Live from the Solar Leadership Summit: Net Energy Metering–Friend or Foe?

RMI’s Jesse Morris and Ned Harvey are both at the Summit, and covering it on Twitter! Follow them @ja_morris and @nedleeharvey for updates on #SolarTech.

How can millions of Americans go solar?

Key players in the solar industry addressed that critical question Wednesday at the 2012 SolarTech Solar Leadership Summit in San Jose, California.

While solar photovoltaic installations have experienced explosive growth, the best and brightest are tackling how to reach the tipping point where solar becomes a prominent source of clean electricity for millions of consumers throughout the U.S.

Rocky Mountain Institute is working with utilities and solar partners alike to explore the regulatory structures and business models to accelerate the transition to a more renewable, efficient, distributed, customer-centric electricity system.

Yesterday, RMI and Pacific Gas and Electric Company (PG&E) released a report highlighting the critical issues that utilities face moving toward a more renewable and distributed future. At the same time, RMI is working with the solar industry to reduce the “soft costs” of solar that threaten further cost reductions.

The technology is there, and in most places around the country, so is public will. So, what’s holding solar back? A range of misalignments in business models and incentives create conflict. Here’s one example: Net energy metering.

What is net energy metering?

To encourage the installation of distributed generation, net energy metering (NEM) programs credit customers for the electricity they export, typically at retail rates. The simplicity of full retail NEM, or “running the meter backward,” (which RMI co-founder Amory Lovins refers to as one of the many benefits of his super-efficient home has led to the adoption of NEM in 43 states and the District of Columbia. It significantly increases the value of self-generation to the customer.

In California, recent legislation expanded retail net metering to all renewables up to 1 MW sized to a customer’s annual demand. California regulators have capped the total generation capacity participating in NEM programs at 5 percent of peak load. If installed PV capacity in California continues on its current growth trajectory of 46 percent a year, this cap will be reached around 2014.

According to the California Public Utilities Commission, 99 percent of all NEM applications have come from solar projects.

What are the issues?

Back-to-back events in California targeting different players in the electricity value chain—the solar conference Wednesday and a presentation Tuesday in Berkeley on zero net energy buildings—made clear that NEM is a highly charged topic, and the issues fell into three categories:

• Policy: While NEM has been a strong force behind the growth of solar energy, is it the best and most sustainable policy to advance us toward a distributed, renewable, equitable, and secure electricity system?
• Economics: In California, consumers are currently compensated at full retail rates. The question is, should they be? If this is a fair rate, what are the benefits and what are the true costs?
• Technology: A higher level of accuracy in assigning a value to distributed generation depends on a higher level of two-way communication and control. Therefore, a discussion about accurately valuing distributed renewables often becomes a discussion about the smart grid.

On opposite sides of the aisle stand the solar industry and the progressive electric utility, two parties that have very similar visions of our electricity future—clean, renewable, secure, and cost-effective. However, their different motivations and business models within that system, which are dictated by a variety of regulations, policies, and mandates, put them at odds when it comes to NEM.

The solar industry asserts that NEM is needed to make solar attractive, grow the industry, and create jobs. When customers are considering whether installing rooftop solar makes sense for them financially, they need a consistent economic incentive.

“We’re tying to change the rules midstream with customers that have made decisions based on a certain set of economic circumstances,” said Sara Birmingham, director of western policy at the Solar Energy Industries Association. “Discussions about net metering must include the benefits as well as the costs. It can’t be a one-sided story.”

Yet for the decoupled electric utility NEM is not a sustainable model because it means that utility customers producing solar on their rooftops lead to higher rates to customers who don’t.

But in spite of these challenges, solar industry growth is critical for utilities like PG&E. PG&E offers energy services to 15 million people and is subject to the most aggressive renewable portfolio standard in the U.S. While solar made up less than 1 percent of the energy mix in 2011, PG&E anticipates that 50 percent of its renewable portfolio will be based on solar technologies by 2020. Because growth is critical to achieve renewable portfolio requirements, PG&E, too, has a big stake in the game—in addition to managing other priorities, which include providing reliable electricity at fair prices to all customers.

“Current rate structures mean costs for renewable distributed generation are not recovered by the utility,” said Steve Malnight, vice president of customer energy solutions for PG&E. “Full retail rate net-metering, and what this means, is a critical issue for all parties to tackle.”.

RMI is beginning the conversation for the continued development of future business models. Later this year, the Institute will convene an electricity innovation lab to get thought leaders around the country to engage in exactly these issues.