Brookings Study: Net Metering Offers Cost Benefits to All Utility Customers

Net metering frequently benefits all ratepayers when all costs and benefits are accounted for, which is a finding state public utility commissions, or PUCs, need to take seriously as the fight over net metering rages in states such as Arizona, California, and Nevada, according to the results of a new study released by the Brookings Institution, a think tank based in the District of Columbia.

Two fellows in the institution’s Metropolitan Policy Program, Mark Muro and Devashree Saha, authored the paper, released on May 23.

“Regulators everywhere need to put in place processes that fairly consider the full range of benefits (as well as costs) of net metering as well as other policies as they set and update the policies, regulations, and tariffs that will play a critical role in determining the extent to which the distributed solar industry continues to grow,” the researchers said.

Fortunately, such cost-benefit analyses have become an important feature of state rate-setting processes, Muro and Saha note – and increasingly it concludes that the economic benefits of net metering actually outweigh the costs and impose no significant cost increase for non-solar customers.  Far from a net cost, net metering is in most cases a net benefit, they say— for the utility and for non-solar rate-payers.

Of course, there are legitimate cost-recovery issues associated with net metering, and they vary from market to market. “Moreover,” they state, “getting to a good rate design, which is essential for both utility revenues and the growth of distributed generation, is undeniably complicated.  If rates go too far in the direction of ‘volumetric energy charges’ – charging customers based on energy use – utilities could have trouble recovering costs when distributed energy sources reach higher levels of penetration. On the other hand, if rates lean more towards fixed charges—not dependent on usage—it may reduce incentives for customers to consider solar and other distributed generation technologies”

Nevertheless, by the end of 2015, regulators in at least ten states had conducted studies to develop methodologies to value distributed generation and net metering, while other states conducted less formal inquiries, ranging from direct rate design or net-metering policy changes to general education of decision-makers and the public. And there is a degree of consensus that net metering benefits all utility customers:

• In 2013, Vermont’s Public Service Department conducted a study that concluded that “net-metered systems do not impose a significant net cost to ratepayers who are not net-metering participants.” The legislatively mandated analysis deemed the policy a successful component of the state’s overall energy strategy that is cost effectively advancing Vermont’s renewable energy goals.
• In 2014, a study commissioned by the Nevada Public Utility Commission concluded that net metering provided $36 million in benefits to all NV Energy customers, confirming that solar energy can provide cost savings for both solar and non-solar customers alike. What’s more, solar installations will make fewer costly grid upgrades necessary, leading to additional savings. The study estimated a net benefit of $166 million over the lifetime of solar systems installed through 2016. Furthermore, due to changes to utility incentives and net-metering policies in Nevada starting in 2014, solar customers would not be significantly shifting costs to other ratepayers.
• A 2014 study commissioned by the Mississippi Public Services Commission concluded that the benefits of implementing net metering for solar PV in Mississippi outweigh the costs in all but one scenario. The study found that distributed solar can help avoid significant infrastructure investments, take pressure off the state's oil and gas generation at peak demand times, and lower rates. (However, the study also warned that increased penetrations of distributed solar could lead to lower revenues for utilities and suggested that the state investigate Value of Solar Tariffs, or VOST, and other alternative valuations to calculate the true cost of solar.)
• In 2014. Minnesota’s Public Utility Commission approved a first-ever statewide “value of solar” methodology which affirmed that distributed solar generation is worth more than its retail price and concluded that net metering undervalues rooftop solar.
• Another study commissioned by the Maine Public Utility Commission in 2015 put a value of 33 cents per kWh on energy generated by distributed solar, compared to the average retail price of 13 cents per kWh — the rate at which electricity is sold to residential customers as well as the rate at which distributed solar is compensated. The study concludes that solar power provides a substantial public benefit because it reduces electricity prices due to the displacement of more expensive power sources, reduces air and climate pollution, reduces costs for the electric grid system, reduces the need to build more power plants to meet peak demand, stabilizes prices, and promotes energy security. These avoided costs represent a net benefit for non-solar ratepayers.

What’s more, the authors cite, in a forward-looking analysis of the financial impacts of net-metered energy on utilities and ratepayers, Lawrence Berkeley National Lab found that while high use of net-metered solar generation may decrease utility shareholders earnings, it will have a "relatively modest" impact on ratepayers. The report examined solar penetration levels that are "substantially higher than exist today" — 10 percent compared to today's 0.2 percent — and concluded that “even at penetration levels significantly higher than today, the impacts of customer-sited PV on average retail rates may be relatively modest."

The authors conclude, “Progressive regulators should explore and implement reforms that arrive at more beneficial and equitable rate designs that do not prevent solar expansion in their states.”