Renewable Energy

Solar firms, power companies battle over 'net metering'

Installation of solar panels on a home in Park Ridge, Illinois.
Tim Boyle | Bloomberg | Getty Images

As solar power expands its reach into greater residential use, can solar companies and utilities find common ground?

The flashpoint is over net-metering—a process where consumers use renewable energy to generate their own electricity, then cut their bills by sending excess power back to the grid at retail rates.

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The system, which saves consumers money on utility bills, is gaining popularity yet remains the subject of fierce debate. At least 43 states have laws making it easy for residents to save via the sun; still, utilities are pushing back against solar's rapid encroachment on the retail market.

The U.S. is consuming more electricity than ever, costing consumers a pretty penny and encouraging them to turn to solar energy, which can save them money. The Energy Information Administration notes that retail electricity is up nearly 3 percent per kilowatt hour in 2014 versus a year ago, with costs rising for 20 consecutive months. This, despite the United States being in the midst of a massive domestic energy boom.

Residential solar on fire
Residential solar on fire

Power companies acknowledge that rooftop panels are forcing them to modernize the grid and rethink their business models. Additionally, residential units can help reduce strains on power systems during peak times and seasons.

"The good news from the net metering perspective is it reduces net demand" on utility companies, said Dan Bedell, senior director of their Principal Solar Institute. "But the downside is that not only are you taking away their revenue, they also have to pay for the excess power at a retail rate."

The rise of solar means utilities "have to price [their] products differently," said David Owens, executive vice president of business operations and regulatory policy at Edison Electric Institute, the association of publicly-traded electric companies.

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"Rooftop solar panels are recognition that technology, public policy and customer preferences are requiring the utilities to look at this differently," Owens said in an interview.

However, he argued that net-metering was creating a classic "free-rider" economic conundrum, where non-rooftop clients are ultimately paying more for electricity than net-metering clients. Certain costs, such as infrastructure and grid usage, are not being captured in what net-metering customers are charged, Owens said.

For that reason, he thinks power companies—as well as other parties—are justified in challenging some of the presumptions behind solar panel use.

Consumers "want choice, but we want to make sure customers at the upper-income bracket are not being subsidized by non-rooftop customers," Owens said. "Utilities are not afraid of competition, but if you're using the grid, you need to pay for it."

Lynn Jurich, CEO of residential solar company Sunrun, said in a recent interview that solar power accounted for at least 50 percent of new electric capacity, helped in large part by a 10 percent year-over-year drop in solar costs.

The breakneck penetration of solar power is making utilities nervous while draining their coffers, Jurich said. She rejected the idea that net metering acted as some sort of wealth transfer.

"Utilities say solar is OK as long as they are the only ones building it," Jurich said.

"We welcome utilities competing in open and competitive solar markets, [but] we are opposed to utilities getting guaranteed profits from ratepayers for installing rooftop solar," she added.

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To be certain, utilities are waging a ground war in multiple states to get governments to reconsider subsidies and pass more costs on to net-metering clients.

However, observers say developments are likely to ramp up in solar's favor. In consumption-heavy places like Texas—the 2nd largest energy consuming state and one of the biggest markets for renewable energy—soaring demand and shuttered carbon-based plants all but guarantee solar will partly fill the void.

"What you're going to see across next 2-10 years is a big increase in solar, but not a big decrease in base load generation," said Principal Solar's Bedell. "Fossil fuel will continue to carry the torch until [solar] batteries become really big and really cheap."