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Competing Cost-Benefit Studies Fuel Net Metering Debate

Competing Cost-Benefit Studies Fuel Net Metering Debate

This blog post was written by AHC attorney Roland Hall.

Net metering is a billing mechanism that allows consumers to receive credit for electricity they generate from small-scale renewable energy resources and transfer onto the grid.  The details of how net metering works, such as the value of credits, and the ability to bank credits, vary among the states and electric utilities that have net metering policies in place.  Solar installations make up the overwhelming majority of net metering generation. 

Clean energy advocates, solar manufacturers, utilities and consumer groups often take very different views of certain aspects of net metering.  One issue that increasingly stirs debate is whether the cost-savings obtained by net metering consumers are being subsidized by traditional energy customers.  Utilities, industry groups and some consumer groups argue that net metering allows customers who can afford to install renewable energy generation, primarily solar, to avoid the infrastructure costs (such as transmission and distribution fixed costs) that are passed on to traditional energy customers.  On the other hand, solar advocates and manufacturers contend that such arguments do not take into account the system-wide benefits to all utility customers, such as deferring transmission and distribution investments because of additional distributed generation resources.

Both sides support their arguments on a variety of competing studies, all of which use different (and in some cases vastly different) methodologies.  The most recent noteworthy study is one commissioned by the California Public Utilities Commission and released in draft form on September 26, 2013.

The study focuses on California’s net metering program, which includes over 150,000 customers, 99 percent of whom use solar generation.  The draft report concludes that by 2020, $1.1 billion per year in costs associated with net metering generation will be shifted to non-solar customers.  The draft report also found that the median household income for solar rooftop customers is substantially higher than that of non-solar customers, thus lending support to consumer groups that argue lower-income customers are subsidizing the energy savings of net metering customers.

The CPUC study was criticized by solar industry groups immediately upon its release as being biased and not taking all future system-wide benefits into account.  Solar advocates point to studies in other states that show net metering provides an overall benefit, such as a study released by the Vermont Public Service Department in January 2013.  Unlike most other studies, the Vermont study considered all generation, and not only the costs and benefits associated with power exported from net metering generation to the grid.  This approach has been criticized as being overbroad and overstating the economic benefits likely to be derived from solar generation.  Other studies commissioned by utilities and solar energy groups use their own methodologies, with some showing cross-subsidization by non-solar consumers and others showing net benefits to utilities.

In truth, because of differences in rate structures, program rules and transmission and distribution arrangements among the states, it is very difficult, if not impossible, to use any particular state-based study to support overall conclusions regarding cross-subsidization.  However, even if these differences could be taken into account, because the authors of these studies use different methodologies and input assumptions, and take very different views of “costs” and “benefits,” each study must be considered individually in view of its sponsor and the approach taken.  All of this is to say that the analysis in each of these studies must itself be closely analyzed before any study is used to support broad conclusions.

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