National Geographic News
Jon Kirkpatrick, bottom, and Bevan Walker install a solar panel  for SunCommon on Monday, April 29, 2013 in Montpelier, Vt.

Workers install solar panels in Vermont. With the rise of residential solar in the United States, some utilities are protesting net metering policies that allow customers with solar to pay less for power.

PHOTOGRAPH BY TOBY TALBOT, AP

Ker Than in San Francisco

for National Geographic

Published December 24, 2013

An energy revolution is happening atop homes in the United States, with one new rooftop solar system being installed every four minutes in 2013.

Great for the environment. Not so good for the U.S. electric companies that happen to be in solar energy hot spots.

U.S. policymakers encourage and subsidize solar installations by allowing solar households essentially to run their electric meters backwards if they generate enough energy to feed into the grid. Each month, those households pay utilities less, sometimes much less, for energy. (See related blog post: "Time to Break Free of Net-Metering; We Need a 'FIT' Policy for Renewable Energy to Soar.")

These so-called "net metering" policies are adding up to a headache for electric company officials, who are watching monthly utility income shrink as more and more solar panels crown the homes in their service areas. (Take the related quiz: "What You Don't Know About Solar Power.")

Many solar advocates see this as a positive demonstration that renewable technology is on its way to revolutionizing the deeply entrenched fossil-fueled energy system. But utilities argue that solar households are avoiding paying their fair share for the electric grid they still rely on, and the long-term investments the companies have made in power plants and the delivery grid. Solar rooftops represent "the largest near-term threat" to the utility business model, a "disruptive challenge," even though they still represent less than one percent of the U.S. retail electricity market, an industry study said earlier this year. (See related story: "Desert Storm: Battle Brews Over Obama Renewable Energy Plan.")

A backlash has begun in the leading U.S. solar markets, with utilities seeking to scale back net metering or increase what they charge solar households.

In California, the number one state for solar energy, a months-long lobbying battle raged until this fall, when lawmakers crafted a compromise. Sacramento preserved net metering for now, but directed the state's Public Utility Commission to come up with a new program by 2017 that ensures nonsolar customers don't get stuck with an unfair burden of paying for the grid. Next door in Arizona, regulators also deferred a showdown, voting in November to allow the state's largest utility to tack an additional fee, about $5 a month, on the bill of customers with new solar installations. It's far less than the $50 monthly surcharge Arizona Public Service originally sought.

And in Colorado, the state Public Utility Commission is weighing a request by the state's largest power provider, Xcel Energy, that the credits that solar households see on their utility bills for rooftop-generated energy be slashed in half. Hearings are scheduled for early February, with a decision sometime in the first half of the year. Skirmishes over the issue also have erupted in Louisiana and Idaho.

"Net metering allows consumers to build a system on their roofs that is enough to offset their electricity needs," said Bernadette Del Chiaro executive director of the California Solar Energy Industries Association (CALSEIA), the state's oldest and largest solar trade association. The organization's web site calls the overhaul now being weighed by the state PUC both "the greatest opportunity and threat to the solar industry." Net metering is "really critical for making solar make sense and work in a residential sector," said Del Chiaro.

But utilities argue that net metering enables solar customers to benefit from a reliable electric grid without paying for its use. "It's not about lost revenue . . . We want to make sure the grid is maintained, that it can be enhanced, and that cost shifting does not occur," said David Owens, executive vice president of business operations at the Edison Electric Institute (EEI), a Washington, D.C.-based association that represents investor-owned utilities. (See related story: "Post-Hurricane Sandy, Need for Backup Power Hits Home.")

Solar Boom

The net metering conflict has erupted because of one important development: Solar is now within the price range of far more customers. Since 2008, the price of the photovoltaic (PV) panels that convert sunlight to electricity has fallen by 75 percent, and solar installations have multiplied tenfold. Some homebuilders even include rooftop panels as a standard feature on new homes. Making solar even more affordable is the proliferation of solar leasing companies, which build and retain ownership of rooftop systems; customers can avoid making large upfront payments for installation, instead paying a monthly lease or power purchase fee. Two-thirds of solar installations in California in the past two years were done under lease agreements.

