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Battles Over Net Metering Cloud the Future of Rooftop Solar

Nevada’s reversal of net metering fees for solar owners marks a dramatic turn in the fight over solar policies.
January 5, 2016

Solar power installer SolarCity, the country’s largest provider of rooftop panels, has exited the Nevada market in the wake of the state’s rollback of the net metering fees paid to residential solar owners. The departure marks an escalation in the war over net metering that is roiling the industry.

One of the fastest-growing markets for residential solar, Nevada is the first state to drastically revise its policies on net metering—wherein owners of residential solar arrays are compensated for the power they send onto the utility power grid, usually at retail rates. All but a handful of states have instituted net metering. Claiming that these fees represent an unfair transfer of costs to the utilities and non-solar customers, utilities have mounted a well-funded campaign to reduce or eliminate the payments. The Nevada Public Utilities Commission concurred, calling on utilities to cut the compensation for solar providers from retail to wholesale rates.

Rooftop solar may benefit owners, but it doesn't always benefit other utility customers.

Not surprisingly, the solar industry disagrees. Calling the net metering decision “unethical, unprecedented, and possibly unlawful,” SolarCity CEO Lyndon Rive predicted that it will “destroy the rooftop solar industry in one of the states with the most sunshine.”

The Nevada reversal came days after the U.S. Congress voted to extend the investment tax credit for solar projects (see “Tax Credit Extension Gives Solar Industry a New Boom”). GTM Research said the renewed tax credit will add 25 gigawatts of new solar capacity over the next five years, driven by $40 billion in new investment between now and 2020.

Events in Nevada, though, could signal a major reshaping of the economics of solar power for homeowners. The retail rate of electricity in Nevada is 12.39 cents per kilowatt-hour; the wholesale price for electricity in the region that includes Nevada averaged around two cents per kilowatt-hour in December. According to a report from Lawrence Berkeley National Lab, the cost of a residential solar system has fallen to around 25 to 30 cents per kilowatt-hour. With federal and state subsidies and tax benefits, that figure drops to 15 cents per kilowatt-hour or less. If the retail rate for electricity from the grid (absent net metering fees) is less than that, solar is a poor investment; if it’s more, solar is a good investment.

Many studies have examined the costs and benefits of net metering for both utilities and solar-owning customers, and their conclusions vary widely. A study carried out for the Nevada Public Utilities Commission found that net metering for systems installed between 2004 and 2016 would provide a benefit to non-solar owners of $36 million over the life of the systems. Others, however, have calculated that rooftop solar increases costs to the grid that surpass the value of the power. Responding to the Nevada decision, Severin Borenstein, a professor at the University of California at Berkeley’s Haas School of Business, wrote that “net metering is an inefficient and opaque way to support the growth of low-greenhouse-gas technologies, and should be replaced with more direct and transparent subsidies.”

Challenges to existing net metering programs are underway in most of the major markets for solar power, including California, Arizona, and New York. Mississippi recently announced a net metering policy that will pay wholesale rates, not retail, for solar power produced by homes and small businesses. Hawaii closed its program to new solar owners in October. Many states are at or near the limits established on total solar capacity allowed under their net metering programs, meaning that new residential installations will not be covered under the compensation system. Nevada maxed out its 235-megawatt net-metering program earlier in 2015, causing installer Vivint Solar to pull out of the state.

Not all of these states will roll back their net metering fees, though. New York, which has undertaken a major restructuring of its electricity sector, actually suspended its cap on solar photovoltaic systems covered by the state’s net metering program in October. Also in October, New Mexico regulators dismissed a proposal by El Paso Electric to impose new fees on solar owners. Regulators in Arizona, where the net metering debate has been sharpest, have declined so far to modify its program as regulators seek a compromise between utilities and solar advocates. And regulators in California are proposing to leave current compensation policies in place.

Ultimately, the resolution of the net metering wars could come in the form of an open market for distributed energy generation, where producers can trade directly with consumers and prices are set by supply and demand, paired with some form of minimum service charge for the utility. Such systems have started to emerge in Germany and elsewhere (see “Renewable Energy Trading Launched in Germany”).

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