Renewable energy like wind and solar has become politically popular in recent years. So much so that Hillary Clinton is proposing to install half a billion solar panels if she is elected president. Yet her plan for “a solar panel on every roof” doesn’t reconcile with her stated concern for lower-income Americans. A new study shows that solar energy is driven by subsidies that increase electricity rates of poorer Americans and send that money to richer Americans.
One of the most significant solar subsidies is called net metering. Net metering is a program through which home and business owners with solar panels are credited for the excess energy they send to the electric grid. A new study by Arduin, Laffer & Moore Econometrics, commissioned by my organization, the Institute for Energy Research, shows that the default pricing structure and the intermittent nature of solar energy make these programs a bad deal.
The biggest flaw with net metering is the price paid to customers with solar panels. The default is to pay customers with solar panels the retail rate instead of the wholesale rate for the electricity they produce. This causes huge distortions in the way we all pay for the power grid.
The net metering subsidy creates a strong incentive for building owners to enter the solar market and indeed states have been flooded with applications to join net metering programs, which is why many states are now capping or reforming their net metering programs. In other words, many property owners are eager to be on the winning side of the cost shift.
The problems with net metering go beyond the wholesale vs. retail price. As the technology stands today, electricity at utility scale cannot be stored in batteries in a cost-effective way. That means grid operators must be on the ready 24/7 to increase or reduce the amount of energy flowing onto the system in response to electricity demand. Too much or too little at any given time can lead to power outages and the inconveniences and productivity slowdowns they entail. This recently happened in South Australia when wind power fell very quickly and the region was hit with a blackout.
It doesn’t take a degree in photovoltaics to recognize how solar energy exacerbates this issue. Solar energy is only accessible when the sun is shining, which means even on the sunniest days of the year there is a strong mid-day peak preceded and followed by hours-long valleys. Unfortunately, electricity demand is frequently highest in the early evening when the sun is setting.
This means grid operators have to accommodate for massive influxes of solar energy for a few hours each sunny day, but then need to ramp up the delivery of other energy sources when high demand hits later on. This ramping up and down taxes the system more than simply matching demand with electricity supplied from traditional power plants. The result is that net metering customers are actually making the grid more difficult and costly to operate. Much worse, these costs are transferred to the rest of the utility’s customers, who face higher utility bills as a result.
Arizona’s largest utility, Arizona Public Service, found that a net metering customer avoids around $1,000 annually in costs they impose on the electric grid, which results in the rest of their customers being on the hook for $16.80 more. This may not seem like much, but as the pool of net metering customers grows, so too does the cost for non-solar customers.
When we look closer at the breakdown of net metering customers and regular customers, the policy is downright regressive. According to the California Public Utilities Commission, the average net metering customer in California has an annual income that is over one and a half times that of California’s average annual income. The expenses involved in installing a solar energy system on a home make the prospect cost-prohibitive for all but the upper echelon of income earners which means that net metering is essentially welfare for wealthy people.
As the Arduin, Laffer & Moore Econometrics study clarifies, our public utility policies don’t reflect the costs that net metering imposes. It’s time to reform net metering policies so that the general public no longer subsidizes those wealthy enough to afford solar panels. The sun, it seems, is not free after all.