Net Metering Update--Need For A National Law

Yesterday, the Curmudgeon highlighted a report from the Network for New Energy Choices grading various states' net metering laws and giving Virginia a "D".

We've since done some more research and concluded that the NNEC report, while useful in some respects, was misleading and confusing in others. So we want to correct the record and pull together some additional information here.

One of the things we learned is that the NNEC, which issued the report last November ('06) had some out of date information, including with respect to the states that don't allow net metering. It turns out that only 10 states (not 16 as NNEC reported) don't have net metering laws. For example, North Carolina, listed in the NNEC report as not having such a provision, in fact allowed net metering starting in 2005 (via an order from the Public Utilities Commission). We're sorry to say that our native state of South Carolina--whose couple hundred miles of beautiful coastline and whose historic city of Charleston are potential victims of global warming and superstorms--hasn't bothered to allow net metering yet.

We also looked at the methodology of the NNEC's report and concluded that it was not very sound. In grading states' net metering laws, the NNEC gave considerable weight to the number of customers who had signed up for the net metering programs. The problem with this is that those numbers are heavily confounded by other state laws, mainly those that in some states provide direct subsidies and tax breaks to individuals and businesses who install green energy generation.

For example, both California and New Jersey, which earned an "A" grade from NNEC, heavily subsidize solar, wind and other renewable energy in their states. It is those subsidies--not the net metering law per se--that have put those states far ahead of everyone else.

The NNEC also penalized some states for their limits on the size of alternative energy generators that could be plugged into the net, and provisions such as requiring liability insurance. In Virginia, the net metering law limits homeowners to no more than a 10 kw system, which we yesterday said was too small. At the time, however, we misunderstood what this means. It turns out a 10 kw system for a homeowner is pretty big. The Curmudgeon's solar photovoltaic array, which has 14 panels, is rated at 2.3 kw. Few homeowners could fit anything four times that size on their homes (and it would cost $75,00-100,000). Still, the limit should be raised since some farm owners could install very economical wind generators well in excess of 10 kw.

In contrast, Virginia's limit for commercial enterprises is 500 kw, which is a pretty large system. (We'd like to see it raised to 2 MW to encourage large businesses--such as AOL--to go for bigger systems.)

Virginia also requires generators in the net metering program to have liability insurance, but it turns out that a standard homeowners policy will suffice as long as it does not have specific exclusion against loss arising out of the use of a renewable fuel generator. So this is really not much of a disincentive.

Virginia requires a utility to carry forward any net generation for a year (this is important, because some generators create more electricity than they need in some months and use more than they generate in others--the carryforward smooths out the peaks and valleys). And Dominion Virginia Power will consider entering a purchase power contract with someone who's generating a lot of excess electricity.

The one real problem with Virginia's law is that it limits participation in the net metering program to 0.1 percent of a utility's total peak demand for electricity. In other words, if the number of participants exceeds 0.1 percent of Dominion's peak demand, Dominion can turn down additional participants. This is a silly limitation--Virginia should hope that participation will grow as large as possible. If a limit is kept, it should be set at 5 percent. Utilities benefit from net metering because it reduces overall demand and thus staves off the building of expensive new plants and controversial high voltage transmission lines. Also, solar generators tend to produce the most energy during periods of peak demand, thus decreasing the need for a utility to purchase very expensive peak power. Accordingly, any claim that expanded participation in net metering will hurt the utility or its ratepayers is hogwash.

While we think the NNEC's grading of the states was misleading--we'd give Virginia a "B"--maybe a "B-"--the report does have some utility. It notes "best practices" among the states, which in turn can be used to model much needed federal legislation.

Here's what we'd like to see from Congress. A national net metering law based largely on that in New Jersey, which would require all utilities to allow net metering. The stated goal of such legislation should be to encourage 5% of all electricity generated in the U.S. to be from net metered installations by 2017. (That's a lot of electricity--about 200 billion kilowatt hours.) There should be few limits on the size of net metered generators and paperwork should be kept to a minimum (Dominion's form is pretty easy to use). The law should also preempt localities from discouraging net metered home installations--we recently saw a report from Scarsdale, NY where the village council prohibited a couple from putting solar panels on their roof because neighbors complained about possible glare.

Net metering alone, however, will not get us where we need to be. Congress also needs to pass a package of generous tax incentives for individuals and businesses to install renewable net-metered electric generation. At present, federal law allows a tax credit for an individual of up to 50% of the cost of certain renewable energy sources, but the credit is limited to $2000. That means on a solar panel array costing $20,000, the credit is actually only 10%. Congress should remove, or greatly increase, the limit on the tax credit, and use elimination of tax subsidies for oil to fund the increased cost of the credit. A true 50% tax credit on renewable net-metered generation would make solar economical and would spur creation of a huge industry to meet demand for these types of installations.

We believe this is an area where bipartisan action can and should be taken--almost everyone has something to gain: utilities put off expensive new plants and purchases of peak power; every state gains new jobs and businesses installing net metered generation; we reduce the need for foreign oil imports and we reduce carbon emissions. What's not to like?