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Net Metering Uncertainty Threatens to Disrupt Explosive Growth of Solar Power

After experiencing explosive growth in Massachusetts and elsewhere and driving the creation of new jobs and infrastructure, unresolved restrictions on “net metering” threaten to slam the brakes on considerable gains made by the solar power industry.  Legislative options have foundered in Massachusetts, creating uncertainty for the nascent industry.

Solar power has experienced a tremendous growth spurt over the past several years, driven by decreasing costs, better financing options, and a variety of incentive programs.  Massachusetts has a goal of installing 1,600 megawatts of solar power by 2020.  More than 850 megawatts are already installed, which is similar in capacity to a typical coal-fired power plant.  According to the Massachusetts Clean Energy Center, the solar industry has already created about 12,000 jobs in Massachusetts.  The broader clean energy sector is valued at more than $11 billion annually and employs about 99,000 people in Massachusetts — more than life sciences.  The sector is growing at about 11–12% per year, attracting significant investment, and helping to drive the Massachusetts innovation economy.

Further growth in the solar industry is in jeopardy as Massachusetts and other states debate how they will handle “net metering” programs.  Like all distributed electrical generation, solar energy relies on net metering to facilitate a connection to the electrical grid.  In effect, buildings with solar systems use the electrical grid as a giant battery, adding power when the sun shines and taking power when it doesn’t.  Net metering programs basically allow the meter to spin in both directions, resulting in a system in which the solar power produced during sunny days can “net out” electricity used during dark or rainy periods.  Without net metering, solar — or any other distributed form of renewable energy — just isn’t economically viable. 

Net metering is not automatic: it is a regulatory program established to encourage solar and other distributed energy systems (such as small wind turbines) by giving them an efficient and fair mechanism for connecting to the grid.  Most states (about 40) have implemented some form of net metering.  In Massachusetts, net metering has existed since the 1980s, but was significantly modified by legislation in 2008 that expanded the type of eligible facilities and required utilities to credit power at the retail rate (as opposed to the much lower wholesale rate).  The program also is subject to caps: each utility in the state has a limit on how much solar capacity it can connect under the net metering program (these caps apply to commercial projects, but not to individual homes).

During 2015, utilities began to reach their net metering caps, significantly slowing solar installations in parts of Massachusetts, stalling several large projects, and putting the industry into a holding pattern.  National Grid and Unitil have hit their caps in several parts of the state, and Eversource has indicated that it will soon reach its cap as well.  In November, 2015, the Massachusetts House passed a compromise bill that would have raised the net metering caps by 2% (to about 1,400-1,500 megawatts in total), while lowering net metering payments to the wholesale rate and required a re-evaluation of solar incentives contained in the state’s renewable energy portfolio standard (RPS).  But the Senate didn’t pass the bill before going home for its winter recess, leaving the net metering program in limbo.  The Massachusetts House plans to pass the comprehensive energy bill in 2016, but may handle solar separately and has indicated that it may try to raise the net metering cap to about 2,400 megawatts.

One criticism of net metering programs is that they allow solar customers to use the electricity grid as a “free” battery, getting the benefits of reliable power without paying for the costs of maintaining the grid.  This argument has some merit.  On the flip side, the true value of solar power is often much higher than standard electricity prices because solar panels typically generate power when demand, and prices, are highest.  The late-afternoon period, when solar panels are generating the most power, is a time of heavy electricity use when utilities must often purchase “peak power” from power generators at rates much higher than ordinary “baseload” power.  Solar can help offset peak demand, lowering costs for both the utility and ratepayers.

Across the country, net metering programs are the subject of much debate.  Some utility companies oppose net metering on economic grounds: in effect, they are losing customers to solar, while gaining “competitors” in the form of many tiny power plants.  Faced with significant competition from Solar City and other installers, Warren Buffet’s NV Power led the push against Nevada’s net metering program, arguing that solar was over-compensated and damaging its business.  Despite overwhelming support among Nevada voters for the net metering program (about 75%, across all parties), Nevada rolled back its net metering program in a dramatic fashion.  The fallout was immediate.  Elon Musk’s SolarCity fired 550 workers, while two other large solar installers (Vivant and Sunrun) have announced plans to close their Nevada operations.  Several lawsuits are pending.

Here in the Northeast, Maine lawmakers have recently discussed a unique form of net metering that would compensate solar power producers based on the actual “value of solar.”  Right now, net-metering programs in Maine compensate solar owners at a rate of 13 cents/kilowatt-hour, which is roughly the retail price of power when purchased from the utility.  But a study conducted by the Maine Public Utilities Commission found that the actual value of solar power produced in Maine is 33 cents/kilowatt-hour.  In addition to displacing expensive “peak” power (a primary economic benefit of solar), the study cited lower air pollution, energy diversity, and reduced need for new power plant investments as reasons why solar is worth more than other types of power.

In response to all this state-level action, two U.S Senators have proposed legislation that would require states to properly account for the benefits of distributed solar before changing net metering valuations.  The move also would prevent retroactive changes to net metering programs, like those imposed by Nevada.  Notably, the legislation (which is an amendment to the Energy Policy Modernization Act of 2015) is sponsored by Minority Leader Harry Reid, of Nevada, and Senator Angus King, of Maine.  The bill may face an uphill battle during an election year, but indicates that net metering is at the forefront of the energy infrastructure debate. 

There is certainly room for compromise.  Utilities maintain a vast, efficient system of electrical infrastructure that benefits everyone, including solar customers who are tied into the grid and using it as a storage system.   Allowing utilities to charge a reasonable fee to solar customers in exchange for that service seems fair.  At the same time, it also makes sense to compensate solar owners for the actual value of the power that they generate — at a rate higher than the typical retail price. 

Stakeholders on both sides of the debate should recognize the merits of moving forward in a way that allows solar development to continue in a robust, equitable fashion across Massachusetts.  But before that can happen, the legislature must act to raise the net metering cap.  When it does, it should take the long view.  Wholesale power rates are inappropriate compensation for solar owners providing valuable peak power, with zero emissions.  And utilities deserve fair compensation for the grid service that they provide.  The numbers are tricky, and the debate is fraught.  But one thing is clear: with 12,000 solar jobs at stake, a growing $11 billion clean energy sector, and an increasing demand for power, the legislature must act soon.

© 2019 Beveridge & Diamond PC


About this Author

Brook J. Detterman, Beveridge Diamond, Climate Change Lawyer, Liabilities Law

Brook Detterman's practice focuses on climate change, renewable energy, and environmental litigation.

Brook helps his clients to negotiate, structure, and implement transactions related to climate change and environmental commodities markets.  He regularly counsels clients during transactions under the EU ETS, California’s cap and trade program (AB 32), and other U.S. and international emissions trading programs. Brook also supports clients in the renewable energy industry, providing advice on renewable energy policies, regulations, and...

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