The Role of Net Metering in the Evolving Electricity System (2023) / Chapter Skim
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8 The Future of Net Metering in an Evolving Electricity System
8 The Future of Net Metering in an Evolving Electricity System
Pages 178-191
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From page 178... ...
Net metering, a billing mechanism to credit and compensate customers for production from clean BTM DG that offsets consumption and is exported to the grid, was established when costs of solar and other BTM DG were high and deployment was low. However, rapid technological change and cost reductions over the last decade combined with a range of supporting policies, including net metering compensation rates, have led to a rapid growth in the proliferation of DG.
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From page 179... ...
The committee envisions and supports the evolution of net metering policies in a way that addresses both the value and equity aspects of DG. DG offers potentially multiple value streams, from energy to demand response, to decarbonization, to backup-based resilience, to reduced mortality and morbidity by offsetting generation from central fossil-fuel power plants, and more.
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From page 180... ...
Distributional aspects of net metering are complex and are affected by the underlying context set by electricity rates. Although different rate designs directly or indirectly have provisions to limit the adverse impact of rates on low-income and disadvantaged communities, given that rates try to balance many different factors, maximizing equity and access is generally not the primary goal.
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From page 181... ...
Where BTM DG value is less than net metering compensation, costs will shift to non-net metering customers; where value exceeds compensation, costs may be 2 These circumstances could occur if customers can meet their own electricity needs with BTM DG, storage and possibly backup generation, at a cost that is less than they would otherwise pay the utility. Net metering compensation for exported power can offset some of the customer's total cost and can influence the decision to remain connected (and receive such compensation)
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From page 182... ...
Utilities also need to leverage DG attributes for building a more resilient electricity system. Redesigned Rate Structures and Net Metering Need to Be Consistent with the Basic Principles of Electricity Rate Design New rate structures and net metering need to build on the generally accepted regulatory principles of efficiency, simplicity, stability, fairness, and revenue adequacy.
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From page 183... ...
However, the committee also recognizes that some investments for integrating BTM DG into the grid, for example through demand aggregation or virtual power plant mechanisms, could also be made by non-utility market participants.3 Thus, coordinating the evolution of net metering with broader electricity system changes will lead to a vastly superior outcome than addressing net metering without due consideration of its context. Solutions that account for system- and context-specific nuances will be needed and can be achieved through consultation and coordination.
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From page 184... ...
and software (e.g., DG performance dashboards and automated fault detection) , has played a central role in making BTM DG and DER integration possible.6,7 Expected to further deepen in the future, digitization will be central to the emergence of coordinated, hierarchical multi-agent systems helping better integrate DER into the grid, further enabling the robustness of microgrids, energy hubs, intelligent energy management, and system-level optimization.8 The committee notes that, among others, the following areas are especially worthy of continued attention in the context of net metering policy evolution: 4 IEA(International Energy Agency)
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From page 185... ...
ELECTRICITY RATES AND NET METERING POLICIES ARE NOT A SUBSTITUTE FOR ADDRESSING SOCIETAL NEEDS MORE BROADLY The nature and extent to which different externalities associated with the production and supply of electricity may be included in rates are governed by relevant state and federal legal provisions applicable within the jurisdiction in which a utility operates. At present, most jurisdictions in the United States do not require relevant externalities (e.g., GHG emissions)
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From page 186... ...
Broader social goals may be best pursued through non-rate approaches, and additional supporting mechanisms that go beyond ratemaking will likely be necessary for attaining certain key objectives, especially equity. With a more open, transparent, deliberate, and intentional approach that leverages the locational, temporal, and contextual value streams of BTM DG, an evolved net metering policy could enable an electricity system that is more sustainable, equitable, and resilient.
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From page 187... ...
Under this condition, net metering will generally result in economically efficient levels of investment in DG technologies, albeit with some rate impacts to non-participating customers. Recommendation 4-2: In the absence of economically efficient rate structures for all customers, the alternative solution may be to implement changes to the net metering mechanism -- either buy-all and sell-all or net billing tariffs -- for DG customers, with DG compensation levels set at or near the social marginal cost of electricity production and delivery.
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From page 188... ...
Regulators and decision makers of publicly owned utilities should ensure that such information is provided to the public in easily understandable and accessible ways. Recommendation 4-7: To the extent possible, BTM DG compensation rates should be location- and time-based, tied to available distribution capacity, to indicate where that DG would have the greatest value (e.g., in relieving or avoiding distribution constraints and/or displacing local generation with high emissions)
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From page 189... ...
Technology Recommendation 6-1: There need to be direct investments in the distribution system to integrate increasing amounts of BTM DG such as rooftop solar, as well as other DER including smart buildings management systems, electric vehicles, and charging infrastructure, to ensure the continued safe and reliable operation of the grid and provision of grid services. Investments will also be required to improve grid visibility to suitably site and operate BTM DG, as well as provide efficient price signals, such that the DG can provide system benefits, particularly local and grid resilience when normal service is disrupted.
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From page 190... ...
Regulatory and Policy Recommendation 7-1: Decision makers about electric utility rates -- including state legislators, utility regulators, and governing boards of publicly owned electric utilities -- should take into account that DG technology costs and market maturity are at a stage both technically and economically, where traditional net metering policies to support the deployment of DGs need to be assessed and revisited. This recommendation applies both to instances where a utility operates in a state that previously adopted net metering and regulators are considering variants to it, as well as in parts of the country that have not yet adopted net metering, and seek to advance BTM technologies, and have the option to leapfrog beyond net metering and adopt other ratemaking variants.
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From page 191... ...
Recommendation 7-4: Given the economic and equity challenges associated with using net metering -- and with financial incentives and programs recovered in electricity rates more generally -- to promote investment in and deployment of DG technologies, policymakers should also consider and where appropriate use other policy instruments, such as tax incentives, building codes, attractively priced loans (or even grants) to low-income households, and other complementary policies.
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