Distributed generation refers to generating electricity at the point of consumption, such as solar panels on the roof of a building and community solar programs that serve multiple customers with a solar farm.
Solar panels have become more popular for homeowners in recent years because of price decreases and new financing models. Solar panels can be placed directly on the roof of a house or other building. They can also be part of a community solar project, sometimes called solar farms, solar gardens, or shared solar. A community solar project does not require the solar panels to be connected to individual homes. It allows multiple families or businesses to buy a share of the solar energy produced and get a credit on their bill.
Solar panel customers generally use only a portion of the energy they generate during the sunniest time of the day. Unused energy is returned to the electricity grid, and they are compensated. A key consumer issue is how much of a credit the homeowner or a participant in the community solar program gets on their electric bill for sending solar into the electric grid.
Many states allow customers to be reimbursed at the full retail rate. This is called full retail net metering, or just net metering. However, utility companies and some consumer advocates believe the full retail rate is too high. It includes costs beyond the generation of the energy. For example, it adds the costs of maintaining poles, wires, and meters. Net metering allows customers to avoid the costs of the local distribution system, billing system, metering system, call center, reliability expenditures, and social purpose programs.
If solar customers get back more than their energy is worth, customers without solar panels must subsidize the costs of these important aspects of the electric system. When this happens, nonsolar customers pay higher rates. Several studies have documented that the shift in costs falls most heavily on customers with lower incomes.
Some states and municipal utilities try to estimate the value that solar brings into the system. They use this estimate to determine the rate of reimbursement. The resulting rate is lower than the full retail rate. This is known as a value of solar rate (VOS). The VOS payment is based on an analysis of the value that the solar energy brings to the utility system. Under VOS, solar customers continue to pay appropriate costs for transmission, distribution, and customer functions. This reduces the risk of cross-subsidy by nonsolar customers.
Customers who receive the full retail rate for energy returned to the grid may feel entitled to the higher payments. Their investment in solar may have been premised in part on the promise of full retail rate payments or credits from their utility. These payments or credits often factored into the customer’s decision to finance or lease rooftop solar panels. Thus, proposals to eliminate net metering have been met with strong opposition from the solar industry and current solar customers. They have demanded their current rates be grandfathered or frozen.
RESIDENTIAL AND COMMUNITY SOLAR: Policy
RESIDENTIAL AND COMMUNITY SOLAR: Policy
Policymakers should ensure that solar customers pay their fair share of costs and nonbypassable fees.
Solar customers should also be fairly compensated for the market value of the energy they return to the grid.
Fair and reasonable transition periods should be adopted before current solar customers are charged the new rate.
Policymakers should ensure:
- optimal use of distributed generation systems results in minimal cost to integrate these resources into the electric system;
- strong consumer protections are in place for participants in distributed generation;
- any cost-benefit study of distributed generation policies assesses whether the policies fairly identify and allocate costs and benefits among ratepayers;
- mandatory rate-design charges for all residential customers, such as high fixed monthly charges, demand rates, and time-varying rates, are not used to address lost revenues associated with solar distributed generation (see also Cost allocation and Rate design in this chapter’s section Utility Rates);
- regulators are provided the flexibility to make changes to distributed generation policy that would address inequities in the current rates; and
- utilities conduct customer education and outreach on any new rates and allow for a transition period.