Net metering vs. storage creates clash between some allies

By Anne C. Mulkern | 09/23/2015 07:00 AM EDT

SAN DIEGO — Tesla Motors Inc. and SolarCity Corp. consider themselves partners. On the issue of energy storage, however, they’re in an uncomfortable marriage.

SAN DIEGO — Tesla Motors Inc. and SolarCity Corp. consider themselves partners. On the issue of energy storage, however, they’re in an uncomfortable marriage.

Tesla wants to expand the battery storage market and has launched a new arm to pursue that aim. When it opens its Gigafactory now under construction in Nevada, the electric vehicle company plans to dedicate up to a third of production for grid-connected storage systems that SolarCity and others will market.

But a position of SolarCity and other solar partners clashes with that vision. Solar companies have been pushing in California to protect net metering, the policy that allows those with rooftop photovoltaics to earn electricity bill credit for excess power sent to the grid. It’s a benefit available in some form in 44 states.


Net metering creates a disincentive to add storage, Mateo Jaramillo, Tesla’s director of powertrain business development, said at the National Association of State Energy Officials meeting here.

"Net metering is essentially a free battery," Jaramillo said. "You basically sell your power back to the utility, then you just buy it back at the same rate later. So it’s hard to compete."

That limits the value of battery storage in many places in the United States to keeping the lights on if the power goes out, along with overall grid support, he said. Asked during the NASEO event to reconcile SolarCity’s position fighting for net metering and Tesla’s goal to expand battery storage, Jaramillo laughed softly, then said that the market is in flux.

"The trend is that the market design will change, for sure," Jaramillo said. "I don’t think that net metering will be around forever. I don’t think anybody does."

SolarCity and Tesla are just two of the companies likely to be affected as the California Public Utilities Commission (CPUC) and officials in other states re-examine net metering, the role of storage and what customers with solar pay. It’s a trend across the West.

Arizona Public Service Co. last spring filed an application with utility regulator the Arizona Corporation Commission seeking to increase the "grid access fee" from $5 to $21 per month for future solar customers. The Salt River Project in Arizona in March approved up to $50 per month in fees on those with rooftop photovoltaics (EnergyWire, April 24). Solar advocates say interest in adding PV plummeted as a result.

Hawaii is looking at net metering and storage as it works to grow levels of locally based renewable energy resources. The Aloha State wants to generate 100 percent of its power from renewable sources by 2045.

Storage likely will be a big part of that, said Robert Harris, spokesman for the Alliance for Solar Choice, a coalition of companies including SolarCity and Sunrun Inc. Harris also works for Sunrun, which, like SolarCity, is partnering with Tesla to sell the Powerwall system.

"It’s critically important now. We don’t know what future technologies are going to look like; 2045 is a long time away," Harris said. "Right now, there’s no way you can achieve it without storage being a component of it."

Interest in storage high

On Hawaii, there’s been a surge of interest in energy storage, he said. Tesla and its partners are selling Tesla’s Powerwall. Blue Planet Energy Systems is offering a Sony product and telling prospective customers it can help them go off-grid through a combination of storage with wind or solar.

Chris Yunker, program manager for energy systems and transportation with Hawaii’s Energy Office, is looking for the path to 100 percent clean energy.

"The only thing we know for sure is if we take ourselves to 100 percent [renewables] with today’s business model, it’s not an optimal solution," Yunker said. "Obviously there’s a mismatch" between current rates and policies for electricity, and what’s needed to drive people to add storage, he said.

"We need to support storage because that will play a role," Yunker said.

Tesla CEO Elon Musk is chairman of SolarCity. That company is among those selling the automaker’s new battery storage offering. Asked about Jaramillio’s comments, Tesla spokeswoman Alexis Georgeson said that Tesla isn’t lobbying for changes to net metering.

Demand for Tesla’s 10-kilowatt-hour Powerwall is "huge," she said, even in places with net metering. The storage product offers energy independence, she said in an email, "so a consumer’s solar panels can continue to operate when the grid goes down."

Meanwhile, "Tesla is experiencing enormous demand for the 7-kWh daily cycling Powerwall in markets like Hawaii, Germany and Australia, where the price of electricity is significantly more expensive than the price a utility will pay a homeowner for excess solar production," she said.

Tesla doesn’t release sales figures. In its conference call on second-quarter financial results, officials said that more than 100,000 reservations have been placed for the Powerwall and Powerpack.

Jonathan Bass, SolarCity’s vice president of communications, said in an email that "solar and storage are highly complementary, and in the coming years, we believe every solar system will be accompanied by a battery."

"To build the cleaner, more distributed, more resilient grid of the future, we need current policies like [net energy metering], and future policies that could allow homeowners to provide storage capacity services to utilities. Utilities in [New York] are already starting to consider them," he added.

