Is there a societal net benefit to net metering? During today's OnPoint, James Cater, director of economic and financial policy at the American Public Power Association, discusses a recent report that establishes a framework for avoiding cost-shifting to consumers who do not produce their own solar energy. Cater also talks about the role state renewable portfolio standards have played in accelerating the debate on net metering.
Monica Trauzzi: Hello and welcome to OnPoint. I'm Monica Trauzzi. With me today is James Cater, director of economic and financial policy at the American Public Power Association. James, thank you so much for coming on the show.
James Cater: Thank you for having me. We appreciate your interest.
Monica Trauzzi: James, you recently raised some questions about the long-term value of consumers driving the business model on solar installations and you questioned whether, on the whole, it saves costs for society. Do you believe there is a net benefit to net metering?
James Cater: Well, one of the things that we point out in the paper is that solar power, as an energy resource, yields both costs and benefits, and those costs and benefits can affect different individuals or different interest groups in different ways so that it's important to consider the perspective from which one is looking at the project, and because of this differential sort of impact of the costs and benefits, the very same project can appear to be economic. That is, the costs are less than the benefits from one individual group's perspective, and appear to be economic -- or uneconomic, that is the -- forgot if I said economic, but can be economic from one perspective, that is the benefits exceed the costs. And the same project could be uneconomic from another perspective where the costs exceed the benefits.
Monica Trauzzi: So is there a way to avoid cost shifting to non-solar consumers?
James Cater: Well, under current circumstances, I don't know that it can be completely avoided, but it can be mitigated to a large degree, and that's one of the things that we tried to point out in the paper is that there are certain crucial relationships that will determine the extent to which there's going to be cost shifting, and the impact of a program in terms of cost shifting can be managed through sort of traditional utility rate design tools, so I don't know that it can be avoided completely, but it can certainly be managed, and it can be managed in a way where the program ultimately reflects the preferences of the community that's being served by it.
Monica Trauzzi: So in this paper that you alluded to, released by APPA, one of the things you do is outline a framework in terms of economics and the basic framework that you established. What happens when consumers are outputting more energy than customers need?
James Cater: Well, in the context of a specific application of solar technology, that is net metering, what generally happens is there is some kind of payment from the host utility to the customer who installs the solar technology at their premises, so -- and you know, that payment can be -- it can occur in different ways. In some ways, the total amount that is produced by the solar technology or solar project is paid that payment. In some cases, the amount of output up to the consumer's consumption is simply a cost avoided by the consumer and then they get paid for the net amount, that is the production over the consumption, so -- but basically there's some sort of payment that is conveyed to the solar customer as a result of the production of their facility.
Monica Trauzzi: Right, but is there a concern or is there a point that we might get to where there's an oversaturation in home installations?
James Cater: Well, I don't know if there's a point that we'd get to, in terms of oversaturation, but there are diminishing returns as you introduce more and more of this technology into a particular control area. You do get less and less benefit the more you put in, but I don't know that you'd ever get to a point where you'd say we just can't absorb any more of it.
Monica Trauzzi: Do you think consumers have been missold or misinformed on the overall value of home solar installations?
James Cater: I can't say that I know specifically that they've been misinformed. I know that, when I engage solar in the media, I see various claims and counterclaims, and sometimes I don't know that it's necessarily misinformation. It may get back to this issue of perspective. Sometimes people are comparing the costs and benefits of solar technology and it appears beneficial, but that may be just from the solar customer's perspective, and at the same time, if you looked again at that same project from society's perspective or the utility's customers who aren't part of the solar program, then that program may not look cost-effective. So misinformation or misinformed, possibly in effect misinformed, but it may just get back to that question of are they considering it completely from the proper perspective.
Monica Trauzzi: Many utilities' CEOs are in favor of giving consumers what they want and, in fact, Warren Buffett recently made the business case for giving consumers options when it comes to solar. Why do you think there is such a business push behind distributed generation?
James Cater: Well, I think you touched on it. You know, there are a few reasons why a utility would undertake or participate in these programs. One reason would be it's just mandated through renewable portfolio standards in their state. Another reason might be that it's coming -- the impetus is coming from the customers themselves. I mean, this push or this momentum behind renewable technology is really rooted in a desire of many people to, you know, consume energy in a way that is more environmentally benign. So any business, you know, a utility business, needs to try to satisfy the demands of their customers. So I'd say that the -- and I should also say that the business case from Warren Buffett's perspective is different than the business case from our perspective, that is public power, right. We are community-owned, not-for-profit entities, so when we engage in these programs, it is primarily because the community expects to see some of this, and one of the things we're doing in this paper is that if your customers want it, there are, you know, more intelligent ways of implementing it so that you can sort of mitigate the -- you know, the unfavorable.
Monica Trauzzi: So on the state level, in terms of renewable portfolio standards, we have groups like ALEC that are aggressively campaigning to roll back the RPSs that are currently in place. Is that necessary? Is that effective?
James Cater: Well, you know, the question about whether it's necessary, one of the things that we try to -- one thought we try to develop in this paper is really, again, there are costs and benefits and there are trade-offs, and what we tried to do is make explicit what the trade-offs are, and the question is, you know, is a subsidy warranted, should we absorb the cost-shifting, should we allow, you know, retail rates to go up. These are really not -- you know, there's not a scientific answer to these questions. It's what the community wants, so if a community is willing to, you know, understands the impacts, understands the trade-offs, then they're able to intelligently make decisions that, yes, because the environmental benefits or because, you know, renewable resources can produce a financial hedge. You don't have to fuel them over a long time. We're willing to, you know, experience cost shifting or retail rate increases, then that's their decision, and again, back to public power, we're so close to our communities that we can really sort of hear and try to convey their preferences in what we do.
Monica Trauzzi: And, of course, state regulators play a big role in the overall discussion.
James Cater: They do. Absolutely.
Monica Trauzzi: All right. We're going to end it right there. Thank you for coming on the show.
James Cater: Thank you.
Monica Trauzzi: And thanks for watching. We'll see you back here tomorrow.
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