Southern California Edison (SCE) Manager of Customer Self Generation Gary Barsley said that at an important recent conference for the solar industry and the utilities interested in it, the number-one topic of conversation was net energy metering (NEM), the incentive some solar advocates call “the civil rights legislation for solar.”
Utility and solar professionals asked, Barsley said, whether there is a valid way to quantify net metering’s costs and benefits and whether they total up to a subsidy for solar system owners or a good thing for all ratepayers. “The general consensus was that there isn’t a clear answer yet,” Barsley said, “but people are really interested in finding out, because solar is going to continue to grow.”
There are 43 states with NEM programs. NEM benefits solar owners by allowing them to roll their meters backward for every kilowatt-hour they send to the grid, up to the point where their bills zero out. The return they get on the electricity they generate is the same retail rate they pay for what they consume.
The conference chatter reflects an industry-wide concern over the future of NEM as the California Public Utilities Commission (CPUC) readies a decision, expected May 24, on the question of how to define the NEM cap. Underlying the legalism involved in the CPUC decision, as Barsley noted, is a debate between solar advocates and SCE, Pacific Gas and Electric (PG&E), and San Diego Gas and Electric (SDG&E), California’s three investor-owned utilities (IOUs).
“There is a belief that the net metering tariff, the way it is applied today, gives an additional benefit or subsidy to solar customers and the price of that subsidy gets passed on to our other non-solar-owning ratepayers,” Barsley said. “As more customers get the net metering tariff, that’s more and more costs that shift to non-solar customers.”
“The utilities haven’t provided any data on the increased costs,” said the CPUC Acting Director of the Division of Ratepayer Advocates (DRA) Joe Como, whose job is to stand up for the ratepayers the utilities are supposed to be protecting. NEM “cuts into their business and they’re not the ones getting the money,” he added. “They’re never upset when they’re receiving the money.”
The CPUC decision will be on a legal question, but sooner or later the value of NEM will also have to be decided.
Utilities are essentially arguing that of the three charges in an electricity bill — one for power generation, another for transmission system expenses, and a third for distribution system expenses — solar system owners should only be remunerated for the first and should have to pay for the wires they use when the sun is not shining.
But the difference between the generation cost and the full retail cost of electricity is not necessarily a subsidy if the cost that is shifted to other ratepayers pays for benefits to them as well. Only a cost-benefit analysis would show that.
“Our own rates group is trying do an evaluation,” Barsley said.
Consulting firm Crossborder Energy principal Tom Beach has done one. It included a review of two previous cost-benefit analyses, one by Lawrence Berkeley National Laboratory (LBNL) and one by the E3 consulting firm.
Both the Beach and LBNL studies, based on PG&E data, showed that if the higher value of the power not consumed by NEM customers is considered, the benefits to the utility are greater and the costs to the other ratepayers are offset.
“The biggest component of the benefit is that when someone produces power at their home or business and exports it to the grid,” Beach said, “a power plant somewhere else on the system gets turned down because that power does not have to be produced.” That provides two cost savings, he explained — the natural gas that doesn’t get burned and, as demand grows, the power plant that doesn’t have to get built.
“The first kind of savings is called energy savings,” Beach said. “The second kind of savings is called capacity savings." Together, he added, “they’re 60 percent to 70 percent of the savings.”
There are transmission and distribution system savings as well, Beach said. “When you run the meter backwards,” he said, “you’re putting power out to the grid that, as a matter of physics, basically supplies your neighbors. It doesn’t go very far.”
That avoids a cost that provides another 10 percent to 20 percent of the benefits from NEM. “The utility does not have to generate power in a remotely located power plant and transmit that electricity over its wires,” Beach said. “A lot of power is lost in the wires and the transformers. It avoids those losses.” And, he added, “in the long run, it will mean we have to build less transmission.”
Beach’s calculations identified a benefit from NEM of two cents per kilowatt-hour for commercial and industrial systems, a cost of two cents per kilowatt-hour for residential systems, and, in sum, no cost extra cost of any significance to ratepayers.
NEM leverages private money for a public benefit, observed Como. “Most of the money being spent is going to be spent by the private sector. That creates jobs, stimulates business, promotes reductions of greenhouse gases, stabilizes energy costs, and diversifies the grid.” And, he added, “you have to be a little more visionary. Energy policy in California mandates that we are going to renewables.”
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