Renewable energy vs. the electric grid - Solar, Wind and Land: Conflicts in Renewable Energy Development - page 164

growth of renewable energy, these sorts of provisions can be a potentially
effective and relatively straightforward way of addressing such problems.
Net metering and the grid funding problem
The most perplexing controversies brewing between utilities and the
renewable energy industry relate to the impact of net metering programs
on the long-term financial stability of utility companies. Although net
metering programs can do much to incentivize distributed generation and
energy efficiency, they also have the potential to ultimately wreak havoc
on utility budgets. Fearful of these impacts, a growing number of utilities
are challenging net metering programs in ways that could severely hamper
distributed renewable energy development.
Net metering programs exist in several nations throughout the world and
were active in more than 40 U.S. states as of late 2013. 73 These programs
typically allow owners of residential and commercial-scale renewable energy
systems to receive credit for any excess electricity their systems produce that
gets fed onto the grid. Owners can then use these credits to directly offset
their own electricity bills. 74 Landowners with rooftop solar energy systems
are the most common participants in net metering programs. Depending on
their electricity usage and on the size of their rooftop solar array, solar users
can potentially reduce their electricity bills to nearly zero through these
programs—a compelling incentive to go solar.
The problem is that, as the number of solar users within a given utility's
territory grows, the utility sells less and less conventional power to rate-
paying customers and thus brings in less and less revenue. In the United
States and in other jurisdictions with comparable utility rate-setting struc-
tures, this revenue drop prompts utilities to seek approval from state
regulators to charge ratepayers higher per-kilowatt-hour prices for power.
These petitions for rate increases are generally justifiable: a utility that is
selling less and less electricity can maintain its present rate of return on its
capital investments only by charging more and more for each kilowatt-hour
of power it sells.
Unfortunately for utilities, electricity rate hikes aimed at accounting
for a growing number of solar energy users only further strengthen the
competitive position of the solar energy industry. For obvious reasons,
buying or leasing solar panels and participating in net metering becomes
more financially rewarding for ratepayers as conventional electricity rates
rise. Rate increases thus tend to incentivize even more solar panel installa-
tions that further reduce utilities' volume of electricity sales. The only way
for utilities to maintain revenues in response to such sales reductions is
through additional rate increases that serve only to make solar energy even
more attractive to ratepayers. If this cycle continues unabated, it can send
electricity rates spiraling ever upward and eventually become an existential
threat to utilities that had historically been pinnacles of financial stability.