Should Solar Advocates Reconsider Net Metering?
October 21, 2019 by Dani Brooks
By Nick Gill, Staff Contributor
Although net metering has incentivized residential customers to switch from fossil fuel to solar energy, its pricing model confuses customers and shifts costs, making it untenable in the long-term.
Currently, thirty-four states and the District of Columbia have mandatory net metering policies. Mandatory net metering is a policy where residential solar-harnessing customers only pay for the net energy they consume. Let’s say, for simplicity, a residential customer uses 900 kilowatt-hours (kWh) of electricity per month, the average electricity demand per household in the United States. If this customer has solar panels which produce 100 kWh per month, the customer’s meter will “run backwards,” and the utility will charge the customer only for the 800 kWh that it bought at the retail rate. If the customer’s solar electricity output actually exceeds its demand for electricity–say the customer’s solar panels generate 1,000 kWh–then the utility company will be required to purchase the customer’s 100 kWh surplus, typically at the retail rate the utility charges its customers. As a result, mandatory net metering policies encourage the purchasing of residential solar panels because it makes energy more affordable.
Although net metering reduces electricity costs for residential solar-harnessing customers, it has been criticized for unfairly creating higher prices for non-solar-harnessing customers as well as utility companies. Whether utilities set their own prices because they are in a competitive market or prices are set by a regulator, utilities’ prices are based on their total costs, which can either be fixed, meaning they do not change with output (e.g., generators, pipes, or land), or variable, meaning they do change with output (e.g., labor or fuel). Under a policy of net metering, it is possible, if not likely, a utility will lose money when it is required to credit a residential solar-harnessing customer at retail price or buy energy from a customer. This is so because although the utility’s variable costs decrease, as it does not have to supply that amount of energy, its fixed costs remain the same. Consequently, the utility must not only make payments in excess of the fixed costs it incurs, it must essentially also overpay, as retail prices account for fixed costs never incurred by residential solar-harnessing customers.
There is a common conception that traditional electricity is underpriced, as it does not account for the negative externalities that are associated with fossil fuels, including emissions, transportation, and extraction, and the price of solar does not reflect its environmental benefits, including, but not limited to, renewability, inexhaustibility, and zero emissions. Advocates of mandatory net metering policies argue that the non-inclusion of positive and negative externalities in the pricing at which a utility must purchase solar electricity back from a residential generator counterbalance the fixed cost issue. However, because the fixed cost issue and the externalities have not been explicitly included in the price of solar energy sold to the utility, it is impossible to say whether or not the residential rate is correct.
Using mandatory net metering policies with the current price structure to incentivize the switch from fossil fuel to solar energy is untenable in the long-term. Pricing electricity at the residential rate is simple, but it creates confusion and is open to criticism because it does not properly allocate costs. In order to correctly incentivize customers (and utilities) to switch to solar energy, state governments should enact policy that requires customers to pay for the fixed costs and positive or negative externalities that result. A pricing structure of this type will prevent cost-shifting and create proper incentives.
 See supra note 2.
 Marc Brown, Net Metering Bills Will Increase Ratepayer Costs, N.H. Business Review (Apr. 12, 2019), https://perma.cc/3SDR-BPEC; Utilities Lobbying to Eliminate Solar Net Metering, NeoVolta (July 10, 2019, 8:00 AM), https://perma.cc/V4LN-47DL.
 Scott Hempling, Regulating Public Utility Performance: The Law of Market Structure, Pricing and Jurisdiction 216-17 (2013).