Michigan has joined other states in realizing that net metering rules as originally designed are biased against consumers without rooftop solar, raising their electricity rates. Michigan will now charge rooftop solar customers at the retail price of electricity for electricity that they consume and pay them a lower price for the electricity that the utility purchases from them thereby charging them for the use of the electrical wires (i.e., transmission and distribution) that non-solar consumers hitherto have had to subsidize. Customers already in the net metering program will be grandfathered for 10 years. By changing the rules on net metering, Michigan will join several other states that have recognized the bias.
Beginning June 1, Michigan customers who provide solar power to utility companies will be paid an avoided-cost tariff based on how much their utility pays to produce electricity, ensuring solar rooftop customers are “assessed for their fair and equitable use of the electrical grid.” Under the current rules, solar panel customers are often able to avoid much of the cost of maintaining the electric grid, which they continue to use, resulting in the non-net metering customers paying more than their share to maintain the grid. This is because utilities were required to buy electricity from solar rooftops at retail prices, even though it was a wholesale product, and other ratepayers would end up subsidizing their neighbors’ solar systems by paying the utility more than the product was worth.
States That Have Changed Net Metering Rules
At least five states have implemented alternative compensation methods for solar rooftop customers, including Arizona, Hawaii, Indiana, Maine, and Nevada. While these states have implemented widely-varying alternative compensation methods, all five states have grandfathered existing customers, allowing them to continue under the previous net metering rules for a set number of years.
In December 2016, the Arizona Corporation Commission lowered the credit residential solar customers receive for excess energy sent back to the grid and limited how long customers can keep their rates. The new rate is based on the cost of energy from large solar farms, which is much lower than the retail rate.
In October 2015, Hawaii closed its net metering program to new solar owners, and provided two options: self-supply and grid-supply. Under the self-supply option, solar customers with energy storage in areas of high solar penetration are limited in the amount of electricity they can send back to the grid and do not receive any compensation for it. Under the grid-supply option, solar customers are compensated at the wholesale rate for electricity supplied to the grid. In Hawaii, wholesale prices range from roughly 15 cents per kilowatt-hour to 28 cents per kilowatt-hour, which is about half of the state’s average retail electricity rates. To help cover fixed costs, residential solar customers connected to the grid will pay a minimum monthly bill of $25.
In May 2017, Indiana Governor Eric Holcomb signed into law a measure that lowers the rate of compensation for customers who install solar or wind power, phasing out retail net metering. Systems installed by the end of 2017 were to get the retail rate for 30 years, but the rate will be lowered over a series of years for other customers after 2022. After 2022, solar and wind customers will be compensated at their utility’s marginal cost, plus 25 percent.
Last year, Maine approved new solar rules that would gradually decrease the compensation to customers with solar panels on their homes, grandfathering an existing customer’s rate for 15 years. Regulators agreed to delay implementation until April 30, as technical aspects of the new rules were sorted out.
On December 23, 2015, the Public Utility Commission of Nevada established an alternate compensation method for rooftop solar customers that creates new classes of net metering customers and a structured process for transitioning to the new rules and rates. Over five years, the basic service charge will increase in gradual increments accompanied by a related decrease in the energy charge that net metering customers pay for each unit of energy delivered by the utility and a decrease in the credit that the utility provides for energy delivered by rooftop solar customers to the grid. The rates and credits are to be reset periodically by the Public Utility Commission.
Other states have discovered that their net metering programs have overcompensated solar panel owners at the expense of their other energy consumers. Montana’s largest utility company found that it was overpaying net metering customers by about three times the market value. The value of the rooftop solar energy that was being delivered back to the grid was about four cents per kilowatt hour, but the net metering customers were getting paid about 12 cents per kilowatt hour for that power. In New Hampshire, Governor Chris Sununu shunned renewable energy subsidies that have artificially supported failing solar energy companies.
Conclusion
Net metering is a boondoggle for residential homeowners who can afford to put solar panel systems on their homes. It also hurts non-solar customers by forcing them to subsidize solar panel homeowners through the purchase of a wholesale product at a retail price and the allowing grid freeriding. States are realizing the bias and are implementing alternate compensation methods. But current net metering beneficiaries tend to be grandfathered for at least a period of time and are still absorbing their new wealth.