The third quarter of 2013 turned out to be the largest ever for residential PV installations in the United States, with the amount of additional new capacity up 35 percent over a year ago. This year is likely to be the first time in more than 15 years that the U.S. installs more solar capacity than Germany, the nation with the most installed solar capacity, according to GTM Research forecasts. That puts the U.S. third in the world in pace of solar installations, behind China and Japan.

In the United States, there were at least 302,000 "distributed" solar installations—essentially, systems on rooftops, not at power plants—installed across the United States in 2012, and the number could grow by a third in 2013, according to the Solar Electric Power Association (SEPA). More than 99.5 percent of those installations were net metered. Those solar systems add up to 3,440 megawatts of capacity, nearly as much as the largest nuclear power plant in the United States, Arizona's Palo Verde. But it still represents a tiny fraction of U.S. electric power plant capacity, 1.2 million megawatts spread through 19,023 generating stations.

Net metering policies, currently enacted in 43 states and encouraged by U.S. law, require utility companies to credit customers for solar energy they generate in excess of their own household or business needs. When a rooftop system delivers this extra energy to the grid, the customer is compensated with a bill credit, often at the same rate per kilowatt-hour that customers pay for power from the grid.

Just how quickly those solar credits could be adding up in California became clear earlier this year when the California Public Utility Commission published a controversial report concluding that by 2020, net metering could end up costing nonsolar customers at least $370 million annually, and—by one calculation—as much as $1.1 billion. (See related story: "Mojave Mirrors: World's Largest Solar Energy Ready to Shine.")

Adam Browning, executive director of the nonprofit Vote Solar Initiative, scoffs at the higher figure, which includes not only energy the solar households send to the grid, but the power they keep for their own use—energy that never touches the grid and has no impact on other ratepayers. "It's the functional equivalent of you turning off your lights and getting accused of raising everyone else's rates," Browning said.

CALSEIA's Del Chiaro agreed. "If you were to put an energy-efficient refrigerator in your home, and you cut down your refrigerators' electricity usage in half, would that be a cost to your neighbor? Of course not," she said.

Cost Shifting

Utilities argue, though, that solar rooftops don't remove load from the system exactly as energy-efficient appliances do; the utility must still be ready and able to provide power to that household or business if the sun isn't shining. And utilities say that neighbors without solar rooftops will end up footing an unfairly large share of the bill for maintaining that electricity system without net metering reform. Owens noted that the money customers pay to the utilities is not only used to maintain wires and other equipment  necessary to ensure 24/7 electricity for customers, but also to modernize the grid. (See related story: "'Flexible' Power Plants Sway to Keep Up With Renewables.")

"As these technologies evolve . . . we have to make sure they operate correctly with the existing equipment . . . Sensors and monitors are important investments in the grid to permit these technologies to evolve," he said. (See related blog post: "As U.S. Plans $7 Billion Effort to Electrify Africa, It Faces Challenges at Home.")

And if utilities are forced to raise their electricity rates to make up for the money being lost from solar households, the bulk of the costs associated with maintaining and improving the grid will get shifted to middle- and lower-income families, Owens said.

"That cost shifting is not something that's beneficial to the public interest," he added.

The California Public Utility Commission's net metering report provided evidence that bolstered that argument; it showed most Golden State homeowners who have solar systems are high energy users with an average household income of $91,000—well above California's state average of $54,000.

Those figures included Californians who installed solar as far back as 1999, and that profile may be changing as solar costs have gone down. A recent analysis by the Center for American Progress concluded that in Arizona, California, and New Jersey, rooftop solar installations are overwhelmingly occurring in middle-class neighborhoods that have median incomes from $40,000 to $90,000. But whatever the income differences between solar and nonsolar households, utilities argue that someone will need to bear the costs of long-term investments in power plants and the grid that state regulators approved years ago.

The new law passed in California "begins to address the issue of cost shifting, and it acknowledges that there is an infrastructure called the grid that must be paid for," Owens said.

But a battle is ahead on the details. One idea being considered in California is to charge solar customers a monthly fee, similar to what Arizona regulators did. Another proposal would allow utilities to pay a wholesale rate for electricity generated by rooftop solar systems, which can be several times lower than the retail rate.

