One of solar power’s biggest incentives is under attack in the states.
For years, residents of most states who installed rooftop solar could count on hefty credits for any excess electricity they produced — a policy known as net metering — along with an array of government incentives. Now, several states are rolling back those payments at a time when the Biden administration is counting on solar to help meet its goal of a carbon-free grid by 2035.
Take Arizona, where utility regulators voted this month to reopen their “value of solar” docket. The Republican majority at the Arizona Corporation Commission said it wanted to change the rates utilities give to solar customers for providing extra power, but the members also expressed concerns about what Commissioner Nick Myers called an “unsustainable compensation model.” He called for the state to reverse a “cost shift” that raises bills for traditional customers because of payments to a smaller number of solar users. Many solar advocates reject that premise, saying the benefits of renewable energy are undercounted.
While the Arizona commission said solar credit changes would affect only future customers, worries remain for the industry.
“Any time that rate changes, it creates uncertainty and makes it difficult to pay off the cost of that system,” said Autumn Johnson, executive director of the Arizona Solar Energy Industries Association.
More than a dozen states have ended their net metering policies in the past decade, according to a report from the National Academy of Sciences released this summer. But the recent pullbacks are occurring in some of the largest solar states — and political battlegrounds — while the industry is under pressure from supply chain constraints and inflation.
In March, North Carolina cut its rates and replaced them with tariffs that match the electricity price a customer pays. Other states — including Colorado, Idaho and Wisconsin — are weighing their own changes, while legislation introduced in states like Florida and Arkansas could cut their states’ programs.
And in the most high-profile example, the climate hawkish state of California slashed its rates in a decision that took effect in April.
“In general across the country, net metering policy is in a bit of a transitional period,” said Autumn Proudlove, associate director of policy and markets at the NC Clean Energy Technology Center at North Carolina State University. “Many states have been reexamining their rules and considering changes, particularly reducing the compensation for energy exported to the grid.”
The changes could crimp new solar installations as the Biden administration seeks to harness the nation’s estimated 8 billion square meters of rooftop that could produce solar energy to cut carbon emissions and help families lower their electricity bills by producing power at home.
But they also reflect the tightrope policymakers must walk between incentivizing renewables, protecting the grid and keeping electricity rates in check. For example, California’s reforms were designed to encourage customers to store energy in large batteries and use it when the grid is most stressed.
Even as the solar industry supports measured reform, it warns that sweeping changes could damage the industry just as federal tax incentives and the dropping price of panels is making it more competitive.
Through last year’s Inflation Reduction Act, the federal government offers a 30 percent tax credit for solar systems installed through the end of 2032, with no maximum credit. Individual states or localities have their own suite of incentives, including property tax exemptions for the cost of solar, discounts on installation and rebates for other energy-saving products.
Those incentives, plus the falling cost of solar panels, have helped installations of rooftop solar grow year over year for the past decade, with a record 6,400 megawatts installed in 2022, according to data from the U.S. Energy Information Administration. That’s enough to power nearly 4.5 million homes.
But Proudlove, who studies clean energy incentives, said her data shows that new solar installations almost always fall after net metering policies change. In California, year-over-year installations dropped 80 percent between May and August of this year after the new policy — known as NEM 3 — was instituted, according to the California Solar and Storage Association.
“This is particularly devastating because the summer months are our core season. Many companies are reporting big layoffs and will be challenged to stay afloat in the winter months,” said Bernadette Del Chiaro, the group’s executive director. “The recklessness of the NEM 3 decision is coming to light and it isn’t pretty.”
Industry growth vs. fairness
By the end of 2013, 44 states had some sort of net metering policy in place, according to the National Academy of Sciences report. Twenty-one of those predated 2000. Many of those, the report noted, were “initiated in what were generally understood to be uneconomic or pre-economic markets,” meaning they were designed to be an incentive to purchase solar and to have minimal impact on overall electricity rates.
The solar industry often crowed about its success in keeping friendly policies on the books. In a high-profile example, Nevada restored a version of net metering in 2017 after previously phasing it out.
Now, the backlash is coming — in part because of the industry’s success.
“As the industry started growing, utilities realized their customers were becoming their competitors,” said Sean Gallagher, senior vice president of policy for the Solar Energy Industries Association (SEIA). “When customers generate their power, utilities have less revenue and less opportunity for investment.”
Utilities, for their part, say that net metering reform is about fairness. If solar customers are being reimbursed the same amount they’re paying for electricity, they may not be chipping in for the infrastructure that all customers share to get power sent to their homes. That, in turn, could raise costs on nonsolar customers, who tend to be lower income.
That was the argument in Indiana, where state lawmakers in 2017 passed a law to phase out net metering, which took effect this summer. Likewise, Florida legislators passed a bill in 2022 to reverse net metering with backing by utility Florida Power & Light (FPL). The utility ran ads saying “outdated Florida laws are forcing FPL customers who don’t have rooftop solar to pay extra every month for the few who do.”
Florida Gov. Ron DeSantis (R) surprisingly vetoed the bill, saying in a statement that he did not want to increase energy bills for Floridians during a period of high inflation.
Shelby Linton-Keddie, executive director of state regulatory affairs for the national utility trade group Edison Electric Institute, said the group supports integrating solar into the grid. But she said many net metering policies “were created nearly 20 years ago and are in need of reform.”
“When private solar customers are allowed to avoid electric company charges and instead get over compensated by getting paid not just for the power they are producing but also for the distribution services they are utilizing on the backs of non-participants, the system must change,” she said in an email.
