Is Net Energy Metering a Subsidy for the Rich?

Benjamin Zycher at Forbes thinks so.

So what’s the problem? First, the credit paid in California for the excess solar power is far higher than the cost of alternative electricity sources, usually from utilities or from the spot power market. Consumers without such solar installations have to finance that excessively expensive electricity, so that overall power prices are forced above the level that would prevail in the absence of the net metering system. This system, by the way, subsidizes the affluent (median income of those installing solar systems: $91,210) at the expense of all other power consumers (median of $67,821), an embarrassing reality from which the supporters of the net-metering system prefer to avert their eyes.

Second, reliability is a hugely valuable attribute of power systems; no one likes blackouts. Electricity bills reflect the cost of that reliability in the form of “capacity” charges, that is, the part of the bill covering the cost of the physical system and its spare capacity, before fuel expenses and other such generation costs. People who install solar systems benefit from the reliability provided by the grid–they consume conventional power at night and at other times that the sun fails to shine–but because they pay only for their “net” power consumption, they get a free ride on the cost of the generation equipment and other capital that yield the reliability upon which they depend. The problem is that the free ride is not free: Other consumers have to pay for it.

Let’s take those one by one.

The idea behind net energy metering is that my demand for electricity and the solar electricity I supply to the grid cancel each other out. During the day, the power generated by my rooftop panels that I don’t use flows into the grid. At night, I am given a credit for the electricity I supplied during the day.

Perhaps Dr. Zycher has forgotten that solar panels are a source of energy that the utility has paid nothing to produce. Here in San Diego, solar panels generate more than 500 megawatts of electricity. In all of California in 2014, solar generated 10,557 gigawatt hours of electricity.

Would Dr. Zycher have me pay for the privilege of supplying electricity into the grid?

If my solar panels generate more power than I consume, I am paid at the wholesale spot market electricity price. I fail to see how this is “excessively expensive” and drives up power prices, as Dr. Zycher asserts. If anything this power is significantly less expensive for the utility, since the power is instantly in the grid, and the utility does not have to haul this energy long distances as it does with other sources of power.

The second point Dr. Zycher makes about reliability is more grounded in fact. It is true that under net metering, solar users don’t pay the full costs of maintaining the grid. This cost is passed along to other non-solar customers. Dr. Zycher is correct in pointing out that is unfair, and the costs should be borne equally by all grid users. San Diego Gas & Electric has estimated these costs at $100 per year. It would be a simple matter to pass this fee along to solar users.

There are genuine subsidies in solar. The cost of installing solar panels is subsidized by U.S. taxpayers, and we can debate this all day. Do we really need solar subsidies? I believe that all subsidies distort price signals. Watch what happens to solar when the tax credit goes away.

Net metering, however, is no subsidy. Rather it is an accounting system that balances supply and demand. Solar may not work everywhere, but it sure makes sense in California. Doing away with it will unfairly doom  a pollution-free source of energy that is delivering a reliable supply of power on sunny days when demand in the Golden State is at its peak.


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