That's similar to the proposal by Colorado's Xcel Energy, which has asked state regulators to reduce the net metering rate from 10.5 cents per kilowatt-hour to 4.6 cents. "Times have changed" since the early days when solar needed help getting off the ground, Xcel says.

Solar advocates agree that times are changing, but they say utilities are the ones that are failing to adapt. "Paying only 3.5 to 4.5 cents per kilowatt-hour for electricity generated at the point of usage inside a distribution network at peak period times of day is simply highway robbery," Browning said.

Rather than raising rates, utilities need to rethink their business model, Browning said.

"What we're looking at here is a total potential transformation of the energy business," he added. "There's a regulatory compact that gives utilities a monopoly to serve the public good. The public good is a renewable future, and either they adapt to these new realities, or they'll go the way of the dinosaurs."

SEPA is in a unique position, with members including both utilities and companies in the solar industry, and it has tried to seek a middle ground. Eran Mahrer, SEPA's executive vice president for research and strategy, notes that on the one hand, utilities believe net metering fails to put a proper value on the grid that solar households continue to rely on, for power when it's nighttime or cloudy, and to help manage excess power they produce during the day. On the other hand, the solar industry says utilities are failing to see the premium value of the renewable energy they provide, Mahrer says. "It's clean. It helps meet policy objectives," he says. "It lightens the burden on transmission. It reduces operating costs. It very likely delays the need to make new investments because the solar energy peaks in the middle of the day at the peak time for consumption."

SEPA's view is that electricity rates, as currently designed, don't show clearly either the value of the electric grid, or the value of solar energy, and aren't very transparent about other system costs and benefits. Because rooftop solar is going to be playing an increasingly important role in the energy mix, SEPA argues that utilities and other stakeholders need to collaborate on a new approach for utility billing to reflect the evolving power system. "Through collaboration the two industries can work to maximize the grid value of the solar resource while also continuing to drive down the costs," says Mahrer.

The result may be utility bills that look very different than today's. Some experts, for example, have noted that "time-of-day pricing"—charging more for electricity used in peak daytime hours, and less at low usage hours—is more friendly to solar energy than today's flat-rate structure. And few other nations use net metering as a way to incentivize solar. Other leading solar energy nations, such as Germany and Japan, instead use feed-in tariffs, which set an above-market price for renewable power based on its higher cost and perceived higher value, giving consumers an opportunity to make money from their investment (as opposed to just gaining a break on their utility bill). Household electricity prices average 55 cents per kilowatt-hour in Germany, compared to 13 cents in the United States.

U.S. Energy Secretary Ernest Moniz says the net metering dispute is an important milestone for renewable energy. "Without taking sides in the argument, [the net metering disputes are] one indication that this is 'revolution now,'" he said at a Washington forum on energy security earlier this fall. "These things are all coming to a clash, and challenging business models. That to me is a pretty good definition that these are technologies whose time is really here and now."

Marianne Lavelle also contributed to this report.

Follow Ker Than on Twitter.

This story is part of a special series that explores energy issues. For more, visit The Great Energy Challenge.

31 comments
John Davis
John Davis

The electric utility MONOPOLY must be preserved.  It is not viable as a pseudo monopoly.  Solar power customers benefit at the expense of customers using the local utility.  They are being selfish.  What is good for one is bad for the other.  Either everyone is on the ship and sailing together or it's every man for himself.  Private solar panel ownership is the road to destruction. 


Consumers that install rooftop panels or on-site panels CAN NOT EVER GET OF THE GRID ENTIRELY.  They will always NEED the grid to back-up their personal system.  They are only trying to beat the other ratepayers out of some of their money.  Rooftop panel owners are simply trying to cheat the system.  There is not sufficient consistency for rooftop panel owners to go off the grid.  They are simply cheaters trying to cheat the rest of us out of a few bucks; whatever they can get.   


Solar power must be obtained by the regulated local utility monopoly and distributed.  ALL CUSTOMERS must have the utility grid as a reliable back-up system.  The current episode is one of individual customers competing with other customers creating winners and losers.  This rooftop installation cannot continue and must be stopped.  Solar power, if it is effective, must be a tool used by the regulated local utility monopoly. 

