The Benefits & Costs of Net Metering: Brookings Gets It Wrong
In the ever evolving yet mostly hidden world of electricity policy, the hot topic is “net metering.” Is it a policy whose time has come? Or is it an idea with deficiencies that need to be addressed?
The Brookings Institution recently published a report concluding that net metering provides a net social benefit. Unfortunately, however, the report’s analysis ultimately fails, botching what could have been a thoughtful look at this important issue. Perhaps worse, various publications, including the Las Vegas Review Journal, have unquestioningly accepted Brookings’ erroneous conclusions. But the report, Rooftop Solar: Net Metering Is A Net Benefit, suffers from four fatal flaws and should not be used to guide public policy on net metering.
What is net metering? It's a way for households and businesses to generate their own electricity, usually with rooftop solar photovoltaic (PV) systems, which convert sunshine directly into electricity. Net metering comes into play when the system puts out more electricity than the household or business is using, enabling the PV owner to sell the excess back to the local electric utility. Net metering in one form or another is mandated in 41 states, the District of Columbia, and four territories, though the prices paid for the excess power, eligibility, and limits vary.
The first problem with the Brookings report is that it contains no original analysis. It’s a simple compilation of reports done by others, including state public utility commissions. And it’s a selective compilation at that, excluding myriad other reports critical of net metering on the basis of excess costs. No surprise that Brookings finds a “net benefit.”
This is related to the second flaw: The issue of net societal benefits is a red herring. The debate is actually about what price to pay PV owners for excess power. Pay too little, and the economics don’t pencil out for PV customers; pay too much, and non-PV customers are hit with unfair additional costs. In many states the price is set at the full retail price of electricity, not the price the utility pays wholesale. The retail price should include the cost of transmission and distribution infrastructure; ignoring such factors shifts the actual costs from PV owners to others. The debates and regulatory proceedings taking place in numerous states should focus on setting the right price and ensuring that infrastructure is paid for by all those who use it, both PV owners and non-PV owners.
Third, comparing societal benefits to cost is an overly simplistic and, ultimately, useless approach. There may be more cost-effective means of achieving the same benefits. Given that rooftop solar PV is the single most expensive means of generating electricity, such programs should compare lower cost alternatives for achieving the same benefits. Since the reduction of greenhouse gas emissions is often cited as the primary benefit of net metering, why favor a policy which encourages a technology that costs over ten times more than other available means? The alternatives are just as clean and cost a fraction of rooftop solar.
Fourth — and most importantly — estimating net benefits as the Brookings report does ignores the asymmetric distribution of costs and benefits. Net metering programs have a reputation, confirmed by numerous impartial evaluators, of subsidizing the rich at the expense of the poor and middle class. The reason is that, in general, only the more well off can afford rooftop solar PV systems. Such considerations are at the heart of public utility commission proceedings on net metering. For instance, even the California Public Utilities Commission found that these subsidies hurt lower-income customers the most and moved to correct the price for net metering.
Thus Brookings perpetuates bad policy when it asserts that, “Net metering … frequently benefits all ratepayers when all costs and benefits are accounted for.” This conclusion does not answer the question whether each individual’s costs are in reasonable proportion to his or her benefits.
Numerous states are seriously and methodically reevaluating their net metering programs to limit or eliminate the cost shift inherent in retail price net metering. The Brookings report is disingenuous, cherry picking only the studies that show a net benefit and thus painting a rosy picture of a policy that is outdated, inequitable, and in dire need of reform.
Tom Tanton is Director of Science and Technology at Energy and Environment Legal Institute and former Principal Policy Advisor at the California Energy Commission.