Green Pick Pockets

Net metering exists in 44 states. Initially established to help solar and wind while they were new and emerging technologies, net metering has become a cancer on the grid.

Net metering allows the owner of solar panels supplying electricity to the home; to sell excess electricity back to the utility at the same rate electricity is purchased from the grid1.

Net metering has allowed homeowners to supply most, if not all, their electricity needs from their roof-top installation, and sell the excess to the utility. It’s a profitable venture for the homeowner, especially when he also receives subsidies for installing the solar system in the first place2.

Wind power installations can receive the same benefits, such as a farmer who installs wind turbines on the farm.

These individual solar or wind power systems are referred to as distributed generation3.

Both solar and wind power companies, together with their associations, now say that the cost of solar and wind have reached grid parity. In the case of solar, it means the cost is below $1 per watt. In the case of wind, it means the Levelized Cost of Electricity (LCOE) per kWh is competitive at around 11 cents per kWh.

If solar and wind are now competitive without subsidies or support, why should they be afforded the benefit of net metering?

Net metering picks the pockets of neighbors who don’t have PV solar panels or a windmill on their property.

First, the utility is forced to buy expensive electricity, say at 11 cents /kWh that it could generate for around 6 cents per kWh. The extra cost has to be paid by someone, most likely the neighbors as rates go up. The increased cost could possibly be paid for by share owners with fewer dividends, such as retirees and pension funds, when the utility earns less.

Second, the homeowner generating electricity for personal use, while selling the excess to the utility, isn’t paying for the use of the distribution and transmission lines, including their maintenance. Building and maintaining those lines, including upgrades for the smart grid, are being paid for by the homeowner that doesn’t have a PV roof-top or wind turbine installation.

From top left clockwise, transmission lines, sub-station, overhead distribution transformers and distribution lines, underground pad mounted transformers for underground distribution. Photos by D. Dears
From top left clockwise, transmission lines, sub-station, overhead distribution transformers and distribution lines, underground pad mounted transformers for underground distribution. Photos by D. Dears

As the picture illustrates, net metering doesn’t pay for building or maintaining transmission lines, sub-stations, overhead distribution or underground distribution, and probably not for power plants … essentially all the infrastructure on the grid.

The owner of the PV roof-top system or wind turbine is getting off scot free, while the neighbors are picking up the tab for this infrastructure.

In addition to homeowners installing PV systems, 20 states allow third party ownership.

This has accelerated the increase in PV systems and, to a lesser extent, wind power.

Third parties can offer homeowners and commercial establishments a great financial deal, where the homeowner or commercial establishment doesn’t have to spend the upfront cost for the system.

The third party will pay for installing the system; allow the homeowner or commercial establishment to use the electricity they need, while selling the excess to the utility, using net metering.

In four states, possibly others, the advent of third parties has resulted in most PV systems being installed by third parties … not individuals. In Massachusetts and California, over 60% of all PV systems in the first quarter of 2013 were installed by third parties. In Arizona, it’s nearly 90%. These followed steady increases during 2012.

No longer is net metering small potatoes.

Third parties lease the systems to homeowners and commercial businesses, while selling electricity to the utility at the going rate, around 17 cents per kWh in California, taking advantage of the federal and state credits, and using accelerated depreciation … while writing off expenses, as would any business, for tax purposes.

It would appear as though third party operators are doing very well at the expense of the utility and the average homeowner.

Renewable portfolio standards (RPS) are also driving this phenomenon. RPS is leading, year by year, to higher prices for electricity in the 30 states that have mandatory RPS. These policies encourage, actually force, the adoption of renewables such as solar and wind.

The reason given for RPS is that renewables will reduce CO2 emissions.

Net metering, distributed generation and RPS are causing serious harm to the utility industry, which is required, because of their franchise, to serve all the people in their territory. Utilities can’t pick and choose who they serve, so they are stuck with net metering and distributed generation.

The more people and commercial businesses who add PV solar or wind with or without third party owners, the greater the harm to the system … which at some point will become unworkable, either financially or physically.

Homeowners and farmers who install PV solar or wind turbines are only doing what’s best for their families. The problem lies with those who have pressured legislatures to allow net metering, etc.

Most people aren’t aware of this problem, but the Greens see it as one more way to reduce CO2 emissions.

The Green strategy is clear. Get enough people hooked on net metering, and it will be too difficult to end or change it.

