, Massachusetts’s solar future will shine bright.