Sizing Up Net Metering

In the U.S., net energy metering (NEM) has served as an important plank of a broader policy platform that states have used to facilitate the development of customer-sited renewables. NEM policies in line with best practices allow individuals, businesses, non-profits, schools and government customers to receive full kWh-for-kWh credit for the electricity and benefits their on-site renewable energy systems provide.

Markets for distributed renewables can grow extremely fast. In order for states to sustain these markets, the policies that support them must be flexible. NEM, which has been adopted by 43 U.S. states, is perhaps the most flexible policy tool used to sustain the growth of customer-sited renewables. Policymakers have not been shy about amending NEM policies to accommodate more growth. To illustrate, 18 states have raised their original aggregate capacity limit for NEM at least once, and nine states have done so more than once. New York raised its aggregate cap for the fourth time – for PV and certain other renewables – from 1 percent to 3 percent last year. California, still the nation’s largest rooftop PV market, has expanded its aggregate cap seven times.

That brings us to Vermont, which just enacted a whopping 50-page NEM law (H. 702). Among other things, Vermont’s new law raised the state’s aggregate capacity limit for NEM for the fifth time, from 4 percent to 15 percent of a utility’s peak demand. It also established a new methodology for calculating the value of excess electricity generated by customers participating in utility rate schedules with inclining block rates, raised from 10 kW to 15 kW the capacity of PV systems eligible for expedited registration and interconnection, and clarified that NEM customers own the renewable energy credits (RECs) associated with the electricity they generate.

But wait, there’s more! Vermont’s new NEM policy will be replaced on January 1, 2017 by new rules that the state’s Public Service Board will develop by considering a long laundry list of issues.  Here’s what’s included:

  • Best practices for NEM identified from other states.
  • The actual need for an aggregate NEM cap.
  • The value and duration of customer net excess generation.
  • The costs and benefits of NEM, balancing the pace of renewables development and the cost of the NEM program with rate impacts, and ensuring (“to the extent feasible”) that NEM does not shift costs among customers.
  • Formation of group NEM systems.
  • REC ownership and REC transfer for NEM systems.
  • Achieving levels of renewables deployment adequate to meet the state’s policy goals.

The Public Service Department must submit a report addressing these issues to the Public Service Board by October 1, 2014. Workshops and a rulemaking will follow. The new rules will be adopted by July 1, 2016.

IREC has worked tirelessly to provide resources and assistance regarding current NEM best practices to states that are considering NEM policy revisions. Our work includes a salient publication that offers a consistent methodology to analyze the potential rate impacts of NEM, along with IREC’s Net Metering Model Rules, which have kept states abreast of best practices as NEM policies and renewables markets evolve. IREC has also played a strong role in the Freeing the Grid project, which grades states’ NEM policies based on how they compare to current best practices from around the country. (Vermont’s NEM policy – pre-H. 702 – earned an “A” from Freeing the Grid.)

Vermont’s sweeping new law has strong roots in the findings of an NEM evaluation study published last year by the state’s Public Service Department. IREC’s “A Generalized Approach to Assessing the Rate Impacts of Net Energy Metering,” which is included in the Public Service Department study’s literature review, provides regulators and others with an overview of best practices for determining the costs and benefits of NEM, and for evaluating NEM’s rate impacts. IREC’s report recommends that:  (1) such studies include specific costs and benefits listed in the report; (2) benefits should not be valued at zero based on unsupported assumptions; (3) capacity benefits should be modeled under a long-term framework to ensure that the value of PV is properly captured; (4) the assessment of NEM’s costs and benefits should be based only on exported energy; and (5) program administrative costs should be based on a long-term assessment that assumes updated utility software will be needed to accommodate and support grid-modernization efforts, which include NEM.

Other states, too, have been or will be undertaking similar examinations. It is increasingly apparent that states will look to others for guidance and precedent, and that the need for current resources describing best practices on NEM evaluation are now more valuable and timely than ever.

Because the results of NEM evaluation are likely to impact NEM policy evolution – and markets for customer-sited renewables in any given state – the stakes are high.


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