  1. Feed-in tariffs, popular in Germany, and proposed by various jurisdictions in the United States, are net metering on steroids, where the owner gets paid a far larger amount for electricity sold to the grid, than the rate paid by consumers for purchasing electricity from the utility.
  2. The federal tax credit for PV solar is currently 30%, but will change to 10% in 2017, for third party systems, and be eliminated then for homeowners. Accelerated depreciation is also allowed for third party owners. Some states also offer credits: For example, Massachusetts offers $0.85 /watt for PV solar systems. Utilities may also be eligible for renewable energy certificates that they can sell.
  3. Distributed generation also includes micro-grids.

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0 thoughts on “Green Pick Pockets

  1. Donn, you have hit the nail on the head. Net metering is seriously evil.

    Someone using net metering usually exports electricity to the grid when it has virtually no value and imports electricity over peak demand periods when it is expensive. This increases the demand on power stations, transmission lines and the distribution system for which he pays not a penny. In addition, when they are exporting they can have serious effects on the voltages of the distribution system that can be very expensive to correct. For all this, the ordinary consumer pays through the nose.

  2. Bryan.
    Thanks for your comments. Net metering has concerned me for some time, and it needs to be exposed for what it is. I like your view that it’s seriously evil.

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  7. Donn, as a 10KW PV system owner copping 8 cents/KWH reverse-meter rate, I agree with much of your analysis. From the get-go, I was not interested in collecting a net-meter rate beyond my electricity’s fair market value, and I thought it fair for that rate to be reduced by a capital contribution fee to avoid the “free-rider” problem that you cite.

    But you must concede that it’s a two-way street. If enough solar array owners coalesce to spare the utility system the cost of another power plant, then shouldn’t those owners get something for that? And if they also engender a net reduction in air and other pollution, well isn’t that benefit — which by definition spreads to all the fellow ratepayers whose pockets I’m picking — also worth something?

    “Cost” and “value” have become very political terms.

    I’ve collected this column and the “Exposed” column (also excellent) here:

    https://sites.google.com/site/gridtiedsolarpv/home/net-metering-defined

    • Thanks for your comment, interesting as usual.
      With regard to whether a group of solar panel users large enough to offset the need to build a new power plant. No, I don’t agree. First, net metering doesn’t determine whether a new power plant will or will not be built … its extraneous to the issue of net metering. A straw soldier one might say.
      Second, , this group can only delay the building of a new power plant, assuming there is economic growth The argument in favor says that solar meets peak demand, which is true because solar produces electricity in the afternoon during periods of peak demand. With economic growth the peak will shift to a higher level, which will require building a new power plant. The only savings are whatever the time value of money (required for the investment) might be.
      Third, the grid operator must be able to count on power generation sources, and solar can’t be counted on with absolute certainty. It’s not dispatchable.
      Finally, I’m not sure solar and wind are completely benign. Wind, for example, kills birds and bats. Solar is probably more benign than other sources of electricity.
      Again, this has no bearing on net metering. My proposition is that net metering is bad … it doesn’t pay its way, as described in my article.
      The issue isn’t whether solar and wind are good or bad. The issue is whether net metering is good or bad, and whether tax payers and other people using the grid are subsidizing solar and wind.
      In any fair economic analysis, solar and wind are more expensive than coal or natural gas.
      Net metering merely facilitates using electricity generated more expensively.
      Finally, the assumption is that coal and natural gas emit bad pollution.
      Modern plants can meet all clean air requirements except the EPA’s requirement for CO2. CO2 is not a pollutant, which leads to another discussion.

      • Hmmm, I guess my problem is that some of your premises can’t readily be proved or disproved. For example, you believe that all variable (solar) power is “not dispatchable” and thus not of adequate economic value, while my grid-operator friend tells me no problem, his region can handle plenty of that and comfortably pay in the 6-9 cent range (again, I’m being paid 8 cents/KWH and I get nicked for a “facilities fee”).

        From there you pooh-pooh net metering as a “bad” device through which solar-power sellers extract from fellow ratepayers more than their power’s worth on the free market. Your words: “Net metering merely facilitates using electricity generated more expensively.”

        You know, Donn, I don’t know the answer to that. That’s because it’s hard to get good, clear market value data. Why? Because the power market is distorted by monopoly power AND greenie-goaded legislation that forces, for example, my utility to buy my power whether it wants it or not (still, it can set its own reverse-meter rate based on “avoided cost” and IT came up with the $8 cents, not I). And, as you say, there are other market-distorting items out there like RPS’ and RECs.’

        If we had a truly free market we’d see if my solar-produced electricity is worth anything, let alone what I’m now being paid. I just don’t know.

