The Electric Markets Research Foundation has released a white paper that said preliminary research revealed the value of solar diminishes as more rooftop solar is added to the grid and the costs of net metering to customers without rooftop solar become so significant over time that it is not a sustainable policy. “A uniform net metering tariff is generally unlikely to be appropriate at high PV (rooftop solar photovoltaic) penetrations due to its diminishing value to the electricity system,” the white paper concluded.
The white paper, released at the annual meeting of the National Association of Regulatory Commissioners, also demonstrated that as market penetration of rooftop solar increases, the cross-subsidies from net metering that result in higher costs to customers not installing rooftop solar can become quite substantial and are probably not sustainable – particularly when there is already excess capacity in the system. For example, while a 10 percent market penetration results in only about a $5/MWh increase in the rates of non-participants, at 40 percent market penetration the costs climb to roughly $50/MWh. Based on typical rates in the area studied, this would amount to about a 50 percent rate increase for non-participants.
“Regardless, as the penetration of solar increases, its value decreases, implying that a uniform net metering tariff will eventually result in a cross-subsidy that is unlikely to be economically efficient,” the white paper emphasized. Net metering is a practice compensating rooftop solar generators at the full retail rate for the electricity they produce instead of at a lower rate that reflects the costs that a utility actually avoids by buying power from the rooftop solar facility. Thus, the fixed costs of a utility that would otherwise be recovered from rooftop solar owners must now be recovered from other non-solar owning customers.
Other studies have also concluded that net metering overvalues solar, allowing rooftop solar owners to escape payment for grid services they continue to use and thus shifting costs. As a result of net metering, rooftop solar owners and developers are subsidized by customers unable or unwilling to own rooftop solar – in many cases low income customers living in multi-family dwellings. Entitled “Preliminary Results: The Sustainability of Net Metering,” the white paper was prepared for EMRF by Jared Moore of Meridian Energy Policy with Jeremy Keen and Jay Apt, both at Carnegie Mellon University.
The white paper did find that rooftop solar can provide significant, site-specific benefits, including increased grid reliability, displaced marginal fuel costs and reduced peak demand in some limited cases. But while almost all solar displaces marginal fuel costs and can reduce peak demand by varying degrees, the ability to provide increased grid reliability or defer capital costs in the transmission and distribution systems is very dependent on where the facility is located. The research for EMRF is unique because its electric infrastructure model simulates distribution, transmission and generation costs. Data are derived from a model rooftop solar system in Oak Ridge, Tenn., and utilized the PJM Interconnection as the proxy utility system that would utilize the power produced by the rooftop solar facility. Further research will examine the data for other rooftop locations and utility systems around the country.
In this specific case examined in the preliminary paper, the white paper found unappreciable savings in the capital costs of utility wires, substations and distribution transformers as a result of rooftop solar. Much of this was because the distribution facility we studied was oversized to accommodate growth. This is often the case for many systems, and as a result, reduced loading does not defer the need to build new facilities in the foreseeable future. The white paper “definitely shows” diminishing returns for each of the benefits typically mentioned as supporting incentives for rooftop solar (such as net metering), including fuel cost savings from displaced grid electricity, the value of reliable capacity supplied, the value of energy losses reduced by distributed supply and the ability of solar to reduce equipment loading of the distributed grid. Overall, the study demonstrates that net metering, particularly as solar market penetration grows, is not an economically efficient or sustainable public policy.