Why rooftop solar is not a cost-shift
This piece was written by Solar United Neighbors intern Lea Booth
You may have heard utility arguments about “cost-shifting” in debates around solar power. So, what do they mean?
Many utilities have a long history of hostility to rooftop solar. This is particularly true for regulated, for-profit monopoly utilities. Utilities see rooftop solar systems as a fundamental challenge to their business model. These utilities make money by selling and transmitting electricity. The more electricity they sell, the more profits they make. Homeowners and businesses buy less electricity from the utility when they install solar. Customers want to go solar to save on their electric bills and to generate their own power. The way our electricity system is set up encourages utilities to fight rooftop solar.
Utilities try to discourage people from going solar in various ways. They impose expensive and arbitrary fixed and demand charges on solar users. Further, they balk at providing fair credit for the electricity solar owners generate. This crediting system is known as “net metering”. Net metering is a common-sense policy. It requires utilities to credit the excess power from rooftop solar systems at the same price at the utility sells power to customers. Net metering has enabled millions of Americans go solar. This is why utilities seek to weaken or end it.
Utilities wrongly argue that net metering creates “cost-shifting”. That is, solar owners are not paying for their fair share to maintain the grid. Some of the electricity solar owners use will come from the electric grid. So, solar homeowners are being “subsidized” by non-solar owners.
This cost-shifting argument may sound plausible at first glance. The truth is that rooftop solar ownership does not cause unfair cost-shifting. Rooftop solar actually saves all ratepayers (and the utility) money. It provides social and environmental benefits for everyone.
Researchers and public utility commissions have studied how solar ownership affects non-solar customers. The majority of research shows solar owners actually pay more than their fair share of the grid’s costs. The Brookings Institution conducted a review of these studies in 2016. It found net metering actually undervalues the energy solar owners send back to the grid.
Maine’s Public Utility Commission found distributed solar should be valued at $0.33 per kWh. This is $0.20 per kWh less than Maine’s average retail price of electricity at the time. Retail rate net metering was underpaying solar owners in Maine. The Nevada Public Utility Commission found net metering added $36 million in value to the grid. This means that rooftop solar saves both solar and non-solar customers money.
Utility regulators in Mississippi, Minnesota, and Vermont found similar results. University researchers and think-tanks have backed this conclusion as well. So, why the discrepancy between claims of cost-shifting and these studies? The problem with the cost-shifting argument is that it includes only the costs. It includes none of the benefits of solar ownership to the grid.
Going solar actually creates grid savings that benefit utilities. Customers who go solar provide electricity that feeds into the grid. This means the utility no longer has to build as much costly power generation capacity.
Most power plants are located far from customers. This requires utilities to send electricity across great distances. Building and maintaining this transmission infrastructure is expensive. Moving electricity over these power lines wears them down over time. Solar ownership reduces the amount of power utilities need to send across the grid. This means the utility can spend less on the construction and maintenance.
Rooftop solar also reduces costs because it is a clean energy. Sunlight is always free. This makes the price of solar stable compared to fossil fuels. Utilities have to clean pollution and other health hazards from burning fossil fuels. Adopting solar energy lessens these environmental compliance costs. Some states have renewable portfolio standards (RPS). Utilities in states with an RPS law must generate a certain amount of their power from renewable sources. When a customer goes solar, they help utilities meet their RPS.
Solar’s benefits extend beyond lowering transmission and distribution costs. Increased solar ownership reduces fossil fuel use. This provides the societal and environmental benefits to everyone. Solar ownership adds value directly into the local economy. Solar also replaces fossil fuels which release airborne pollutants into the atmosphere. They contaminate groundwater with heavy metals and industrial fluids. Solar and non-solar customers have better health thanks to rooftop solar.
The Berkeley National Laboratory found rooftop solar has minimal impact on non-solar customers. This is true at 10% market penetration. This level is far higher than where we are today.
The report also found higher levels of rooftop solar would hurt shareholder profits. This study reveals the central problem. Customers want what is good for them and for the grid, but bad for utilities.
We need a new energy system. It should protect our right to generate our own electricity. We should be able to store that electricity in batteries. And, we deserve fair compensation for the excess electricity we send to neighbors. Reforms like performance-based regulation (PBR) resolve the conflict between customers’ and utilities’ interests. These reforms allow utilities to make a profit in a different way. It rewards them for meeting policy goals and providing customer value.
In this model, utilities could stop making false claims about rooftop solar. They would recognize how solar helps everyone. Net metering isn’t a subsidy – its creating a brighter future for us all.
The Financial Impacts of Net-Metered PV on Utilities and Ratepayers – This is the Berkeley National Laboratory report that shows that rooftop solar hurts utility shareholders while only modestly impacting non-solar customers.
Rooftop solar: Net metering is a net benefit – This is the 2016 Brookings Institution study that examines net metering and value of solar studies from across the country.
Shining Rewards: The Value of Rooftop Solar Power for Consumers and Society – A 2016 report by Environment America that also compares studies on the value of net metering.
Solar Energy in Michigan: The Economic Impact of Distributed Generation on Non-Solar Customers – A study by the Institute for Energy Innovation showing the benefits of rooftop solar.
Performance-based regulation: Seeking the new utility business model – This deep dive by Utility Dive reporter Herman Trabish explains the benefits and progress of performance-based regulation across the country.