        Next, it’s too simplistic to say hey, brown power plants meet all clean air requirements. Meeting all current requirements does not mean ZERO pollution. It only means one has met a line drawn by politicians and their bureaucrats.

        And my 54 panels spew NO pollution (sure, there is that embedded pollution cost). Nor, in contract to wind turbines and concentrated solar thermal, do they harm any wildlife at all (still, the American house cat kills one billion birds a year, so in the scheme of things….).

        Net metering is “bad” if the net meter rate is above fair market value AND the power solar arrays produce is truly unwanted, as opposed to merely spurned in preference for vested-brown-power interest. Otherwise, Net Metering is simply a useful device to measure my excess power and pay me for it.

        But what is FMV of my power, and is it truly wanted? Ah, there’s the rub.

  8. James:
    Your friend may have confused dispatchable with integrateable. Solar, of any type, and wind are not always available and cannot be relied on, and are therefore not dispatchable. Solar and wind can be integrated into the grid, but this requires additional procedures and the ability to bring back-up power on line quickly. A great deal of money is being spent on such things as quick acting gas turbines and storage to accommodate wind and solar.
    These costs are not included when people discuss the cost of wind and solar.
    Your payment of 8 cents is closer to reality than when net metering payments are established as being the same as the retail rate.
    The easiest way to establish the validity of wind and solar is to look at Germany, where they have integrated 21% of these renewables into their grid, at huge cost. Electricity there costs around 3 – 4 times as much as it does here.
    Germany is a good test case, and they are struggling to get above 21%.
    In so far as vested interests are concerned, we all have a vested interest in keeping the grid working efficiently, at the lowest possible cost. Utilities are rightfully concerned that people using PV solar are freeloading off their neighbors. The extreme case defines the problem: Who pays for the transmission and distribution lines (transformers, regulators, cut outs, reclosers etc.) if everyone has PV solar?
    The grid is still needed because solar can’t generate electricity all the time, and wind needs the grid to deliver electricity.
    I’m sorry, but in my view, net metering, where payments are above the wholesale cost, is a cancer undermining the reliable and efficient operation of the grid.

  9. Donn:

    We agree that above-wholesale cost net metering is a net harm, and again, I’ve agreed with you on the free-rider problem — which my own utility addresses by charging me what amounts to a grid-maintenance fee.

    The debate is in settling on the fairest amount of what’s paid and what’s charged here. Clear information’s needed on that score. I think we both agree that a truly free market is best equipped to define a product’s worth. In my case it’s variable power, some delivered at peak electricity periods.

    What’s that worth? Is all variable power worthless? Well if it is, then entire nations are on a fool’s errand with renewable power.

    The empirical data shows variable has enough worth to keep producing it; the bone of contention is how, and how much. That’s driven by the need to determine the net cost/benefit of wind/solar. That, in turn, takes us to grid reconfiguration minus spared-fuel costs, since wind and solar are free fuel sources, and private investors like me will ultimately 100% absorb those free fuels’ harvesting costs (I favor deleting direct and indirect subsidies for green power, as well as for brown).

    In that regard, my state (Georgia) could have, but declined to, define “avoided cost” in its net metering statute. Instead, it left it up to every utility, and I didn’t pressure mine, to define it. In fact, I wrote it up front that it should pay me wholesale.

    I thus presume that I’m not a free-rider, or “freeloader” when I get my annual net-meter check.

    Germany’s a hard case to analyze because it shut down half its nuclear fleet post-Fukushima, and has encountered things like sea-based transmission lines to an ocean-bound wind fleet interrupted by the discovery of unexploded WWII ordnance on the ocean floor — oddball problems like that. I’ve collected research on Germany here:

    https://sites.google.com/site/freemarketsolarpower/home/germany-watch

    Reacting to Germany’s resulting uptick in coal consumption (hence, it’s regression), a friend reminds that Germany has reduced the amount of nuclear generation by 40 TWh between 2010 and 2011/2012. On top of this there was an increase in overall consumption by 10 TWh between 2010 and 2012. So… Rough Numbers… between 2010 and 2012 there are 50ish TWh of new non-nuclear supply. 14ish TWh are met by coal. 32 TWh are met by renewables and then there’s some bits and pieces that fill in the cracks.

    In short, too much is in flux to discern a rational answer to the question: Did Germany take a step forward or backward with its massive wind/solar investments? I agree that its current electricity prices would make Americans revolt. I’m wondering if Germany’s power rates might not drop as its overgenerous subsidies wane and grid-configuration issues are resolved.

