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Net Metering vs. Self-Generation for Solar PV

solar metering

Recently, NAATBatt member Tucson Electric Power (TEP) announced a change in its net metering program, whereby TEP will compensate new solar PV customers for net metered electricity at the same rate that TEP pays for power from large solar arrays, rather than at the higher retail electricity rate.  It is expected that the typical customer with rooftop solar will see their bills increase by about $22 per month as a consequence of this change.

The move by TEP to reduce the benefits of net metering to customers with rooftop solar underscores a longstanding tension between grid operators and solar PV advocates.  Net metering—the ability of solar PV owners to sell to the grid PV-generated electricity they cannot use—has long served as an important and effective subsidy for PV technology.  Historically, solar advocates have loudly protested reductions in net metering benefits, seeing them as an attack on the technology of distributed solar PV itself.

My sense in reading about TEP’s action this week, and the somewhat muted criticism of it, is that the world of net metering in changing.  That change has a lot to do with storage.  The falling cost of solar PV means that the need to subsidize solar PV deployment is falling as well.  But more importantly, the falling cost of solar PV combined with the falling cost of electricity storage means that it is becoming increasingly economic for solar PV owners to self-generate, i.e., to save the electricity they cannot immediately use and use it themselves at another time.

After years of pushing hard for net metering programs, the solar industry is slowly waking to the realization that customers who perceive a benefit to maximizing their self-generation (i.e., by using storage) will buy more solar panels than those customers who do not.  The benefit of self-generation to storage suppliers is obvious.

The real issue begged by net metering is the non-dispatchability of solar power.  There simply is a cost to not being able to control when electric energy is generated.  Customers that self-generate bear this cost themselves, either by spilling excess electric power or investing in a storage system.  Customers that net-meter simply offload this cost onto the grid.

The answer to the question of which alternative is more fair and socially beneficial is inherently subjective.  But from a business standpoint it is important to remember that grid operators who must bear the cost of solar non-dispatchability (because they are obligated to net meter) have many ways to defray that cost, including, but by no means limited to, storage.  By contrast, solar PV customers that self-generate have no way to defray the cost of non-disptachability other than to store their excess electricity generation.  This is something worth thinking about as the storage industry’s position on net-metering evolves.

Photo Credit: Solar PV and Net Metering/shutterstock

James Greenberger's picture

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Spec Lawyer's picture
Spec Lawyer on Apr 7, 2015 9:39 pm GMT

Self-generation with local batteries is a bad idea.   The grid is there for a reason . . . to balance out the generation sources and the loads.  So use it for that.  Storage should be added at the grid level as needed, not individual homes which fragments the problem.  

As a solar PV owner, I have no desire to cut away from grid even it was easy to do.  I like to be able to share my excess daytime electricity generation with the grid.  I like to be able to draw from the grid if I want to quickly charge up my electric car.  

Bruce McFarling's picture
Bruce McFarling on Apr 8, 2015 11:03 am GMT

Which is optimal is not a binary choice, since we could contemplate a range of possible solar metering institutions.

While optimizing models might be considered for net-metering of larger commercial and industrial customers, for residential customers a simple average cost for use of the grid is more direct, and likely easier to explain to people. For levels of solar PV production that are consumed locally within the local distribution network, the solar PV producer is using the grid to basically sell power to their neighbor. So it makes intuitive sense to deduct the cost of maintaining the local grid from the credit they receive. Since the neighbor that is drawing power is paying a rate that includes the cost of using the grid, the costs of maintaining the local grid are still being seen to.

There is a “natural” threshold for net metering, which is where the customer draws as much power from the grid as they produce for the grid. At that point a “pure” net metering without rebate and without adjustment for grid cost nets out to $0. However, at that point, a “grid cost adjusted” net metering still includes the net grid cost for the power consumed in the bill.

Past that point, the household is a net-producer of power, so it is intuitive that they be paid at a rate that reflects the value of solar power, and that payment be rebateable if greater than the value of electricity consumed at residential rates. They are, after all, not “using the grid like a battery” … they have become decentralized power stations.

However, this could create a perverse result in that a net-metered household pays less than some value-of-solar households producing “close to but above” the transition level, even though the value-of-solar household consumed less grid power and delivered more power to the grid. This would be when the value-of-solar rate is lower than the residential rate minus a distribution average fixed cost per kWh charge, which seems likely to often be the case (but might not always, especially if they have west-oriented panels to better match peak load and so peak value-of-solar). So if net-metering was in force for households up to net-zero power consumption, the changeover to value-of-solar pricing should be phased in so that the bill is assured to decline continuously down to the point where value-of-solar nets the bill out to zero and the solar PV owner set to receive rebate checks rather than electricity bills … past that point the value-of-solar price structure certainly yields more than the net-metering without rebate price structure.

High penetration of solar might create a condition in some distribution networks that it is a net producer of power for the grid at the substation (which may well require upgrades at the substation level), at which point the share of solar PV from net-metered households that goes beyond the local distribution grid also ought to carry some average transmission cost per kWh deduction from their credit.

However, this may indirectly depress roll-out … since the risk of changing the return to a high fixed cost investment during its life flipping the invest / not invest decision to after the commitment has been made will then discourage investment, and discouraging this investment ought not be our policy.

Therefore, a forward looking policy might grandfather in existing net-metering households as trough (load-[local solar-PV-production]) hits some fraction of total load, while for new customers there the switch-over to value-of-solar is scaled down to a lower level (simplicity of tariff rules would suggest “produce half of consumption” as the retrogression from “produce as much as consumption”).


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