Protecting Customers and Addressing
Cross-Subsidization:
Unintended Consequences of Retail Net
Metering
Presentation to the National Governors Association
State Learning Network for New Utility Business
Models & the Electricity Market Structure of the
Future
Boston, MA
July 29, 2015

Ashley C. Brown
Executive Director, Harvard Electricity Policy Group
Harvard Kennedy School
Harvard University

1

 Origins of Net Metering




Default Product of the Era of Dumb Meters,
Dumb Prices and Low Market Penetration of
Distributed Generation
To Extent Policy Was Considered – Designed
to Jump Start Market for Distributed Solar
DG

2

 Sources of Cross-Subsidy



Passing on Fixed Costs to Non-Solar
Customers
Passing on Demand Costs to Non-Solar
Customers




Compounded by Intermittency and NonCoincidence with Peak Demand

Paying Retail Price for Wholesale Product


Distinction Between Net Retail Metering and
Net Energy Metering

3

 Intended Objectives of Net Metering






Simplicity
Compatible with Dumb Meters
Compatible with Static / Non-Dynamic
Prices
Stimulates Demand for Solar DG with
Local Cross-Subsidies in Addition to Tax
Credits and REC’s/SREC’s

4

 Electricity Pricing Context




Traditional Methods:
1. Market Based
2. Cost Based
3. Avoided Cost (PURPA)

Retail Net Metering and Administrative
Valuation Lack Economic Basis

5

 Failures of Administratively Derived Energy
Prices



PURPA and Avoided Cost Controversies of
1980’s
Highly Subjective and Speculative Theories
of Value Never Proved Sustainable

6

 Changing Context







Smart Meters and Dynamic Pricing
(Increasing Role of Price Signals to Inform
Demand)
Dramatically Declining Cost of Solar Panels
Increased Market Penetration by Solar DG
Sophisticated Energy Price Signals in
Wholesale Market

7

 Unintended and Highly Unfortunate
Consequences




Socially Regressive (Tax on the Poor)
Pays Premium Price for Least Efficient
Renewable Resource
Pays Premium Price for Most Expensive
Means of Reducing Carbon Emissions (If
Reduced at All)




Ratio of Dollars Spent to Amount of Carbon
Reduced

Distorts Energy Price Signals
8

 Unintended and Highly Unfortunate
Consequences (Cont.)


Will lead Utilities / Regulators to Move to
Straight Fixed / Variable Pricing




Increases the Price of Solar Installations




Dilution of Price Signals for Energy Efficiency
Less of Declining Costs of Solar Panels Get
Passed through to Customers

Subsidizes Inefficient Solar Production and
Provide No Incentive for Productivity Gains

9

 Unintended and Highly Unfortunate
Consequences (Cont.)




Distorts Price Signals in Energy Market
Massive Wealth Transfer to Solar Installers
with No Appreciable Consumer Benefit
Promotes Inefficient Southern Rather than
More Beneficial Western Exposure





Less Economic Value
Less Environmental Value

Stimulates Uneconomic Choices

10