    I’ve also read about massive American grid-integration costs with variable-power (wind and solar) integration (back-up, gas-hybrid rigs, for example), though I also read encouraging stuff such this, from NREL, regarding the Western grid:

    “In this study, we found that up to 33% of wind and solar energy penetration increases annual cycling costs by $35–$157 million in the West. From the perspective of the average fossil-fueled plant, 33% wind and solar penetration causes cycling costs to increase by $0.47–$1.28/MWh, compared to total fuel and variable operations and maintenance (VOM) costs of $27–$28/MWh. The impact of 33% wind and solar penetration on system operations is to increase cycling costs but also to displace annual fuel costs by approximately $7 billion. WWSIS-2 simulates production or operational costs, which do not include plant or transmission construction costs. From the perspective of wind and solar, these additional cycling costs are $0.14–0.67 per MWh of wind and solar generated compared to fuel cost reductions of $28–$29/MWh, based on the generator characteristics and modeling assumptions described in this report.”

    Source: http://www.nrel.gov/docs/fy13osti/55588.pdf

    That looks like positive economic news to me. You?

    As for ecological impacts:

    “This study finds that up to 33% wind and solar energy penetration in the United States’ portion of the Western grid (which is equivalent to 24%–26% throughout the western grid) avoids 29%–34% carbon dioxide (CO2) emissions, 16%–22% nitrogen oxides (NOx) emissions, and 14%–24% sulfur dioxide (SO2) emissions throughout the western grid. Cycling had very little (<5%) impact on the CO2, NOX, and SO2 emissions reductions from wind and solar. For the average fossil-fueled plant, we found that wind- and solar-induced cycling can have a positive or negative impact on CO2, NOx, and SO2 emissions rates, depending on the mix and penetrations of wind and solar.”

    Source: http://www.nrel.gov/docs/fy13osti/55588.pdf

    More on that NREL report here:

    http://arstechnica.com/science/2013/09/cost-of-the-variability-of-renewable-energy-is-dwarfed-by-the-savings/

    Donn, this stuff is so complicated it makes my head spin. Just look at the debate raging within the GOP: http://www.newrepublic.com/article/115582/solar-power-fight-raging-gop

    And we can't just snap our fingers and get a truly free market in play to naturally sift and sort the energy winners and losers here. As I said, too much of the nation's grid is monopoly-controlled and tied down with long-term brown power contracts — hence, too many vested interests in preserving the (brown, polluting) status quo, which is prone to spewing misleading data on green power's true worth (sure, greenies propagandize too; it's very frustrating).

    What is certain is the human dynamic — I don't want to pick my fellow ratepayers' pockets (though I've already picked my fellow taxpayer pockets by copping big tax credits) because no one likes freeloaders. And because solar and wind are propelled by zero-cost fuel sources, at some point they ought to be able to compete without subsidy against brown power, which should also be unsubsidized. And yes, when resolving the net cost of each option, we should also fairly attribute to green power the integration costs that accompany them. But by the same token, we must offset integration cost with spared pollution and fuel costs (neither solar nor wind pollute, and their energy is free).

    Solar PV is my renewable energy preference because it emits no pollution, can easily be invested in by the little guy, and kills no wildlife. But it needs to work at all levels, and I'm grateful for columns like yours that raise necessary questions.

    — James

    • Thanks for great comments and the link on Germany.
      It’s always been my view that the free market should make the choice, without subsidies. I’d be happy to have subsidies removed from fossil fuels, however they will also be debated.
      The IEA called the Low-Income Energy Assistance Program (LIHEAP), money spent on the Strategic Petroleum Reserve, and exemptions for farm fuel subsidies. (See my article on Fossil Fuel Subsidies.)
      I am convinced that renewables, such as wind and solar, but not geothermal or hydro, are mostly a fool’s errand and are being pushed, primarily because they don’t emit CO2. There may be exceptions.
      With respect to value, which is itself hard to define, solar (concentrating solar) may be able to compete with gas turbine peaking plants, but I doubt it. PV can’t compete with gas turbine peaking plants. Also, all solar is unreliable so may not be available for peaking.
      Most (if not all) of Germany’s solar is PV, which has been installed because of the feed in tariffs. Without them, there wouldn’t be very much PV solar.
      I’ll have to read the complete NREL report, before I can comment on it. Everything I have ever seen, says that backing up solar and wind is very expensive. And the integration costs, such as storage, are also very expensive. Several of my articles have compared these costs, so I have confidence that the fuel savings won’t offset these added costs.
      I’ll also comment on pollution later, recognizing that CO2 is not a pollutant but helpful for crops etc.

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