Solar net metering, a system that forces utilities to pay more for rooftop solar energy (the “retail” rate of electricity) versus the typical wholesale price they pay for all other electricity, has failed.
After years of losses for taxpayers and consumers, solar net metering may finally be on its way out. A recent decision from the North Carolina Utilities Commission significantly cut mandated payments to rooftop solar owners, while the state’s regulators rejected a “monetary incentive” that would have amounted to a solar bailout package.
California has also rolled back its regressive net metering policies. In December, the California Public Utilities Commission unanimously voted to slash export payments for rooftop solar contributions to the grid by 75 percent.
This shift in policy will be a boon to struggling households who have shouldered higher electricity prices resulting from out-of-control solar subsidies. It’s time for more states to move away from unfair net metering policies and embrace innovation and competition in electricity markets.
For years, “green” energy advocates have argued for higher net metering payments to level the playing field and incentivize cleaner electricity production. However, mandating that utility companies pay more for rooftop solar energy than the usual wholesale price for other types of electricity is a recipe for fiscal disaster. Utilities must find a way to recoup these incentive payments, and the increased burden inevitably falls on low-income households.
According to 2021 data from the Lawrence Berkeley National Laboratory, the median household with a rooftop solar system has an income of $110,000, compared to about $65,000 for all households. Therefore, any policy that results in higher electricity prices across-the-board to subsidize rooftop solar will disproportionately affect middle- and lower-income Americans.
As energy and electricity expert Lisa Wood noted in 2016, “The fundamental source of the NEM (net metering) subsidy is the failure of NEM customers to pay fully for the grid services that they use 24/7, and the cost of these services can be quite substantial. When a NEM customer doesn’t pay for the grid, the cost is shifted onto non-NEM customers. It is a zero-sum game; plain and simple.”
This often results in hundreds of dollars in annual subsidies accruing to rooftop solar households, which adds up over the 20-to-25-year lifespan of a private rooftop solar system. These failed policies have hit struggling households especially hard amid historically high inflation.
Although overall inflation has slowed to a (still high) 4.9 percent, electricity costs have spiked 8.4 percent over the last year. Unless prices get under control, millions of Americans unable to afford air conditioning will be stranded in dangerously hot houses this summer.
Net metering policies are as regressive as they are unnecessary. Rooftop solar is a far less efficient route to low-carbon energy than large-scale utility solar, which is rapidly gaining ground across the country. And, unlike rooftop solar, utilities don’t need to break the bank or bilk consumers to get large solar installations up and running. Texas will soon produce more utility-scale solar than California, building capacity faster than any other state. That’s not because of generous state-level subsidization schemes. Utilities and energy companies in Texas have realized that large-scale installations can make economic sense and save consumers money over the long term. There is no need for bureaucrats and regulators to micromanage consumers’ electricity choices and hike prices.
It’s the beginning of the end of net metering policies, and ratepayers across the country can look forward to lower prices and increased innovation. But the fight is not over. Lawmakers and regulators must work together to curb these failed policies and deliver savings to households.