The Curse of Cost Shifting: How It Undermines Solar
Solar incentives and net metering are facing pushback from regulators, politicians, and consumer advocates who worry about rising electric bills. Here's how to respond.
Electric utility bills are rising across the U.S. Those higher rates and government incentives are driving homeowners and businesses to install solar panels at a record pace. These two trends are creating a dilemma for politicians, regulators, and consumer advocates who must weigh the benefits of solar incentives and rate subsidies against potential higher electricity costs for non-solar customers.
As a result, we'll be hearing a lot about cost shifting, especially in states that allow net metering. Net metering is the billing mechanism for residential and commercial electric utility customers who generate power through solar panels or other energy-producing source. It allows for energy-producing customers to be paid for electricity generated in excess of their needs. The terms defining net metering payments to utility customers vary from state to state, but the perception is that net metering lowers electric bills for those with solar panels at the expense of those who don't.
That perception is driving regulators and politicians in some states to change net metering rules so that owners of solar panels get less money for the electricity they send to the grid with the expectation of keeping electric bills from rising for everyone else.
In the context of net metering, cost shifting occurs when the rates of one group of customers rises to compensate for underpayment for services, which had been driving up costs for other customers. This is the rationale that California Governor Gavin Newsom gave regarding his decision to veto a bill that would have provided rate subsidies for schools to install rooftop solar. The governor said that the subsidy would result in a rate increase for most other customers.
Lower income from the electricity solar panels generate increases the time for payback on the investment homeowners and businesses make. Installation cost and payback time are by far the two biggest concerns I've heard from people considering solar panels. Lower net metering income will be a barrier to solar adoption, especially for older homeowners. "I'll be dead before I make my money back" is a comment I hear frequently.
Without solar, other energy improvements like heat pumps are harder to justify. The cost to run them will be higher for homes and businesses dependent on the grid.
How Net Metering Adds Cost to Non-Solar Customers
You would think that residential solar would lower electricity costs for everyone since the rates utilities pay that are defined by net metering rules are typically less than than the wholesale energy markets. Several factors complicate the cost equation.
The nature of residential solar energy presents a challenge for utilities. They like predictability and control. For example, a conventional power plant can predict demand and adjust output accordingly with a reasonable degree of accuracy. There is no central mechanism to match residential solar output with demand. To compensate, utilities at times must block solar power from the grid due to low demand. This is called curtailment, and the amount of solar power affected by it varies from region to region. I've seen figures as high as 20%.
The electric grid itself is not designed to efficiently accept and manage power from distributed sources like solar. Many utilities are working to upgrade their infrastructure to accommodate distributed sources, adding better controls and installing smart meters at customer sites. That costs money, and it's no surprise that utilities are petitioning regulators to have their customers pay for infrastructure improvements.
Such a request has affected the local community power committee on which I serve. The New Hampshire Community Power Coalition recently negotiated electricity rates for its customers that were well below that of the state's utilities. This allowed some towns to offer a higher percentage of renewable energy sources while lowering the cost of electricity. The savings apply only to the supply side; utilities still set the cost to deliver electricity.
Since then, the largest utility in New Hampshire, Eversource, asked the state's Public Utilities Commission (PUC) to raise its annual distribution rate by $182 million. Eversource is also requesting a performance-based ratemaking (PBR) plan that would "accomplish several objectives in the public interest, including providing critical support for capital investment made to maintain the reliability and resiliency of the distribution system and stabilizing rates for customers over an extended term rather than experiencing larger rate changes at a single point in time."
Eversource estimates that its proposal would increase the electric bill of a residential customer using 600KWh per month by $9 (7%) for the first phase and $13 (10%) for the second phase, eventually raising distribution charges by 42%. Our committee told residents to expect a lower rate on electricity, but their total bill could still rise. We worry the increase on the delivery side will create credibility issues with our community power program.
