Part 3: Virtual Net Metering

By Kyra Hill, Energy Fellow

In my last blog posts, I argued that due to its potentially far-reaching benefits, community solar should become an important component of a renewable energy-based electricity grid and identified some already existing models. However, the ultimate feasibility of community solar, from both a financial and a legal standpoint, depends on certain policies. One policy that is likely to prove crucial to widespread deployment of community renewable projects is virtual net metering.

Under a system called net metering, customers connect their own residential power (usually residential PV, but also small wind turbines) to their utility’s electricity distribution system. Any electricity the customer’s system produces offsets the amount of power the customer receives from her utility. At the end of the month, the utility bills the customer for the net amount of power that she consumes. If the customers’ energy system produces more electricity than she receives from the utility, states generally allow the customer to roll over credits into the next billing cycle. (States then have various ways of dealing with the excess credits at the end of the year. In Oregon, PGE and PacifiCorp customers’ excess credit accumulation gets credited to utility customers enrolled in a low-income assistance program.) Currently 44 states and utilities in Idaho and Texas and the District of Columbia have net metering policies in place.

Ten states and the District of Columbia have adopted a version of this policy called virtual or community net metering that is particularly important for the expansion of community-scale renewable energy. Through virtual net metering, customers who own or lease generation away from their homes (such as in a community array) can still receive a direct credit on their utility bills. Without this policy in place, customers are limited to community renewable energy projects that are either utility-sponsored or that take a form other than direct bill credit. Oregon’s net metering law does not allow for virtual net metering, and therefore PGE and PacifiCorp customers are unable to receive direct bill credits on any generation they own or lease in a community solar project.

Direct bill credits are an important component of these programs because they offer tangible benefits directly tied to energy consumption. In their model rules, the Interstate Renewable Energy Council (IREC) advocates bill credits as opposed to outright payment because, according to IREC, they avoid complicated securities issues and do not result in taxable income. Most importantly, though, bill credits can motivate consumers to alter their behavior to offset as much of their consumption as possible.

Yet virtual net metering has not been widely embraced because net metering has been heavily criticized by utilities since its inception. Utilities argue that under net metering, net-metered customers end up paying less than their fair share for the services the utility provides by managing the energy they send back onto the grid, and by providing backup power and safety services. The utilities argue that this dynamic effectively forces customers who do not have their own renewable energy systems to shoulder the cost.

While this argument has some superficial appeal, at least one recent study conducted by a consulting group in conjunction with the California Public Utilities Commission suggested that this alleged unjust cost shift is much more nuanced that it appears. In fact, in some circumstances, increased penetration of distributed resources could result in an overall reduction in cost of service to all customers, though the analysis is highly dependent on rate design (particularly rate class.)

The availability of virtual net metering seems to be an important policy for encouraging community renewable energy programs. But crafting utility and customer compensation to better reflect the benefits and drawbacks of adding more community net-metered systems to the grid will be a critical step to overcoming utility aversion. Including limitations such as geographic or capacity caps can be an important first step. Assigning a more accurate value to utility services, and compensating customers for the benefits their system provides (e.g. avoided transmission and generation) may be necessary in order to design successful and politically viable virtual net metering programs.

Some states have already begun considering the value of solar more carefully. For example, Minnesota recently developed a “value of solar” tariff that utilities may voluntarily apply in lieu of the retail rate when compensating customers for their solar electricity. Though placing a monetary value on social and environmental externalities is a significant step forward, not everyone is happy with the idea of pitting value of solar tariffs against net metering. It seems that a building better valuation methods into the existing net metering structure is a practical first step towards expanding opportunities for community solar. Over time, technological improvements and experience can inform even better alternatives.