Samuel Brown
Samuel Brown

The more solar the better. As more solar comes on line the utilities will need to raise the base fee in order to pay for the grid. Solar is perfect for air conditioning and summer time peak loads. the utilities will need to adjust their business plans because we need to go the renewable way.

Seth Masia
Seth Masia

Rooftop solar is most valuable when summer air conditioning loads peak, so it makes sense that utilities pay retail for it then. This issue has history going back to 1989, when the value of rooftop solar was first demonstrated on the Northern California grid. The reason 43 states adopted net metering is that the value of rooftop solar in reducing grid costs was proven back then.  Here's an article we posted on Dec 6 stating the case concisely:

http://solartoday.org/2013/12/utilities-fight-net-metering-state-by-state/

Diane Osgood
Diane Osgood

Xcel in Colorado charges under 5 cents per kilowatt hour in the winter months as the cheapest rate. So it would seem kind of crazy to credit solar net metering customers with 10.5 cents, which is the peak summer rate. The 4.6 cents seems reasonable. Xcel needs to make a bit of profit for metering and supplying electricity to all households. This way as more and more solar goes online, utilities would not lose any money because of it. Utilities would just lose revenue from the solar customers, but make a little profit on installed solar panels net metering. That way, as more and more solar is installed, it is a least a small profit center for utilities. Utilities do have to maintain the grid, and also plan for peak loads, determine power plant capacity and demand. Everyone would scream if they did not maintain the grid and supply the power everyone needs! We have too many trees to have solar panels, but I really think it is the future even though I cannot part with my trees as they are too beautiful and block noise and sun in the summer. All schools, new buildings, etc. should have some solar. Also, Xcel has had a problem with peak A/C load in the summer and solar panels should really help with that. Increased solar usage also reduces the need for new power plants. But, all this has to be planned for and the grid and metering has to make sense for the long term benefit of everyone.

Patty Gutierrez
Patty Gutierrez

Boohoo. I'm sorry but I don't feel sorry for the utility companies at all. Their greed, AND the fact that not everyone is charged equally for the electricity they use is the reason I went solar. (And I haven't regretted it since I did it.) And by the way, PG&E (California) ALREADY pays FAR LESS than retail for the electricity that they get from our panels when there is a surplus. 

What I see happening if the utility companies keep whining is a huge move for people to say "screw being on the grid" and they will simply find a way to live off the grid.

William Hurley
William Hurley

More than a little ironic, one might say, that producers are now whining about the national grid's issues - technical, managerial and developmental - after decades of neglecting the very infrastructure that each utility and every generation facility depends upon.  Though I take some joy from home- and small business-owners' turning the the utilities' "externaitlies"-based business cases against them, the state of the grid is truly a national disgrace and is, IMHO, one of our most under-appreciated national disasters (albeit happening in slow motion).

As others have noted, the Obama Admin's vision, leadership and funding for its grid rehabilitation crusade combine a weak strategic response with costs that are both too high given the outcome potential of the President's plan while also being a mere trifling given the breadth and complexity of the real problems.

In an odd and possibly instructive way, I'm reminded of the the time a guy in my high school shop class tried to retrofit his mom's old Pinto with a rebuilt 426 Hemi.  His sunk costs (time included) to performance outcomes were ridiculous - considering that the Pinto's frame buckled under the toque the first time he put "peddle to metal" in his mom's driveway.

Bill Streeter
Bill Streeter

Obama Stimulus provided 4.5 billion for upgrading the power grid (important public infrastructure that everyone relies on). But estimates are that the actual cost of the build out of a smart grid is 20-30 billion over 20 years. Or about half what we've spent in iraq to date. Clearly Iraq was the better investment. 

Chris Buckshaw
Chris Buckshaw

Don't forget that two California cities have now made solar mandatory for all new home constructions...

Sales Boseconstruction
Sales Boseconstruction

As we all say in this industry that this is a good dispute to have. Utility GIANTS are taking notice of us.

