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Uncertainty around net metering is hampering the growth of solar electric installations in certain parts of the country. Net metering is an arrangement that permits owners of solar electric systems to bank their excess power with the local utility company. Consumers redeem these energy credits when they use more power than they produce. Net metering is essential for the success of most zero energy buildings because grid-tied systems can be optimized for energy output and energy use. Without grid backup, zero energy buildings would need several times more solar panels to supply their needs on short winter days, while the high-production summer season would leave them with no way to bank their excess power. Worse, there would be no solar electricity at night or on cloudy days. Without being grid tied, zero energy buildings would need extensive battery storage or generators, which would greatly increase the cost of a net zero building.

In other words, net metering is important because the production of solar power is often out of sync with electricity use. Homes generally produce more energy during the summer and during daylight hours. However, they draw power at night and on cloudy days. Homes in northern climates use more power for heating in winter. The production pattern in commercial buildings may be more in tune with consumption, because they operate during the day and generally have high cooling requirements. In any case, the utility grid serves as a reliable backup, or “bank” that helps even out the variations in on-site electric generation and use.

The Cost of Business

For utilities, the issue is the cost of grid infrastructure. They must build and maintain power plants, transmission lines and distribution networks large enough to serve every building, all the time – even the buildings with solar. Roughly 40 to 50% of the retail price consumers pay for power goes to transmission and distribution. Most net metering arrangements offer little, if any, compensation for grid costs, other than a small monthly hook-up fee. So the question is: are net metering arrangements fair to the electric utilities and to non-solar customers? Put another: way should solar homeowners pay a higher rate for the use of the grid as their electricity bank?

With only about 1 percent of grid power currently coming from decentralized solar installations, this problem has not become a top priority yet. However, utilities are concerned and some are pushing back against net metering requirements. Specifics vary from state to state, and utility to utility, but most boil down to how much financial benefit flows to solar owners and what charges are equitable for solar owners to pay. An over-reaction by utilities could threaten the budding solar industry.

Challenges to a Budding Industry

Between 2014 and 2015, residential solar installation grew by 66% and accounted for 30% of the total new electric generating capacity. Another indication of the growing importance of solar is its contribution to employment. According to The Solar Foundation, solar accounted for almost 209,000 jobs in 2015, three times more than today’s coal industry. Undercutting rooftop solar systems would certainly stunt the nascent industry. When Nevada increased fees for solar homeowners at the end of last year, solar installations plunged. NV Energy, the investor-owned electric utility in Nevada, requested higher fees and lower compensation for existing solar owners. A new agreement approved by the Nevada Public Utility Commission approved the measure that continues payment to rooftop solar owners through 2036, but at a far lower level. Connection fees for solar owners will increase and compensation will decline from the current retail rate of 11¢/kWh to 2.6¢/kWh over the next 20 years. Maine is considering a rollback of net-metering benefits too. Arizona utilities claim that solar owners are being over-compensated and want credits for electricity produced by home solar installations to be reduced.

Common Goals are Best Served by Working Together

Meanwhile, the Brookings Institution and several other groups have shown that net metering benefits all utility ratepayers, not just those with solar to sell. For example, according to the Minnesota Public Utility Commission, distributed solar provides new sources of clean energy, displaces more expensive power sources, reduces grid infrastructure costs, stabilizes prices and supports energy security. Also, the solar industry and renewable energy backers point to larger issues, such as the role of solar energy in slowing climate change. The Solar Energy Industries Association has compiled a list of cost-benefit research on solar from across the U.S.

For current solar owners, changing the rules would violate their trust. Going forward, higher charges for net metering or lower credits for power banking could discourage new solar installation and jeopardize the financial viability of zero energy buildings, both of which are key elements of the nation’s climate change strategy.

There is also a risk to utilities and their government regulators when they over-charge for net metering. They might make grid-connection so onerous that solar owners find more attractive alternatives. Additional rooftop panels and battery storage, or community arrays and micro-grids, may tempt consumers to disconnect entirely from the grid. Much is at stake. Utilities, which are regulated for the public interest, and consumers willing to contribute to a low-carbon future need to find a way to integrate decentralized generation into an intelligent grid.