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Fitch Ratings: Net Metering Can Destabilize Entire Utility Industry

Silvio Marcacci's picture
Communications Director Energy Innovation: Policy and Technology LLC

Silvio is Energy Innovation’s Communications Director, leading media relations and strategy. He has more than 15 years of communications experience, and has been a bylined columnist at top media...

  • Member since 2012
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  • Dec 27, 2013

Attention everyone concerned about the potential for net metering to completely upend power utility business models: Buckle up, because net metering is taking off.

Customer adoption of net metering policy has grown fast, according to Fitch Ratings’ new report Running Backwards: Net Metering Short Circuits Electric Sales, and has become a “small but rapidly growing component of total retail electricity sales.”

But despite the near-apocalyptic alarms raised by utilities in states like California, Colorado, and New Mexico, excess generation sales sold back to utilities through net metering made up just 0.01% of total retail sales in 2012 – raising the question: Are utility fears overblown?

Net Metering Powers Residential Solar PV Growth

First, a bit of background on what exactly net metering is, and what it does. Net metering is a policy where customers who have their own electricity generation facilities interconnected to the power grid are paid by their local utility for the energy they produce but don’t use and send back the grid.

Nearly every state has some form of net metering, and each one has different rules governing how much power can be sold back to the grid and the rate customers are paid for excess electrons.

The net effect of net metering has been a dramatic uptick in residential solar installations. Fitch reports net metering customers have increased at a 46.7% compound annual growth rate, with solar photovoltaic generation representing 85.8% of all electricity sold back to utilities through net metering in 2012.

Even more interesting, residential solar customers made up approximately 90.7% of all net metering customers, super-charging the rapid growth of solar PV systems across America. This trend is especially true in California, where two-thirds of residential installations under the California Solar Initiative program are third-party owned, and home to the three top net metering utilities by customer.

In addition, new types of investor financing like SolarCity’s $54 million securitization is opening up entire new capital investment markets and funding new distributed solar installations while removing residential consumer cost barriers.

This means solar has truly become democratized for residents across many of the fastest-growing solar markets in America, strengthening public support against fossil-fueled efforts to roll back state renewable energy targets while adding thousands to home resale values.

Policy Fixes Could Prevent A Utility Death Spiral 

So on balance, does net metering equal a “utility death spiral,” as so many claim? Fitch reports that even though it has grown fast, net metering “has a minimal impact on retail sales,” and residential consumers are incentivized to participate in net metering by the high retail electricity prices charged by utilities.

Since more and more net metering customers means more and more distributed generation resources, and thus, less need for utility-scale centralized power sources and transmission lines, Fitch says the policy “can destabilize the entire utility industry.” Yikes.

However, solutions do exist to help utilities and net metering coexist. Fitch recommends regulators regularly adjust prices and cost-recovery mechanisms, along with creating caps on annual and aggregate net-metered installations. Taken together, net metering may just continue to fuel solar’s surge across America…without killing off the country’s electrical utilities.

Fitch Ratings: Net Metering Can Destabilize Entire Utility Industry was originally published on: CleanTechnica. To read more from CleanTechnica, join over 30,000 other subscribers: RSS | Facebook | Twitter.

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Schalk Cloete's picture
Schalk Cloete on Dec 27, 2013

Another important paragraph in the report: 

Who Pays and Who Benefits: In the case of residential customers, NM provides additional financial benefits through the sale of electricity at market or above-market prices, and large federal and state credits for the capital costs of the solar installation. These costs are then socialized into tariffs paid for by all customers, but disproportionately absorbed by non-NM customers. In a flat demand period, higher costs are spread over less units sold, resulting in higher unit costs and potentially significant cost shifting.

Since the LCOE of small-scale PV systems is close to one order of magnitude greater than the variable costs of load following plants it displaces, a government-enforced exponential expansion of this kind is highly unsustainable. Currently, solar PV is still tiny, so this highly unsustainable trend can last for another few years, but care should definitely be taken to not push this too far. Financial instruments lowering financing costs based on the low level of perceived risk created by such unsustainable technology-forcing policies is certainly one highly effective way in which to push this too far. 

Bob Meinetz's picture
Bob Meinetz on Dec 27, 2013

Silvio, the attempt of the renewables/distributed generation movement to paint their cause as a David/Goliath struggle apparently has a considerable following. That doesn’t make it any more based in reality than World of Warcraft or Grand Theft Auto, video games which, judging by hyperbole like “upending power utilities”, “near-apocalyptic alarms”, and “utility death spiral”, have had a considerable influence on the movement’s call to arms.

Here in California, utilities are permitted to charge 10% above costs to provide reliable power to CA citizens. That’s all. Utility execs are the lowest paid of any industry, and they will be paid the same whether coal plants keep burning coal, or solar panels are built on every roof (and coal plants keep burning coal). The industry in America is an amalgam of public and private sectors like no other, and it’s emerged from over a century of mistakes, changes, fires, fraud, and outages as a model for the world.

The conceit that solar, at one-half of one percent of American generation, is capable of creating an existential problem for the other 99.5% is divorced from any realistic assessment of the energy landscape, and doesn’t do any favors for legit applications of solar where they do exist.

Bas Gresnigt's picture
Bas Gresnigt on Dec 29, 2013

The US utilities problems regarding net metering are ridiculous.
Either unwilling or no good forecasting management.
Or technical know how of grid management in USA is at under development countries levels.

Penetration in the south of Germany exploded faster and towards higher levels than in Oahu (Hawaiï),
where the incumbent utility shows major incompetence.
In S-Germany no problem at all (easier and faster with less paperwork).

Studies by Fraunhofer institute, etc. in Germany showed that instability danger is easy to handle.


Suggest US grid management & utilities visit the Fraunhofer institute and especially also grid management in South-Germany, in order to learn how they did it.

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