Net Metering: A consumer incentive that poses potential problems for utilities

Net Metering

Posted 6.9.2016 in Articles

For residential solar systems, the majority of power is produced when people are not home to use it. From approximately 11 am – to 3 pm daylight savings time, the photovoltaic (PV) panels mounted on homes are producing their highest output. Unfortunately, this middle-of-the-day time period is usually the time most people are out of the house and don't use a lot of energy. So when the system is producing the maximum output, customers aren't able to take advantage of the available production.

Net metering, a utility pricing program, was developed to help solve this problem and as a way to encourage alternative energy adoption by consumers. The programs were designed as a way for consumers to “time shift” solar energy production. This time shift allows consumers to shift the time they use the electricity produced by their solar systems. By doing this shift, consumers can use their solar power when needed, not just at the time it is produced.

How it works

These billing systems, if available, vary from state to state but most work in similar ways: customers with solar systems are allowed to sell any power their systems generate that they do not use to the utility at full retail rate.

For example, a customer would be paid $0.50 per kilowatt hour (kWh) of excess electricity their system produces. That is the retail cost, per kWh for electricity supplied by the local utility company. That amount is credited to the consumer's account. When the customer's solar power system isn't producing enough electricity to meet their demand and they need to buy power, they pay the rate at the time of use. The electricity they buy might only cost $0.15 per kilowatt hour because it is off peak. The customer earns $0.35 per kilowatt hour on each "shifted" kWh. If the customer uses timers on appliances and other home-automation systems, many of the things that require a lot of electricity – laundry, dishwashers, pool pumps, EV charging – can be time shifted to take further advantage of overnight pricing.

Homeowners usually use more electricity in the morning and evening than during the day when solar energy is most plentiful. 

A utility rate program called net metering solves this problem by allowing customers to sell excess generated electricity back to the utility and then lets customers buy electricity from the grid when they need it. Known as a “time shift,” the initiatives allow residents to effectively use the solar power that their PV system produced when it is needed, not when it is available. The policies were designed to be favorable for consumers to encourage alternative energy adoption. 

If the net metering policies change, customers who have invested in solar power systems could find their cost per kilowatt could go up dramatically if their rates are not grandfathered in. Battery storage systems allow customers to use their generated power at a time that is convenient for them. Referred to as a “time shift,” storage systems allow homeowners to use the solar power that was generated by their system instead of buying it from the grid during peak pricing.

Using the Grid As Your Storage System

If net metering is available to you, then a stationary battery storage system might not be needed. Because of net metering, the entire electric grid is your storage system.

Net metering is a billing mechanism that credits solar energy system owners for the electricity they add to the grid. Produce more electricity than is used and excess is sold to the utility. Need more electricity than you can produce; buy it from the utility company. With the use of net metering with a properly sized PV system, a homeowner's electricity bill could be net zero.

In areas that have net metering rates, electric companies are required to buy this power, even though it would usually cost less to produce the electricity themselves or to buy the power on the wholesale market from other electricity providers.

It's a great financial situation for consumer. They sell high and buy low, but that's bad for the utility making the purchase, especially as these systems scale through the service area. Utilities point out that it costs less to produce the electricity themselves, or to buy the power on the wholesale market from other electricity providers. Over time, net metering rates are being modified throughout the country to have less generous payouts to retail customers. 

Stationary Storage

Net metering billing options might not be offered in their area, but thanks to the grid-connected stationary storage options, taking advantage of peak solar production can happen any time during the day or night. That's where residential battery stationary storage systems might make economic sense. When installing a new system, planning the inclusion of batteries in your home or business, can give consumers the ability to access the electricity produced by their solar systems in late afternoon or evengings. Having a stationary battery system allows consumers the ability to time shift solar electricity use even if net metering isn't available. Stored energy can be accessed when wanted as a way to even out the highs and lows associated with peak pricing. It gives homeowners another way to control electricity costs.

Duck Curve

As the rate of solar adoption increases, the concern for utilities is not only about compensation, but also about the utilities ability to meet supply/demand for all consumers. CAISO is worried that the “neck” of the duck curve (showin in the image accompanying this artlcle) could overwhelm the state’s available generating capacity to ramp up quickly. The California Independent System Operators (CAISO) have developed a graph that illustrates the supply/demand problems faced by the utilities with the growing amount of residential and small business solar generation. This now famous graphic is called “The Duck Curve” because its shape is similar to the outline of a duck. The curve shows a scenario of a sunny day where distributed generation (DG) pulls down grid electricity demand to extremely low levels during midday. This time period is the “belly” of the duck. During this time, the state's electricity production capabilities are inefficiently low because solar generation is at its highest. 

Later in the day – between 4PM and 7PM - when solar generation is declining and residents come home from work and turn on their appliances, electricity demand ramps up dramatically producing the duck curve's “neck.” This requires flexible generation capacity by the utility company to come on-line systems any time they need it; not just when the sun is shining. For some, net metering allows them to use the electric grid to be their “storage” device.  

Utility concern

Net metering is a consumer incentive that some utilities argue is overcompensating the consumer. Since utilities are required to pay retail prices for something that they can pay wholesale for, it is not a sustainable model for utilities. Utility companies are pushing the states to update net metering policies. Besides the problems associated with the Duck Curve Graph, they argue customers who have net zero bills are not paying to maintain the power grid. Utilities are making the case to regulators that the policies should be updated so that everyone who uses the electric grid helps pay to maintain it and to keep it operating reliably at all times. 

Stationary storage batteries are currently fairly expensive but as the cost curve continues downward, they will likely take on a greater role in balancing the duck curve and providing more flexibility to solar users in states that do not have net metering policies.  

 

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