For over a decade, net metering has been a crucial component of the economic puzzle for renewable energy, allowing both residential and commercial rooftop PV owners to realise favourable returns on their solar equipment investment. Due to state policy developments in 2015 regarding net metering for distributed generation like rooftop PV, the solar industry will be closely watching how this conversation evolves. Most states in the U.S. have policies which specifically address the interconnection of rooftop solar and the subsequent exporting of excess energy to the grid.
Recent changes in net metering rate structures like the one in Nevada are causing the debate over rooftop solar to heat up. After all, what will we do with our excess renewable energy if we can’t use the grid as a battery? With the proliferation of new energy technologies, the global energy landscape is changing rapidly. New power electronics technologies are simplifying the integration of solar and battery storage, bringing down energy storage costs and allowing “self-consumption” to become a viable alternative to net metering. Thousands of PV-plus-storage systems have been deployed in Germany over the last two years, primarily in residential applications, and we expect a similar trend to emerge in the U.S. with one possible exception: commercial PV-plus-storage solutions may lead the market in key states due to rate structures, specifically demand charges (a higher rate imposed on commercial and industrial customers based on peak load which typically is calculated during a 15 minute interval during the billing cycle), which do not exist in the residential sector.
Net metering rates: Retail vs. wholesale
For customers of utilities that offer the retail rate (the cost of generation plus the costs of metering, transmission & distribution infrastructure and other related costs) for electricity they sell into the grid, the incentive to buy solar is high. However, customers receiving only wholesale rates (a lower pay out than retail rates which includes only the cost of the fuel used for generation) from their local utilities have less favorable rates of return on their investment in PV systems. The argument against utilities paying the retail rate for energy fed into the grid is that customers with distributed generation aren’t paying their fair share for grid infrastructure and other costs associated with power delivery.
Quite simply, wholesale net metering rate structures result in a net loss for every kilowatt-hour of energy the PV owner sells to the utility and buys back at a later time. However your local utility structures net metering payments, energy storage provides PV owners with a self-use option that removes utility net metering rates from the equation, mitigating losses and shortening paybacks for the system.
Lastly, the commercial and industrial sector will be the first to benefit from the economics of PV + Storage due to the demand charges noted above.
Intermittent generation and grid stability
High levels of grid penetration from intermittent sources of generation presents problems with grid stability on distribution feeders, necessitating frequency and voltage response measures to ensure power quality. Though the tipping point for grid penetration from renewables varies from place to place, it is a problem that will need to be addressed sooner than later. With that comes the debate over how to handle higher levels of distributed PV and wind.
Conveniently enough, energy storage can benefit utilities also. When utilised in front of the meter, storage is capable of providing various grid services that support renewable integration like frequency and voltage regulation. Additionally, the use of storage technologies can defer the hefty costs associated with upgrading transmission and distribution infrastructure.
Do net metering rates affect solar adoption?
Rather than utilising new energy technologies to their advantage, some utilities are addressing the grid stability issues associated with distributed generation by discouraging PV adoption with lower net metering rates, diminishing the value proposition for solar because payback periods are greatly protracted if customers aren’t able to recoup costs for energy they don’t immediately use. In the case of the PUC decision in Nevada in December, fees on solar PV owners were raised and the price that the utility paid to buy electricity from them was significantly decreased. In Hawaii, net metering for new solar customers was curtailed in October.
These decisions effectively erase any financial incentive consumers have to make the switch to solar, and those who already own PV in these states may see their energy savings dissipate.
Energy storage will support the renewables revolution
Policy and other regulatory uncertainties surrounding net metering discourage consumers from investing in solar because savings in energy costs, if any, are unclear. Energy storage, however, is a much more stable and predictable way to maximise the investment in solar PV, allowing the customer to realize the full economic benefits of distributed generation. In fact, the economics of solar integrated with battery storage are already quite strong in the commercial and industrial sector. Since battery costs are predicted to continue their decline and technological advancements in power conversion systems are dramatically increasing the efficiency and flexibility of energy storage, the economics will only continue to improve.
Though PV integrated with energy storage can’t provide a customer with electricity 100% of the time, it is a way to effectively side step the net metering argument. Even in the absence of net metering, customers will be able to realise the best possible returns on their rooftop solar systems. Ultimately, the best substitute for using the grid as a battery is to use a battery.
John Merritt is director of applications engineering at Ideal Power Converters, a US-based maker of software configurable power conversion systems suitable for energy storage applications.