by Tom Konrad, Ph.D.
Net metering is unfair and is dangerous for the long term health of utilities, at least according to Raymond Wuslich, when he spoke at the 2015 Renewable Energy Conference in Poughkeepsie, NY. Wustlich is an attorney and partner at Winston & Strawn, LLP., and advises clients across the electricity and natural gas industries on Federal Energy Regulatory Commission (FERC) matters.
To make his point, Wuslich used a simplified New York residential electric bill. In this simplified bill, the customer was charged 12¢ per kWh for electricity. Roughly 6¢ each go to the energy supplier and the transmission and distribution utility, which owns the wires, for the delivery of electricity. (New York has a competitive power market, where power suppliers are separate from the utility companies. Consumers are able to switch between suppliers at will.) Of the 6¢ which pays for energy, he states that 4¢ is for capacity charges (keeping the power on) and 2¢ is the cost of energy delivered.
Using this simplified example, Wuslich argues that net metered customers are only providing 2¢ of value for each kWh they generate, but are receiving 12¢ of value. If it were true, this would clearly make net metered solar unsustainable as it grows as a percentage of the electricity mix. We can start to see why with a quick look at my most recent electricity bill, below. The red explanatory text is mine.
We can ignore the fact that I actually paid an average of 23¢ per kWh for the net 886 kWh I used over two months; Wuslich’s point related to percentages of the bill going to delivery, capacity, and energy, not the absolute numbers. Much more important is that $48, or almost a quarter of the total bill, is not paid on a per kWh basis at all. This money helps pay for delivery, and cannot be offset with net metering. All else being equal, increases in net metering will cause electric delivery payments to fall, but not as much as Wustlich’s example implies.
The other major oversimplification is that the price of both energy and capacity change with the time of day, the season, and weather conditions. The cost of electric capacity and the cost of delivery are both highest when load peaks, and are much lower the rest of the time. Capacity costs are lowest at night when most people are sleeping and electricity demand is low. On average, solar photovoltaics (PV), are producing power when capacity prices are high.
Electric capacity prices are highest when electric load peaks. In New York, this peak is usually “Thursday or Friday afternoon at the 3rd or 4th day of an extended heatwave,” according to Richard Barlette, who also spoke at the conference. Barlette is the Senior Manager of External Affairs at The New York Independent System Operator (NYISO), the non-profit governing body which manages New York’s transmission grid.
A look at NYISO’s 2015 Load and Capacity Data Report or “Gold Book” shows that residential solar PV pulls its weight when it comes to meeting peak demand. In fact, NYISO projects that behind-the-meter PV will more than carry its weight in 2025. As the chart below shows, in 2015, retail PV will contribute slightly less to meeting statewide peak than it contributes to meeting annual energy demand, but that ratio is reversed in the most expensive capacity markets: New York City and Long Island. There it contributes more to peak demand than to annual energy use.
NYISO’s projections for 2025 show retail PV providing greater capacity benefits, not fewer, with capacity benefits felt statewide.
In short, the capacity value of net metered solar in New York is roughly proportional to the energy it provides for New York’s electric grid, and it even delivers a bit more value in the most capacity constrained parts of the state.
Although net metering policy was not intentionally designed to match the value of solar to its cost, the policy is currently doing a decent job of compensating homeowners fairly for the value their solar provides to the grid. Contrary to the worries of industry representatives like Mr. Wustlich, in ten years, net metered customers will be delivering more value to the grid than they will be paid for, not the other way around.
Maureen Helmer led the New York State Public Service Commission (PSC) when the state created its competitive market for electricity in the 1990s. At the time, she said utilities were very concerned about “stranded costs,” and not getting paid enough for the generation assets they were being forced to sell. But this worry turned out to be unfounded, since the assets all sold for good prices.
Now New York is again working to modernize its electricity market with the “REV” (Reforming the Energy Vision,) and utilities are worried about net metering. These worries also seem likely to be unfounded.