“Environmental and energy goals cannot be achieved with a blind eye to the cost and effects on non-participants,” Linton-Keddie added.
Ben Delman, a spokesperson for Solar United Neighbors, which supports rooftop solar owners, countered that net metering payments aren’t an incentive like a tax credit. “It’s like saying that the grocery store gets an incentive to give you a tomato when you pay them,” Delman said.
Those payments, he said, are a “lynchpin in many people’s ability to go solar,” especially low-income customers. With the Biden administration working to make renewable energy more accessible to low-income families, that makes net metering more important than ever, Delman said.
In fact, a 2021 study issued by the Biden administration said that while rate structures would need to adjust in the long run, they needed to consider how to protect low- and middle-income households buying solar in the future. If early adopters from wealthy communities are the only ones to get the most generous programs, the study said, “these rate reforms could solidify the inequitable distribution of the benefits of net metering.”
“If you’re a regulator, this seems like a silly time to cut the legs out of solar when there’s so much potential for it to grow in communities,” Delman said.
Finding the sweet spot
In some states, the changes are only partially about economics. The rapid transition of the grid from fossil fuel power to renewables has raised new questions about reliability — especially in the evening hours as solar power wanes and home electricity use peaks.
That was, in part, a motivation behind the changes made in California at the end of last year.
Regulators deeply cut the net metering rates for new solar customers starting in April 2023 and instead adopted a rate system that pays more when the grid is under stress. The so-called net billing tariff pays customers more when grid conditions are tight and their electricity is more valuable. It also offers more credits to customers with batteries.
Alice Reynolds, president of the California Public Utilities Commission, said in a hearing at the time that “new rooftop solar is not displacing dirty power in California the way it would in other states.” Tweaking the decades-old net metering program, the commission decided, could correct that imbalance.
Likewise, Hawaii — the state with the highest market penetration of small-scale solar — ended its net metering policy in 2015 amid a flood of solar installations. In its place is a program that incentivizes storage, which has led to an uptick in battery purchases.
Those states offer examples of how to harness rate policies once solar has taken off, said SEIA’s Gallagher. The industry, he said, “recognizes that as we grow, we get into a realm where it’s more rational to think about making changes.”
“Unfortunately, we too often see these attempts in states where it may not make sense because penetration is low or because retail rates are low, so compensation is not that substantial in the first place,” he said. “There is a sweet spot to be had that enables sustainable growth of rooftop solar and allows customers to contribute to reliability.”
One example comes from Idaho, where an effort started in 2017 to reform the state’s net metering rates by setting separate import and export rates and balancing them on customer’s bills at the end of the month.
In a regulatory filing in May, Connie Aschenbrenner, rate design senior manager for utility Idaho Power, said that as solar application grows, the concerns that “the likelihood that some of the cost of serving net metering customers will be subsidized by other customers” have been “greatly exacerbated by the rapid increase in on-site generation customers.”
But only 2 percent of state residences have solar and with low electricity rates, the net metering payments don’t offer much incentive, said Brad Heusinkveld, energy policy associate at the Idaho Conservation League.
“If there’s a cost shift, it’s really minor,” Heusinkveld said. “Why not allow the industry to develop, get its feet on the ground and wait until those big cost shifts start to manifest?”
Still, discussions are continuing across the country. In Colorado, conversations started last year, when utility cooperative Holy Cross Energy proposed changing its rate structure that would lower solar compensation by having customers pay a “delivery charge” that would help pay for future operations.
When the Colorado Solar and Storage Association threatened a lawsuit, the governor’s office intervened and convened meetings to look at statewide policy reform.
Mike Kruger, the group’s CEO, said the industry is eager to discuss ways to make net metering work for utilities and whether policy could be designed to shift time of use or fit in with other state clean energy goals. But with just 7 percent of Colorado homes installing rooftop solar right now, Kruger said any change has to be gradually incorporated.
“We’re not dumb — we recognize that change has to be coming. The question is what it looks like and where it goes,” Kruger said. “The industry is just not totally sure that the utilities who are crying ‘uncle’ are at a point where that’s really the case.”
Other states, like Wisconsin, have open rulemakings to reconsider net metering policies. Florida could revive legislation in a future legislative session.
On the flip side, New Hampshire seems likely to continue with its existing policy after the state’s three major utilities submitted joint testimony saying they supported the current repayment rate of 75 percent of the full retail price.
More advanced ways of thinking about the grid, as well as technology that gives customers more control over electricity use, are also changing the dynamics.
Sunrun, the largest solar installer in California, is seeing an uptake in storage purchases after the state’s new rules took effect, with 80 percent of solar projects now coming with batteries.
“The more solar and storage systems we can put on the grid, the more smart, controllable load there will be,” said Sunrun spokesperson Bart Jackson in an email. “These systems also help us meet California’s clean energy goals and reduce our dependence on harmful, polluting power plants, especially in low- and moderate-income areas.”
And a more advanced net metering policy could benefit smart meters and virtual power plant systems that merge multiple solar and battery owners in a coordinated unit. Sonnen, the German company now active in the United States, has embraced net metering changes by offering a smart battery that unleashes power at the most economical times.
Blake Richetta, Sonnen’s CEO, said that aligning Sonnen’s batteries does more than just offer maximum value to its customers. It also shows how distributed resources like solar and storage can play a bigger role in powering the grid without new generation.
“A real, authentic energy transition, a blueprint to actually replace power plants, exists,” Richetta said.