Solar Energy is once again in the national spotlight. It is part of a solution to the dependency on foreign oil, a way to reduce costs, and a way to see our neighborhoods smog free.
We understand the benefits of solar but are having a hard time realizing them. One reason is that solar energy production does not always coincide with our energy demands. Storing the energy your solar panels produce while you are the office remains a significant obstacle.
Net metering can help resolve this by sending the energy to the electrical grid. Solar customers don't have to invest in expensive, inefficient batteries but can in effect store the value of the energy by selling it on the gird at market value. The concept solves a technical challenge while simultaneously providing an incentive for consumers to make investments in local and sustainable energy options.
Net Metering works in principle and a majority of states within the US have laws establishing policies, many of them are unclear, ineffective and un-enforced. The result is a population of consumers and businesses that have no clear direction on how to use a tool that can positively impact the nation's energy challenges.
The Specifics
"Net metering refers to an agreement that the power company will buy and sell power to these customers at identical rates. It enables customers to use their own generation to offset their consumption over a billing period by allowing their electric meters to turn backwards when they generate electricity in excess of the their demand - that is, consumers pay only for the 'net' electricity used. Generally, net metering improves the economics of the transaction slightly in the customer's favor."—US Department of Energy
Local, small-scale energy product has historically been associated with remote locations that are unable to connect to the larger power grid like most of the population. These locations had to develop micro-hydro, wind or solar grids in order to produce their energy needs. However, environmentally conscious homeowners gradually started to find ways to implement micro and small-scale energy production in their own communities.
Initial laws promoting net metering were established in 1978. These rules instructed "power providers to purchase excess power from grid-connected small renewable energy systems at a rate equal to what it costs the power provider to produce the power itself." In 1995, California was the first state to pass a law mandating that local energy producers be able to connect their grids to the larger system and receive fair compensation for it. A similar law was passed in New York, Hawaii along with several other states. There are currently 43 states with net metering guidelines enacted.
The idea was to give individuals an incentive to produce their own renewable energy within their communities. Whenever a household or community was generating more electricity than they were consuming, that excess would be fed into the larger grid, and the energy companies would have to compensate the local provider for that energy.
At the core of this policy is the ability for any community to affect its own local energy choices, without the risks of going completely "off-the-grid". Individuals are able to choose how their energy is produced, and help offset basic household costs. Since they can be financially rewarded for consuming less energy, households are also incentivized to reduce in absolute terms the amount of energy they consume. This isn't a forced mandate, but an individual and conscious decision that can positively impact their lives, and their community.
Net metering also solves a major problem of transmission. Centralized power production at coal, nuclear and other large scale plants means energy travels immense amounts of distance. It is important to note that there is a natural loss of energy from where it is generated to where it is used. However, if more energy is generated locally, this loss is not as big of an issue. In addition, net metering helps reduce the strain that is placed on energy grids during peak usage by supplementing production within the community.
While net metering pertains to any small-scale energy production, it is most commonly associated with solar, as it is less location specific than wind or hydropower.
Initial Investment
Unlike other energy sources, the customers must make a large capital outlay to install a solar or wind generation system. Oil, gas and electrical companies build the delivery infrastructure for the customer, but the local, independent nature of these alternative technologies necessitates individual investment. The cost of entry is high enough that most customers must finance their investment, which incurs another layer of cost.
We must weigh these initial investment risks against the long-term return of the lower energy costs and protections against outages. To date, not enough people have taken the risk, primarily because in many states the small producers cannot compete equally with the large energy companies.
Equal pay for Equal Energy
One of the major stumbling blocks to the growth of net metering is that many energy companies charge retail rates to the individual producers, yet only pay them at wholesale rates for their net-excess energy. Consumers feel this is inequitable, and in turn do not feel it is worth their time and effort to install expensive solar systems when they won't be able to see a return. The margins are so slim that the risk is simply too high for all but the most committed. Even if an individual engaging in net metering produces an excess of energy over a given time period, they may still owe an energy company money.
Who's managing the process?
Power companies see local production as a threat to their overall income, and due to their strong lobbying power, they are able to unduly influence many of the finer details of net-metering policies. Companies have gone so far as to require expensive feasibility studies be completed on each household before a net-metering system can be installed. This places excessive burden on the consumer. They also set pricing policies for purchasing energy from the consumers, as well as establish payment systems. Net production is measured at varying intervals so as to suit the needs of the power company.
What to do?
Technological development and market forces can be expected to improve the productive capacity of the technologies, making them more affordable over time. Targeted investment in research and development will help move the process forward, but in general these areas will grow naturally. However, citizens will need the government's help to create fair market opportunities, for the large energy producers often employ their considerable resources to tilt the field in their favor. There are three areas where government can assist this industry reach maturity:
- Provide public incentives. Simple and affordable assistance, in terms of public financing or tax incentives, could act as a powerful catalyst to increase the number of small producers. The clearest way to do so is to extend the PTC (production tax credit). Individuals can get a tax credit once they actually start producing electricity but the law has to be renewed every two years (better than every years as it was). A ten year extension would lower investment risk buy showing long term government support.
- Lower the barrier to entry. While it is true that large-scale energy systems build their delivery systems, they often receive significant grants and tax incentives, as well as benefit from federal, state and municipal infrastructure. They also have opportunities to pass investment costs on to the consumer. Net metering is a way to expand these benefits to small producers precisely because they are able to sell their power on a grid they have not built nor need to maintain. Realistic guidelines and processes should be constructed and enforced so that consumers see a clear, safe but simple path to execution.
- Ensure a level playing field. If the public is willing to shoulder hefty financial risk to help address our growing energy needs, the narrow interest of the large power producers should not be allowed to impede their civic-minded, capitalist spirit. Yet in many states, the large producers have successfully lobbied for legislation that ensures a market tilted in their favor. A fair balance can be found between how small energy producers purchase and sell their energy. In a free energy market, all producers should be able to charge market prices for their products. This is precisely the type of issue where both sides of the political spectrum can find common ground. We can support individual entrepreneurs, who are investing their own capital to increase our national independence. The federal government is in a position to provide low interest loans or grants that would fund initial investment by individuals and communities.
- R&D Incentives. The net metering market is dependant on a series of consumer goods that cheaply and effectively generate power. While some progress exists, the products available have made little headway. At the state, and federal level there is opportunity to provide investment incentives to development of new technologies. These could range from developing manufacturing capacity to supporting high profile projects to spark additional interest. Not only will this produce better products for the market, but also increase job opportunities in diverse well paying industries.