Susan Glick, senior manager of public policy at Sunrun, also said that net metering and storage work together. In terms of net metering already serving as a battery, Glick said that "a lot of people’s [systems] don’t offset all of their power use so they’re still buying a fair bit from the grid. With storage, you end up buying less from the grid."

Others said that electricity rates and rules will need to shift to really drive adoption of battery storage.

"Absolutely there’s a conflict" between net metering and encouraging storage, said California Energy Commission member Andrew McAllister.

The inducement to add storage should come through rates, he said, and "to the extent that our [current] rates have a sort of blunt, one-size-fits-all per-kilowatt-hour charge, that doesn’t differentiate."

Without a rate based on the time power is used, and perhaps whether power is going into or out of the grid, he said, "you don’t really have a way to provide that incentive to storage. … Rates do not transmit that signal."

Switch to time of use coming

Both California and Hawaii are likely switching to rates that will be based on when power is used, as opposed to a flat rate charged per energy unit consumed, said those familiar with the discussions in those states.

The CPUC has told California’s three investor-owned utilities that they need to develop proposals for time-of-use rates. Those will be the default by 2019, said Harris, who also advocates in the Golden State.

Jim Avery, chief development officer at San Diego Gas & Electric (SDG&E), said time-of-use rates will prompt people to use power when rates are low and conserve when rates are high. They also could encourage behaviors like cooling a building early in the day before demand spikes, and then allowing the air conditioner to cycle on and off, he said.

That’s more efficient than what many residential consumers do now, which is to come home at 6 p.m. and turn on the air. That has pushed the peak demand time to about 8 p.m., when solar power has stopped producing. It forces the utility to run its natural gas-fueled peaker plants.

Customers with solar and net metering have no incentive to conserve in the evenings, he said, because they’re probably not paying much for that energy. Their PV systems likely sent power to the grid early in the day, generating bill credits. But that electricity was made at a time when there was an abundance of power on the system, he said, and they’re taking it back out when demand is highest.

"The utility grid is acting like a battery for you," Avery said. "It’s a fundamental flaw in the design of net metering."

SDG&E statistics show that 40 percent of customers with net metering have increased their electricity demand during peak hours, he said.

An "aggressive" time-of-use rate can allow for net metering while still encouraging people to add storage, said Harris with the Alliance for Solar Choice. That group in a white paper proposed a time-of-use rate with a large differential between peak and non-peak rates. Customers would pay 51.5 cents per kWh of power used from 2 p.m. to 8 p.m. every day, and 26.6 cents per kWh for all other times.

That’s likely to flatten out peaks in demand, helping the grid, he said. It’s also likely to drive adoption of storage, he said.

"If you do a time-of-use rate and you encourage solar customers to adopt it, you could potentially see huge deployment of storage at the distributed level paid for by private citizens at low cost to the rest of the grid," Harris said. "That’s kind of exciting."

The Hawaii PUC is expected soon to issue an interim proposal that would cover distributed energy resources, net metering and other issues, he said. The agency would then spend the next year studying costs, benefits and possible paths forward.

In California, time-of-use rates will make storage attractive, said Glick with Sunrun. People will store energy at times when there’s an abundance and take it out for home use when utility prices are high, she said.

Separate look at storage urged

In California, the battle to determine the next version of net metering is already looking to be hard-fought.

SolarCity CEO Lyndon Rive, in an August editorial in Greentech Media, lashed out against utility proposals for fixed fees and cutting the level of net-metering bill credits.

"No state with a thriving rooftop solar industry has adopted residential demand charges or failed to guarantee solar customers full bill credit through net metering," Rive wrote.

Pacific Gas and Electric Co. (PG&E), the state’s largest utility, last month proposed demand charges that would start at $3 and rise with consumption. Bills would be a minimum $10 per month, even if net-metering credits were greater than charges for energy used. PG&E and other utilities argue that customers without solar panels pay more to support the grid because those with net metering pay less.

In California, one business group wants the CPUC to look at how to encourage more storage, separate from net metering 2.0. The California Energy Storage Alliance, or CESA, filed papers asking the agency to open a separate case that would look just at storage and storage with solar.

The group said that the utilities’ net energy metering 2.0 pitches fail to adequately consider storage’s role.

"The lack of consideration of energy storage in the Proposals could lead to flawed proposals and designs," CESA said in the filing. "Each of the IOUs propose some combination of fixed charges, demand charges, and time-of-use rate plans that would be introduced for to the residential and small commercial customer classes, overlooking a potential role for energy storage in each of these cases.

"While CESA is not taking a position or endorsing any of the Proposals at this time, CESA’s view is that the proposed retail market designs could be improved through better consideration of the roles and value-added of energy storage."

CESA, however, criticized the fixed charges as a "blunt instrument which can fail to encourage customer-sited Distributed Generation (‘DG’) deployment to address time-variant grid needs and can fail to account for the benefits of avoided T&D infrastructure investment costs attributed to distributed PV solar and energy storage technologies."