Is net metering unfair to non-solar homeowners?

Net metering is an important policy that gives solar homeowners full credit for any solar electricity they send into the grid. But many utilities want to end the policy, claiming that it’s an unfair subsidy that raises the cost of electricity for non-solar homes.

More than that, electric utilities claim that solar net metering is a subsidy for relatively rich homeowners who can afford to go solar at the expense of lower income people who can’t afford to put solar panels on their house, or don’t have that option because they’re renters.

But on the other side, solar advocates maintain that net metering customers do, in fact, pay their fair share and actually provide benefits to the grid as a whole.

Two sides, opposite stances. Who should you believe?

Fortunately, I think there’s an objective way to figure this out. But first, a little background on how the electric grid operates.

A crash course on the electric grid

The utility company that sends you an electric bill every month may be responsible for different services, depending on how electric utilities are regulated in the state you live. It may be responsible for both generating and distributing electricity, or it may only be a distributor.

Either way, the important thing to know is that the utility companies that consumers interact with are only one type of entity within the broader electric grid in North America.

The electric grid is a wholesale marketplace that operates in real time across North America. Different companies generate and distribute electricity, and buy and sell this commodity on a minute-by-minute basis as demand rises and falls throughout the day.

Is it a really hot day? High air conditioning use means that the price of electricity on the wholesale marketplace will be driven higher as grid operators call on power plants to make more electricity.

If the power plants in your region don’t have enough capacity to meet the demand, additional electricity could be purchased from power plants in neighboring states, or even from Canada.

Regulations and the grid

Like any marketplace, this buying and selling of electricity on the North American grid requires rules to operate smoothly. In the United States, the Federal Energy Regulatory Commission is the agency that sets up the rules for how electricity is generated, transmitted, and distributed in the country.

Within the US, several smaller entities called system operators are responsible for ensuring the smooth operation of the electricity marketplace within their region. The system operators don’t own the power lines themselves, but do oversee their maintenance and upgrades.

You can actually see the marketplaces operate in real time by visiting the system operator website for your region.

For example, PJM Interconnection is responsible for much of the Northeastern US. You can see its dashboard here: PJM markets and operations

ISO NE covers New England: ISO NE real-time charts

California is a large enough market that it has its own ISO: CAISO - Today’s Outlook

There are others too, although not every state or province organizes their wholesale markets in this way. You can look up a map of regional transmission organizations and independent system operators on Wikipedia.

These dashboards show the real time pricing of electricity within their regions, where it’s coming from, what the current demand is, and what type of power plants (nuclear, fossil fuel, or renewable) are supplying power at any given time.

All of this is tracked and reported in 5 minute intervals, which is pretty remarkable.

What do system operators have to say about net metering?

Their role in the operation of the electric grid means that system operators are required to be fair and neutral. Here’s how California ISO describes its mission:

The electricity industry includes utilities, private power plant owners and state and federal agencies, each playing a distinct role. The ISO is charged with ensuring the safe and reliable transportation of electricity on the power grid. As the impartial grid operator, it has no financial interest in any individual segment ensuring fair and transparent access to the transmission network and market transactions.

Because of their neutral role in the electricity marketplace, the system operators are a good source for an objective opinion on whether net metering is fair to all consumers. I did a review of several of their quarterly and monthly reports, and found a common theme.

NY-ISO

In their 2019 Power Trends publication, New York’s ISO had this to say about the impact of distributed energy resources (DERs) like rooftop solar:

Energy efficiency programs, distributed solar, and other behind-the-meter DERs — such as small generators — are reducing peak demand and moderating the growth of energy supplied by the bulk power system by displacing energy production from existing large-scale generation resources.

Similarly, the NYISO projects that the addition of behind-the-meter solar resources will reduce peak demand on the bulk power system. Those new resources will also contribute to the lowering of annual energy usage served by the bulk power system. The NYISO anticipates that the contribution of solar toward system peak will be less than the total capability of the resource, due to the reduction in available sunlight late in the afternoon when system peak typically occurs.

In other words, rooftop solar kicks in when its needed most: during hot, sunny days when air conditioning demand is at its highest, helping to reduce the impact of peak electricity demand.

Electric Reliability Council of Texas

ERCOT, the Electric Reliability Council of Texas, in a workshop presentation in October 2019 had this brief summary on the impact of Intermittent Renewable Resources (aka. rooftop solar):

Peak demand day saw higher Intermittent Renewable Resource (IRR) production. As a result, it was not one of the highest-priced days, and there was no EEA.

This requires a bit of explanation. An EEA is an Energy Emergency Alert, and it is called by ERCOT when the Texas power grid is under extremely high demand and all power plants are at capacity. If the grid operators are unable to lower electricity use through demand management or find additional sources of electricity, the result can be brownouts or blackouts.

What ERCOT simply states in its presentation is that times of peak demand are also when IRRs (rooftop solar) make a big contribution by supplying electricity to the grid when its most needed. On the day described in the presentation, rooftop solar helped to avoid an emergency situation on the grid.