Sales Boseconstruction
Sales Boseconstruction

As we all say in this industry that this is a good dispute to have. Utility GIANTS are taking notice of us.

Justin Case
Justin Case

Anybody who has taken Economics 101 knows that utilities make super profits by doing ONE THING. 

Anybody remember what it is?

Restricting supply. The truth is that utilities WILL complain about rooftop solar given half a chance because they lose their main route to profit, which is "restraint of trade." 

Does anybody remember why society ALLOWS utilities to exist as monopolies? Anybody?

Because it is assumed that they can supply electricity, water, gas, etc. at a lower cost than anyone else, provided that they can operate on a huge scale. 


What happens when someone comes along who can supply it at a lower cost? What happens when the utility cannot control both supply AND demand?


I'll give you a hint. 

AT and T. 


Environmentalists should fight these fees based on Federal Antitrust Law and stop messing around with states. 

Justin Case
Justin Case

Utilities claims ring hollow. The "infrastructure" that they claim is so costly was largely put up generations ago, on land bought from the state at a penny or so per acre. Those power lines stretch over public and private property. More than that, it is all depreciated now. It is off the books and they aren't making payments on it anymore. 


And utilities are not "companies." They are monopolies. Because they are monopolies they DO HAVE certain duties and responsibilities beyond mere profit. One of them is to act for the benefit of society. 


In my opinion, utilities that complain about somebody FINALLY taking and risk and producing clean energy ought to be smacked hard by government and regulating bodies. They need to remember where they came from and whose interests they need to be serving. They can make a dime, but once they put profit before rate payers, the environment, national security, and public welfare, they need to have their charter yanked.

Who Dung
Who Dung

If solar users are reaping the benefits of net billing by producing excess energy and then transferring that energy back into the grid...they ARE using the grid.  The most simple solution is to separate grid maintenance costs/fees from generation cost/fees as mentioned above.  Anyone connected to the grid and uses it in any way, shape or form (taking energy out or putting energy back in) needs to pay a flat maintenance fee.  Once that is done, homes that use grid power pay the per kw/hr fee and homes that produce net power back to the grid are credited an equal per kw/hr fee.

The grid is maintained by the flat fee and energy users/consumers are treated equally using the separate kw/hr charge/credit...there you go.

Also, public power districts and cooperatives really need a model like this to maintain their infrastructure and pay employees.  As far as "private" power companies are concerned...I have little sympathy for billionaire hedge fund investors who whine about not making a profit on average peoples' needs.  I say all power generation and transmission should be in the form of public cooperatives; NO private investors.  We can do without the fat cats.

Jed Snole
Jed Snole

Big business and tea party types have been telling us that we're on our own when it comes to looking out for our financial well-being. No more pensions, no more dependence on Social Security, no centralized health care. We have to cope with changing times on our own, and if we guess wrong, we suffer the consequences. But when the big utilities are caught off guard by changing times, then that's our problem and we have to pay the bill to keep their revenue stream steady. What's wrong with this picture? 

Patrick Andersen
Patrick Andersen

Clearly the industry isn't structured to properly support multiple wholesalers, and they're whining about it. There apparently needs to be a better flat fee for being hooked up to the grid and a representative wholesale price that grid-injectors are paid for their solar/wind/whatever. Presumably if enough people move to small scale power generation, there will be an opportunity for the electric company to move to a new business model focused more on providing interconnectivity and power stability rather than bulk generation.


This is a pricing problem exacerbated by a changing business climate, nothing more. The utilities are going to resist that change, whine and moan about it and try to get governments to keep things the way they are, it's what large businesses do.

Richard Engelmann
Richard Engelmann

The entire nation is in peril with a barely capable power grid. Developing it to accommodate all sources of power including temporal power generation (wind and solar) is an urgent national need, and it is time to address it as such.


Billing practices that do not show separately the cost of power generation and grid costs are the root of this dispute. It is time to separate these costs, and ask everyone including solar households to pay for grid use separately from power generation. Market forces and public policy can then drive appropriate action.

