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| Fig. 1: Top: Total number of U.S. net metering customers using residental solar PV. Bottom: Total metering capacity of these customers. [6] (Source: B. Villanueva) |
Net metering is a policy that allows utility customers to offset electricity costs with self-produced electricity, and has been used to incentivize the adoption of residential solar photovoltaics. The traditional net metering system works by recording the flow of electricity and bills the customer based only on the net electricity used. When production exceeds consumption over one billing cycle, the default policy usually carries this credit over to the next billing cycle. [1] Net metering was pioneered alongside state tax credits, deductions, sales tax exemptions, and property tax exemptions in states such as California, Nevada, Arizona, and Hawai'i. [2] In 2019, over 45 states required some version of net metering. [3] These policies reduced the average cost per installation unit from $17,000 to $12,000 in 2017 and facilitated the solar industry's growth (Fig. 1), but nearly all states with net metering have reviewed and modified their policies due to issues with the traditional system of utility provider buyback at retail price. [4]
States have revised their net metering policies because electricity cost offset at retail rates was suboptimal and must account for developments such as declining PV costs. [4] Academic research suggests that net metering is ineffective as an environmental policy and creates regressive side effects. The most detrimental social effect is a cost-shift associated with upkeep of grid infrastructure. Households with rooftop solar that are able to reach net zero consumption do not cover any of the underlying costs associated with upkeep of wires and transmission lines, estimated at $45 to $70 per month. [5] Wealthier households that can afford the upfront costs of rooftop solar disproportionately benefit; the median income of a solar adopter in 2018 was 54% higher than the median income of non-solar adopters (corresponding to an approximate difference of $32000 per year). [5] Utilities may be forced to ask regulators for higher electricity rates to cover grid infrastructure costs, further exacerbating the issue. Estimates showed that net metering in California could shift $1.1 billion in associated costs annually onto Californians without rooftop solar. [5] Net metering may no longer be efficient way to reduce carbon emissions because of adverse side effects such as discouraging an increase in energy efficiency by utility companies that need to cover grid infrastructure costs. Additionally, the mismatch in solar generation with the demand curve leads to a reduction in usage of the cleanest fossil fuels instead of the dirtiest ones. [5]
In 2019, 45 states required that utilities make some form of net metering available to customers, but the rates of compensation vary by state and policies are continually updated. [3] Modifications to net metering are primarily caps and alternative compensation rates. Program caps limit the number of customers or generation capacity allowed by the net metering system. Current net metering schemes commonly include compensation rates such as avoided cost that allows utilities to pay wholesale rates from customers to better match underlying grid costs or fixed monthly baseline charges associated with grid maintenance and operation. [3] California is also experimenting with compensating rooftop solar according to time-varying rates that parallel time-varying consumption rates aimed at matching generation to demand. [5] States also vary in source eligibility (sources that can contribute to net metering), credit retention (how customer electricity overproduction is credited), and system ownership (how individual customers/entities are defined when calculating net usage), which affect deployment of distributed generation. [3]
Alongside state tax policies, net metering has facilitated the widespread adoption of rooftop solar in the United States. Net metering policy varies greatly across states, and has been continually updated since its conception to create fairer outcomes that do not penalize utility companies or customers that cannot afford rooftop solar. Net metering by itself does not largely incentivize green practices, so states will need to create additional policies to incentivize efficiency and reduced energy consumption.
© Blake Villanueva. The author warrants that the work is the author's own and that Stanford University provided no input other than typesetting and referencing guidelines. The author grants permission to copy, distribute and display this work in unaltered form, with attribution to the author, for noncommercial purposes only. All other rights, including commercial rights, are reserved to the author.
[1] W. Geffert and K. Strunk, "Beyond Net Metering: A Model for Pricing Services Provided By and To Distributed Generation Owners," Electr. J. 30, 36 (2017).
[2] D. P. Brown and D. E. M. Sappington, "Designing Compensation for Distributed Solar Generation: Is Net Metering Ever Optimal?" Energy J. 38, 1 (2017).
[3] A. J. Lawson, "Net Metering: In Brief," Congressional Research Service R46010, November 2019.
[4] A. Szmolyan, "Disunity Among the United States: Navigating Net-Metering Without Getting Electrocuted," J. Bus. Entrepreneurship & L. 13, 129 (2020).
[5] J. T. Smith, G. Patty, and K. Colton, "Net Metering in the States: A Primer on Reforms to Avoid Regressive Effects and Encourage Competition," Center for Growth and Opportunity at Utah State University, August 2018.
[6] "Electric Power Annual 2019," U.S. Energy Information Administration, October 2020.