By George Harvey
Net metering is a system that allows those who have their own power sources to put excess energy on the grid, retaining credit for it which can be drawn against at some other time. It has been under attack of late, by people and organizations who oppose it, some of whom believe net metering does not fit well with their business models.
One claim is that net metering shifts the cost of power from those rich enough to be able to afford solar photovoltaics (PVs) to those who are poor. Since solar PVs can usually be financed for costs below those of grid power where net metering is allowed, it is clearly not true that only wealthy people can afford PVs.
There are other objections, but to understand them we should review the wholesale electricity market. Utilities do not simply buy power at a fixed wholesale price and sell it to consumers at retail. There are long-term contracts at fixed price, but the utilities have to use what they contract for, so they buy the minimum amount they think they might need. They usually have to buy more on a short term or immediate basis, and this is costlier.
For example, if a utility foresees an increased demand for electricity because predicted hot weather will require air conditioning, it fleshes out its supply by buying short-term contracts. The price of short-term wholesale power can be several times that of a long term contract.
Sometimes, even a short-term contract is insufficient to cover a need, and the utility has to buy more electricity yet, if they can, on the spot market. Peaking plants supply this power at a high price, and since the utilities have no choice, they have to pay. The prices are sometimes astounding. Record prices are in excess of ten dollars per kilowatt hour (kWh) – as compared with typical prices to consumers in the range of cents per kilowatt-hour.
Utilities normally have to provide power to customers at fixed prices. This means that if the retail price is 15¢/kWh and the spot price is $1/kWh, they are losing a lot of money on the short term, which they have to make up at other times.
Traditionally, the highest price for power is in the daytime. This is because businesses and factories are open, schools are in session, and people are otherwise busy, so the demand is high. Interestingly, solar PV systems just happen to produce power during the daytime hours, when the demand is highest.
The implication is that solar power nearly always has higher value than power from a conventional base-load power plant, even without considering environmental issues. We have a good economic incentive to make sure that it solar power adequately compensated, because if the compensation is fair, it will lower the cost of electric power for everyone.
Even if the compensation for net-metered solar power is at the retail rate, it can reduce costs for everyone, because when the sun is shining, the wholesale market price for electricity can be very much above the retail rate. Furthermore, customers with net-metered PVs reduce the peak demand, which reduces the highest wholesale prices. Finally, those same customers buy most or all of the electricity they buy at the very times that demand, and wholesale prices, are lowest, producing the highest profits for the utilities.
In short, the idea that customers with net-metered PVs increase the costs of everyone else is simply wrong.
There are reasons for some utilities not to favor net metering that have nothing to do with immediate economics. One is a worry that net-metering will allow customers to become too independent. Another is that they have yet to face altering their business plans with the changing times.
In fairness, there are reasons a utility might want to limit the amount of electricity it can take from solar PVs. For example, in southern Italy, the installed PV capacity is so great that it pushes the daytime wholesale power costs nearly to zero. This means that if the utility is paying retail prices for net-metered power, they are paying for something they have to give away. Such problems can be solved, however, but uniform adoption of a smart grid.
Despite the clear benefits of net-metering, it is under wide attack. For example, in Massachusetts, people with net-metered systems are currently paid the retail price there for the power they produce. When they buy it back, they pay the same price that they get, which is close to 18¢/kWh. The electricity they produce is worth more than what they buy, however, at close to 22¢/kWh, according to the Solar Energy Business Association of New England. In addition, there is a societal benefit, which might be valued at 6.7¢/kWh.
Nevertheless, a current bill before the House would limit the price paid for net metering to the average wholesale rate, which includes long-term contracts, of 4.99¢/kWh. Such a rate for net-metering is so far from what is fair that it can only be considered punitive – punishment for providing clean power to a grid that desperately needs it.
The problems of net-metering for Massachusetts are worse than those in New Hampshire and Vermont, but neither of these states has clear guidance at present. In both states, net metering caps have been met much faster than was expected, and neither state has good plans to raise them. In Vermont, Green Mountain Power is requesting the Public Service Board to allow an increase, but only by another 7.5 megawatts, and amount that could be reached in a few weeks of installation.
Federal incentives run out in 2017. We urgently need to install whatever we can before them to limit climate change. Our legislatures should be made very much aware that anything less than powerful action increasing net-metering is not acceptable.