“Unintended Consequences” of Net Energy Metering Subsidies

September 03, 2014 by Jeff Shepard

The Edison Foundation Institute for Electric Innovation (IEI) has released a new issue brief, Net Energy Metering: Subsidy Issues and Regulatory Solutions, that examines the subsidy created by California's net energy metering (NEM) policy, the NEM subsidy's lack of transparency, and how the subsidy shifts to solar leasing companies when distributed generation (DG) customers lease rooftop solar systems. The brief finds that California's NEM policy allows DG customers to avoid paying some or all of the fixed costs of the electric power grid even though DG customers continue to use grid services around the clock. The result is a cost shift from DG customers to non-DG customers.

In addition, the brief highlights several areas of concern with California’s current NEM policy, including: The NEM subsidy for residential rooftop solar is overly generous and not transparent. The subsidy is substantially larger than the 30-percent federal tax credit and far exceeds what is necessary to incent rooftop solar. Most of the NEM subsidy goes to affluent households, and the subsidy is largely paid for by less affluent households through their electric bills. When a residential customer leases a rooftop solar system, most of the NEM subsidy is paid directly to the solar leasing company. (Leasing accounted for about 75-percent of all new residential rooftop solar systems in 2013 in California.)

Edison Foundation Vice President and IEI Executive Director Lisa Wood said, “While our research is specific to California, the lessons learned can be applied to states across the country with similar NEM policies. California’s large subsidy lacks transparency and is often higher than the cost of a rooftop solar system. Policymakers need to take a serious look at NEM subsidies and implement regulatory approaches to put an end to the harmful cost shift from DG customers to non-DG customers. The time to change net metering is now, and regulatory approaches are available to do so.”

According to the brief, regulatory approaches available today include requiring DG customers to pay for more of the grid services they utilize via a monthly fixed customer charge, including a demand charge to recover costs that DG customers impose on the utility, or a buy-sell approach where the customer purchases all power consumed on-site from the utility at the retail rate and sells all power generated by the rooftop solar photovoltaic facility to the utility at the utility’s avoided cost.