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OLR Research Report


January 26, 2010

 

2010-R-0034

PROS AND CONS OF NEIGHBORHOOD NET METERING

By: Kevin E. McCarthy, Principal Analyst

You asked for a discussion of the pros and cons of neighborhood net metering.

SUMMARY

Current law entitles people who generate power from renewable resources to a billing credit from their electric company or competitive supplier. Neighborhood net metering would expand this provision to allow a group of customers to share the credit derived from a single facility. A related approach would allow a single customer with multiple electric accounts in different locations to share the credit among these accounts.

Both approaches would encourage on-site generation using renewable resources, which has environmental and economic development benefits. Both approaches may also help electric companies and competitive suppliers meet their renewable portfolio standard (RPS) requirements, under which they must obtain part of their power from renewable resources.

On the other hand, permitting neighborhood net metering or the sharing of billing credits across accounts would increase the subsidy provided to customers who install renewable resource technologies. Moreover, the state is not projected to need new generation capacity for at least ten years. Since the costs of net metering are recovered through rates, both approaches could increase rates. Both approaches could also impose administrative burdens on the companies and suppliers.

CURRENT NET METERING LAW

By law, electric companies and competitive electric suppliers must give a credit for power generated by a customer from certain renewable resources that have a capacity rating of two megawatts or less. These resources include solar power, wind power, fuel cells, and some types of biomass systems. The electric company serving these customers must make the interconnections needed for this purpose.

If a customer's renewable energy system produces more power in a billing period than he or she uses, the electric company or supplier must credit the customer at its retail rate for the excess power. (In effect, the company or supplier must run the meter backwards.) The credit is applied to the customer's bill for the next month. The company or supplier must carry over the credits earned from month to month, and the credits accumulate until the end of the billing year. At that time, the company or supplier must compensate the customer for any excess power generated, at its cost of wholesale power.

NEIGHBORHOOD NET METERING

Neighborhood net metering is an expansion of this concept which allows groups of customers to take advantage of net metering from a single renewable energy facility (e.g., residents of a neighborhood served by a wind machine). A handful of states, including California, Maine, Massachusetts, Oregon, Vermont, and Washington have authorized neighborhood net metering. In Massachusetts, neighborhood net metering must serve a minimum of 10 residential customers, but may serve additional residential and commercial customers. All customers served must be within the same municipality and the service territory of a single electric company. Maine and Vermont have similar programs. California only allows neighborhood net metering in affordable housing projects.

An alternative approach allows multiple accounts of a single customer (e.g., individual public schools within a single municipality) to share the net metering credits. This approach has been authorized in Oregon, Pennsylvania, Rhode Island, and Washington. In Connecticut, the Energy and Technology Committee favorably reported HB 6635 in 2009. The bill would have allowed a municipality or a religious, educational, or nonprofit organization owning or operating renewable facilities to transfer its net metering credits. These entities could have transferred the credit to another of their accounts, so long as it is metered separately from the load served by the renewable facility and is served by the same electric company as the facility. In the case of an organization, the credit could have been transferred to an organization member who resides or has a place of business in the service territory of the electric company that serves the facility. The House passed the bill as amended by House “A,” but the Senate took no action on it.

ARGUMENTS FOR AND AGAINST NEIGHBORHOOD NET METERING

Pros

Neighborhood net metering and sharing net metering credits among accounts can promote the deployment of on-site renewable resources, which have a variety of environmental benefits including the reduction of several types of air emissions. On-site generation also has economic benefits, including installation jobs and potential manufacturing jobs. In addition, on-site generation avoids transmission losses, which typically account for 8% of the power produced at a generating plant.

Neighborhood net metering can allow customers who would not otherwise be able to take advantage of net metering to do so, such as homeowners whose roofs are too shaded to permit installation of solar panels. Neighborhood net metering and sharing net metering credits can also permit aggregation of load to facilitate larger systems which are less costly to develop. A number of renewable technologies, notably wind, exhibit substantial economies of scale.

Under Connecticut law (CGS 16-245a), the companies and suppliers must obtain a growing proportion of their power from renewable resources under the RPS and they have expressed concern about their ability to do so in the medium to long term. Both approaches may help them meet the RPS, since the power they buy from residential net metering customers counts towards meeting the standard.

Cons

Net metering requires a subsidy from other customers because the participating customers are paid a retail rate for the power they sell to the electric company. This power displaces power that the electric company buys at a wholesale rate. For residential customers who benefit from net metering, the subsidy is on the order of 10 cents per kilowatt-hour, about the total residential rate. Moreover, the subsidy tends to be regressive, since the customers who install renewable energy systems and benefit from net metering are usually better off than the average electric company customer. Authorizing net metering or the sharing of net metering credits could exacerbate these phenomena.

Another argument against these approaches is that they would encourage the installation of new generating capacity that is not needed. The Connecticut Siting Council and the Independent System Operator New England, which administers the regional electric market, project that neither Connecticut nor the region as a whole will need new generation capacity in the next ten years beyond that already in the pipeline. There is also more than enough renewable generating capacity in the region to meet the RPS in Connecticut and the other New England states.

Neighborhood net metering might impose an administrative burden on electric companies and competitive suppliers since they would need to have a mechanism to resolve disputes among the participating customers. Similarly, sharing credits among accounts would require the company or supplier to enter into an agreement with the customer to identify how the credits would be shared.

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