WASHINGTON ― Net metering practices should be revised to reflect the value that distributed electricity generation ― for example, electricity generated by rooftop solar panels ― can provide to society by reducing use of fossil fuels, enhancing resilience, and improving equity, says a new report from the National Academies of Sciences, Engineering, and Medicine.

Net metering is a billing mechanism that compensates customers for electricity they provide to the electrical grid through distributed generation ― for instance, electricity generated by a household rather than by centralized sources like power plants. When solar panels on a customer’s property are producing more electricity than the building is using, the excess solar-generated electricity can be fed back into the grid. Policymaking for net metering largely takes place at the state and local levels, though the Federal Energy Regulatory Commission is empowered to regulate it in narrow circumstances.

Technological change and cost reductions over the last decade combined with a range of supporting policies ― including net metering ― have led to a rapid growth of distributed electricity generation, noted the committee that wrote the report. Where implemented, net metering has supported the adoption of distributed generation, leading to levels that exceed 10% in a handful of states and are forecasted to increase in these and other states.

“Net metering, although just one element among a broad constellation of changes affecting the electricity system, has proved quite successful in increasing consumer installation of solar panels and reducing reliance on fossil fuels,” said committee chair and independent scholar Janet Gail Besser. “As a result of this success, the system has reached an inflection point, technologically and economically, where there’s a real need to revisit and equitably evolve net metering policies to support distributed generation deployment where it adds value moving forward.”

Under a traditional net metering arrangement, the customer pays the retail rate for net electricity consumed ― that is, when their energy consumption exceeds production ― or is credited at the same retail rate for the amount of energy production that exceeds consumption, which is allowed to feed back into the grid. Each customer has a single meter that runs backward as electricity is exported to the grid, and forward as energy is consumed from the grid.

State policymakers and regulators have been exploring variants and alternatives so that net metering may better accomplish objectives for decarbonization, equity, and resilience. For example, under alternative approaches known as net billing and “buy all/sell all,” a customer’s electricity consumption is charged at the retail rate, but the electricity they generate and contribute to the grid may be credited at a different rate, such as one based on the electricity’s value to the electric system or society.

Another approach, virtual net metering, can enable participation in distributed generation projects for customers who cannot install it on their own property.  It distributes credits for energy production among multiple owners or subscribers; for instance, a solar developer could build a project and assign net metering credits to a number of customers in a housing project.

Equity Considerations Need More Attention

Unleashing the promise of distributed generation for a more resilient, equitable, and decarbonized electricity system will require a more intentional and integrated approach than traditional net metering policies, the report states. As they update net metering policies, policymakers should consider historical issues of access to distributed generation programs and technologies for low-income communities, and the cost implications for people not participating in net metering.

Rates should be designed in a manner consistent with updated rate-making principles, with particular attention to the equity impacts for customers least able to afford them. To help accomplish this, utilities and policymakers should ensure that information about utility rates is easily available to all customers and that all customers have a voice and can participate in the design of rates.

In addition, policymakers should consider investments, such as grid upgrades in disinvested communities, to reverse historic structural inequities and enable broader and fairer adoption of behind-the-meter distributed generation.

Other Aspects of Net Metering Also Can Be Improved

Electricity rate decision-makers should consider both the impacts of the distribution of benefits and costs, as well as total benefits and costs when designing net metering policies, and ensure that adequate data are collected and made publicly available. These benefits and costs should include and balance public health impacts, job impacts, land use impacts, and the future options that will be enabled or precluded, among other things.

In determining compensation for distributed generation, decision-makers should also explicitly account for the environmental harms reduced by distributed generation when it displaces fossil fuels. To fairly compensate for this clean energy attribute, policymakers should consider whether to do so based on the monetary value of the environmental externalities that the DG is likely to abate or the cost to achieve the same reduction in environmental harms through alternative technologies or policies.

The report includes a range of other economic and technology recommendations, including:

• Regulators should strive to develop retail rate structures — for both customers with distributed generation and those without — with usage-based energy prices that correspond as closely as possible to the social marginal cost of producing and delivering electricity, including environmental and other externality costs. Under this condition, net metering will generally result in economically efficient levels of investment in distributed generation technologies, albeit with some rate impacts to nonparticipating customers.

• In the absence of economically efficient rate structures for all customers, the alternative solution may be to implement changes to the net metering mechanism ― either buy all/sell all or net billing tariffs ― for distributed generation customers, with compensation levels set at or near the social marginal cost of electricity production and delivery.

• There need to be direct investments in the power distribution system to integrate increasing amounts of behind-the-meter distributed generation such as rooftop solar, as well as other distributed energy resources (DERs) including smart buildings management systems, electric vehicles, and charging infrastructure, to ensure the continued safe and reliable operation of the grid and provision of grid services. These investments need to occur simultaneously with behind-the-meter distributed generation deployment.

• To make the best use of distributed generation and DERs, utilities must make investments to integrate these technologies, increase their visibility, manage them (either directly or indirectly through price signals), and reduce barriers to their management by customers and distributed generation providers.

• Investments in distribution system technologies aimed toward integration of distributed generation and DERs must be accompanied by revisions in policies and state and federal utility regulations to facilitate cost recovery of these investments.

The study — undertaken by the Committee on Net Metering in the Evolving Electricity System ― was sponsored by the U.S. Department of Energy.

The National Academies of Sciences, Engineering, and Medicine are private, nonprofit institutions that provide independent, objective analysis and advice to the nation to solve complex problems and inform public policy decisions related to science, engineering, and medicine. They operate under an 1863 congressional charter to the National Academy of Sciences, signed by President Lincoln.

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