Vasuki Nag
Vasuki Nag

Instead of penalizing clean energy, utility companies should be forced to pay for the pollution caused by burning of coal and natural gas. This will correct the distorted energy market, where polluters are getting a free ride although they are causing catastrophic global warming. If proper carbon tax is implemented, it will automatically force utility companies and auto manufacturers to quickly switch to non polluting renewable energy.

Phillip Noe
Phillip Noe

"...nonsolar households end up with higher costs."  Good!


Those that use more polluting sources of energy SHOULD pay more for more polluting sources of energy.  Tax pollution and subsidize the shift to cleaner alternatives.


www.ExhaustingHabitability.com

Edward McDowell
Edward McDowell

Why spend billions centralizing power production using nuclear reactors (and creating massive security headaches with single points of failure) when we can make every rooftop an energy source? We just need to refocus the role of utilities to create energy grids utilizing these new resources that are self reconfiguring like the internet.

Jerry Vulstek
Jerry Vulstek

Homeowners with solar have infrastructure costs also. Relatively speaking, I would dare say that their costs are higher. To tax solar users because they don't support the public utility's grid is stupid. Isn't that what the billions of dollars of subsidies and tax write offs to the utility companies were for?

Daniel Phelan
Daniel Phelan

Hey guys.  You can't stop the inevitable.  The harder utilities push against the adoption of PV and wind power the faster the energy storage technologies pick up the slack. One day the utilities will become ancillary services. 


Get in the storage game now before the democratization of energy makes your utility business useless.  Utilities need to become part of solution or risk going the way of the dinosaur.

Electricity is the future of energy, let generate it as cleanly as possible.

Dan Wil
Dan Wil

@John Davis 

WOW!  Thank you for the laugh...

But seriously, roof top solar panels are a good thing and you know it.

It allows people to supplement the power that the energy companies use so that those who do not have access to solar panel arrays may have more power.


The issue is that the energy companies are trying to whine that money is not the issue but in fact it is.  They want more.


I know many people with solar arrays who would love nothing more than to get 'off the grid' so to speak; rely upon their own power and have no relation (except to charge for land rental for the poles) with the energy companies at all.


Eventually, residential power supplies will supplant large energy suppliers as more and more people go 'off the grid'.


Soon the best of all worlds will be "Solar power", 'Electric cars" and "fresh water production all off the grid.

Andrew Hvatum
Andrew Hvatum

@John Davis  


Exactly, this is like the mob telling a store owner they are going to now sell tomatoes, but they'll deliver them whenever they feel like and the store owner needs to pay full retail price. The store owner still needs to place his weekly order of tomatoes because he doesn't know if the mob will deliver this week or not, it's just an extortion racket where some tomatoes end up spoiled. 

Justin Case
Justin Case

@Who Dung The flat fee is commonly applied by all utilities I know of. I am not sure why it should be charged by the kilowatt hour, though. A fixed cost is a fixed cost and ought to be split up among everyone.

Justin Case
Justin Case

@Patrick Andersen It is truly pathetic, that whining and moaning you are referring to. What the article does NOT say is that there are utilities, not just worldwide but even in the US, embracing the new model of supply and demand. 


In my case, my solar array supplied power to me and my neighbors during a power outage. My off peak usage has increased because of various appliances I use at night now. My daytime generation of electricity far exceeds my needs and goes to meet the needs of my neighbors during peak hours. 


All in all, my PV system has been a boon to my community AND to more rational usage of power supplied by the utility. 


Utilities are whining and moaning, but only the stupid ones. The smart utilities are figuring out how to work with these rate payers, who are generally consumers who are not poverty-stricken pains in the you know what.


Tara Enovich
Tara Enovich

@Phillip Noe So you're saying... middle to low income households who do not have the cash to install solar panels should pay more because... people who can afford to install solar panels are driving up the costs? Did you know that in general it's the more affluent (aka the people with the cash to install solar panels) people who use the most energy? Did you know that just because a household has solar panels does not mean they are not using fossil fuel produced energy from the grid? So, in many cases people with solar panels on their homes are still contributing MORE to pollution in terms of using "polluting sources of energy" during the hours, days, MONTHS that the sun doesn't shine than many low income homes who use far less energy throughout the entire day? That's like, taking from the poor and giving to the rich.

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