Some utilities (like Eversource in New Hampshire) are required to pass on costs to acquire power to customers and not take a profit. Utilities that rely on profits from the supply side, however, might feel more pressure to increase rates if the revenue they receive from net metering customers is below expectations. They will likely try to pass on higher solar incentives mandated by legislatures or regulatory bodies to other customers.
How to Respond to Weakened Solar Incentives
Local energy advocates and groups have three ways to counter the effect of lower net metering and other incentives:
Educate: When our community power committee caught wind of Eversource's request to increase its delivery charges, we got the word out to residents about what to expect. This included an article in the local newspaper that provided details of the request and what it will likely look like on their electric bills. Importantly, we explained the difference between charges on the supply and delivery sides and showed them how to find them on their bills. We decided to be proactive rather than wait for people to complain that we didn't deliver what we promised.
It's also important to inform your community about regulatory or legislative initiatives that could affect them. Explain them clearly and recommend actions.Lobby: Consumer advocates might support regulatory or utility efforts to lower incentives if they believe it will lower electric bills for other customers. They focus solely on cost and not other benefits net metering and other incentives provide: Grid resiliency, higher use of clean energy, and support of the local solar industry. It's important to emphasize those benefits to the decision makers.
Listen: Listen to your community, of course, but you also need to understand where the utilities, regulators, politicians, and consumer advocates are coming from. The more you understand about the issue, the better you'll be able to achieve a good outcome.
Renewable Energy News of the Week
Net-Zero Community Keeps Lights and Roofs On During Helene and Milton
A community of single-family, net-zero homes near Tampa Bay easily weathered both hurricanes Helene and Milton. The energy-efficient, hurricane-resistant homes did not lose power or see significant damage. The community was high enough to avoid damage from surge flooding, too.
Source: CNN, "As parts of Florida went dark from Helene and Milton, the lights stayed on in this net-zero, storm-proof community"
Solar Panel Installations Exceeding Global Expectations
Energy think tank Ember reports that global solar capacity growth is beating forecasts. That capacity is now expected to reach 593 GW by the end of the year, nearly 200 GW more than the International Energy Agency forecast in January. Ember's projected growth represents a 29% increase in capacity, which comes after an 86% increase in 2023.
Source: Ember, "Solar Power Continues to Surge in 2024"
New Hampshire Community Solar Program Nearing Launch
New Hampshire's poor ranking (according to NREL research) for solar production serving disadvantaged households might be changing. The state's energy department is reviewing proposals for community solar arrays that will help low-income households save on their electric bills. This comes seven years after state regulators approved the use of community solar to benefit low-income households.
Source: Energy News Network, "New Hampshire’s low-income community solar program is finally nearing the starting line"
Battery System to Provide Grid Resilience, Backup to Massachusetts Town
Wakefield Massachusetts is planning to install a 15-megawatt battery system that will reduce demand on the grid during peak energy and serve as a backup for schools when the power goes out. The Energy Park Project is also a step toward Wakefield schools adopting solar power and replacing HVAC systems with heat pumps.
Source: Canary Media, "A Massachusetts town uses batteries to help its grid — and its schools"
California Governor Vetoes School Solar Bill Over Rising Utility Bill Concerns
Advocates of solar power are increasingly finding themselves at odds with politicians and regulators who focus on the cost of electricity to all consumers rather than incentives for installing solar panels. The California legislature overwhelmingly passed a bill that would allow schools to sell excess electricity generated by solar panels at higher rates. Governor Gavin Newsom vetoed the bill, saying it shifted costs from utility customers who have solar to those that don't.
Source: Canary Media, "California Gov. Gavin Newsom vetoes school solar bill"
Free Home EV Chargers for Ford Customers
Anyone who buys or leases an EV from Ford can receive a free EV charger and installation through the end of the year. New and previous buyers of Ford EVs can also receive free, live 24/7 support for any EV-related questions. The offers are designed to help address concerns people might have about purchasing an EV.
Source: Detroit Free Press, "Ford is offering customers who buy or lease an EV a free home charger, installation"