ISO New England

In their Summer 2019 Quarterly Markets Report, ISO New England had this to say about behind-the-meter (BTM) solar generation, which is another term for rooftop solar:

Figure 2-7 illustrates that BTM solar generation can serve a significant portion of load during the day, and is significantly higher than the solar generation participating in the wholesale market. On July 30 and 31, BTM solar output was estimated to be 19,610 MWh (averaging over 400 MW per hour) compared to just 12,559 MWh for wholesale solar (averaging over 260 MW per hour). In addition, BTM solar can reduce system load, and shift the daily peak hour. If there was no BTM generation (dashed line) on July 30, loads would have reached an estimated 25,347 MW in HE 15.

In other words, BTM generation - called this because the power generation is controlled by the customer on their side of the meter - actually contributed more to the power grid than utility-scale solar on the wholesale market. As you can see in the figure above, BTM solar helped reduce the severity of peak demand.

The system operators agree: rooftop solar lowers costs for everybody

The common theme here is that rooftop solar - known alternatively as intermittent renewable resources, behind-the-meter generation, or distributed energy resources - contributes to the grid by supplying electricity when its most needed.

If you take a look at one of the real time dashboards above, you’ll see a report on the actual price of wholesale electricity, known as the marginal price. During normal times, the marginal price of electricity on your local grid might be around $20 per megawatt hour. But when all the power plants in a region are operating near their maximum capacity and neighboring markets don’t any excess electricity to sell, that price can skyrocket as grid operators desparately try to find extra power to keep things running.

Visit one of these dashboards during these times, and you might see that $20 marginal price of electricity jump to $2,000 per megawatt hour, or even higher.

What CAISO, ISO New England, and NYSIO all agree is that rooftop solar comes to the rescue during these peak times. That bright summer sun that causes air conditioning usage to rise is also the time when solar panels perform their best.

By supplying lots of solar electricity and shaving off the peak demand, rooftop solar helps reduce those massive spikes in marginal electricity prices. Those costs get passed onto utility customers in the form of higher prices, so by lessening the severity and duration of price spikes, solar homeowners help to lower the cost of electricity for everybody.

But utilities say that rooftop solar is a ripoff

Even after taking into consideration subsidies, the cost of a home solar system is still largely borne by the homeowner. This means that the purchase of solar panels by individual homeowners represents an investment that contributes to the infrastructure of the overall electric grid.

But many utility companies claim the exact opposite. They say that solar homeowners with net metering use the grid by selling electricity during the day and taking electricity at night, but don’t pay for its maintenance because the net amount of electricity they purchase from the utility company is little or even zero.

Why would utility companies disagree with the system operators? The reason, frankly, is profits. Utility companies sell a product - electricity. They want customers purchasing more electricity, not less. Net metering and the growth of rooftop solar represents a growing threat to the profits of many utility companies.

This is the reason that net metering is under attack in many states, as witnessed in recent battles in Louisiana, Wyoming, and Idaho.

Challenges of distributed solar

While the benefits of rooftop solar are high, this doesn’t mean that there aren’t challenges to integrating renewable resources, like wind and solar, into the grid.

In the same Quarterly Markets report from ISO New England, the following point is made:

While BTM solar can help reduce wholesale load, operational load forecasting becomes more challenging due to the difficulty of predicting the next day’s cloud cover at a granular level. On average in the summer, BTM solar reduces the slope of the load curve, but quick changes in cloud cover will increase or decrease BTM solar generation causing changes in wholesale load. Variable loads must be met by responsive generators, such as a fast-start natural gas-fired generator. To mitigate the operational issues of BTM solar generation, the ISO has invested in better solar forecasting data to provide more accurate system load forecasts.

That type of intermittency is one of the main criticisms against solar. To understand this better, The National Renewable Energy Laboratory did a study of the electric grid in the Eastern United States. The conclusions of that study showed our current electric grid can handle upwards of 30% wind and solar power.

The 30% scenario in the study accomplishes this with operational changes in how the grid is run from day-to-day, but also with the addition of 6 high voltage DV transmission lines to accommodate moving electricity from the new supplies of wind and solar energy.

It should be noted that this is one area where distributed solar is superior to large central solar plants, even though the per-watt cost of home solar is higher. Because electricity generated by rooftop is used locally, there’s no additional transmission lines required.

You can read the study here: https://www.nrel.gov/grid/ergis.html

Bottom line: net metering benefits everybody

Despite what the lobbists from profit-driven utility companies might say, the objective opinion of independent system operators in the US is pretty clear: distributed energy resources like rooftop solar lower the cost of electricity for everybody by shaving off demand during peak times when wholesale electricity is extremely expensive.

This doesn’t mean that the capacity for adding wind and solar to the grid is limitless or inconsequential. While the current grid is capable of handling at least 30% intermittent renewables, going much higher will require upgrades to make the grid smarter.

Those upgrades, while initially expensive, can save consumers money in the long run. For example, consider the world’s largest battery, built by Tesla to balance power supplies in South Australia.

It’s a 100 megawatt-hour battery built in 2017 to help stabilize the grid and make better use of wind power. This battery was immediately successful, saving consumers around $50 million per year compared to the cost of operating a comparable natural gas fired generating plant.

Because of this success, Australia has already ordered an upgrade to increase the capacity of the battery by 50%.

Here in the US, we’re starting to see the deployment of grid-scale battery storage too.

Bottom line: if you’re currently a solar homeowner or you’re thinking of becoming one, you should feel confident that your grid-tied solar panels are contributing to a cleaner environment and lowering the cost of electricity for everyone.