In the first part of this two-part blog series, I documented predictions that solar homeowners would combine batteries with solar panels to achieve autonomy and leave the power grid. If that were to happen on a widespread basis, it could lead to ruin for electric utilities. I then cited research that showed that such homeowners are unlikely to take that course of action. Instead, where they have access to both the grid and net metering, they are more likely to not buy any batteries at all and rely on the free storage and backup services provided by their utility.

In Hawaii, the waves keep coming

Image of a massive wave curling over itself in the surf of Hawaii

Just because cheap batteries won’t be their undoing doesn’t mean utilities are out of the palm-tree forest. Like Hawaii Electric Co. (HECO), lots of utilities face a related problem that has the potential to ruin them. The utility industry isn’t threatened by a disruptive technology, but by a disruptive idea: that it’s incumbent on utilities to provide free storage and backup services to solar panel owners. The main manifestation of this idea is net metering, and it’s the law of the land in 44 states (PDF, p. 3), according to the National Renewable Energy Laboratory.

HECO says that providing these free services cost the company $53 million in 2014, and those costs continue to grow. Also, HECO and lots of other utilities claim that these costs aren’t really borne by the company. They’re shifted to other nonsolar customers, whose rates then go up, making it more attractive for them to buy solar panels and avail themselves of evermore free storage and backup services. No utility can stay solvent under such pressure, and this disruptive spiral is bound to spread to more utilities as solar panel prices drop. That’s why in Hawaii, and in most states with some form of net metering, utilities are actively challenging the rules.

Many solar advocates object to any effort to tamper with the terms of net metering. They claim that studies show that the benefits net-metered customers provide to utilities far exceed the imposed costs, and that even nonsolar customers come out ahead. Such benefits include decreased fuel costs, avoided expenses associated with more or bigger power plants, fewer line losses in the transmission and distribution system, and reduced investments in transmission and distribution facilities. For an example of such a study, see Evaluating the Benefits and Costs of Net Metering in California (PDF) from the Vote Solar Initiative, a nonprofit advocacy campaign organization. The report’s authors conclude that “the utilities’ concerns with the impacts of NEM [net energy metering] on non-participating ratepayers are unfounded.”

There are also plenty of other studies—such as the California Net Energy Metering Ratepayer Impacts Evaluation (PDF) from the California Public Utilities Commission—that show net metering does shift costs from solar homeowners to other utility customers. Another study—Net Energy Metering: Subsidy Issues and Regulatory Solutions (PDF) from utility think tank Edison Foundation Institute for Electric Innovation—minces no words when it characterizes net metering: “The net metering subsidy for residential rooftop solar is overly generous and not transparent. In California, the net metering subsidy is substantially larger than the 30-percent federal tax credit and far exceeds what is necessary to incent rooftop solar.” How do we get to the bottom of this argument? How do we calmly and rationally decide how to fairly split up the benefits and costs of grid-connected solar panels between utilities and customers?

I don’t see any prospect of a constructive resolution to these issues taking place anytime soon. For one thing, the two sides are highly polarized. For another, there’s a wide gulf between the two in the area of public support. I base that latter assertion on a couple of surveys from Gallup. The most recent one was conducted in March of this year and is described in the press release U.S. Support for Nuclear Energy at 51%. When asked, “Do you think that as a country, the United States should put more emphasis, less emphasis, or about the same emphasis as it does now on producing domestic energy from solar power?,” 79 percent of respondents selected “more emphasis.” In pollster-speak, that means that solar has a very high favorable rating. In the same survey, wind came in with a favorable rating of 70 percent, while natural gas received a favorable rating of 55 percent. The respondents’ least favorable form of energy was coal, which received a favorable rating of just 28 percent. That low level of public opinion undoubtedly contributed to the recent collapse of the coal industry in which the Dow Jones US Coal Index lost 85 percent of its value in just the past four years.

Consider that in another Gallup poll conducted in August 2012 (Americans Rate Computer Industry Best, Oil and Gas Worst), the electric and gas utility industry only polled at a favorable rating of 34 percent. Solar power has a 45 percent favorability advantage over the utility industry, which is huge. If solar power were running for elected office against the utility industry, solar power would spend most of her time tuning up her acceptance speech. As a result, in any conflict that can be framed as utilities versus solar power, solar power is going to win almost every time. Rare is the legislator or utility commissioner who could long stand up to such public pressure. Expect that net metering, in its present format, is going to be with us for a long time, regardless of its impact on the utility industry.

This stalemate is sadly ironic. Rooftop solar installers and advocates need the utilities and the grid they operate. Without the storage and backup services grid connections provide, we would not have the thriving solar rooftop industry that exists today. Yet few solar advocates seem to recognize how crucial a well-functioning grid is to decarbonizing the economy. They see the utilities as obstructionists. They yearn to “leave,” “escape,” or “defect from” the grid.

As for the utilities, they want to protect their lower-income nonsolar customers from subsidizing their higher-income solar customers. Accordingly, they also want to charge solar homeowners for access to the grid, but hardly anyone thinks that they’re entitled to what they assert is a fair price. When SRP recently enacted new charges that would add about $50 on average per month for solar installations, it was widely reviled. Buffeted by stagnant loads, technological change, the conflicting demands of numerous stakeholders, and attacks on their business model, electric utilities lack the public standing it would take to negotiate their way to a more stable position.

Meanwhile, back in Hawaii, the Public Utilities Commission has given HECO and the solar advocates until the end of June to work out their differences. If they can’t do so by then, the commission is going to step in and make a decision. It won’t be from a hammock on an Oahu beach, but I’ll be watching to see how this conflict turns out, and I’m sure I won’t be alone.


I think there's a difference between talking about the ruin of utilities and a need to adjust revenue models. Let's put aside the issue of merit regarding the benefits of solar to the system vs. the charges not paid. For utilities to be profitable they need to get the revenue to operate from someone. I don't think you're really saying that the only solution is to raise rates on lower-income customers, are you? It's true that if PV grows and grows, and net metering never changes the base of non-PV customers shrinks, and putting more costs on them encourages them to convert to PV. But: * This future where PV tips the system is far away in most states. Closer in a few. * A current PUC decision on net metering is not a forever decision. * With carbon issues, renewable, efficiency and flat to declining load growth in most areas, there is not a forseeable future where utilities' existing revenue models are very profitable in many states, regardless of PV. It's interesting to ask how dealing with PV fits into the need to significantly change pricing strategies at utilities. And, whether the entire idea of cost-based regulation is viable as utility loads diminish. There are lots of ideas cruising around about serviced based rate of return, ancilliary business models, delinking the generation business from the utility, becoming a service portal for others, etc. So PV is not the bogeyman, it's just another thing in a market tipping toward structural change anyhow.

Thanks for your thoughtful comments. Of course, I’m not saying the solution is to raise rates on low-income customers. Quite the opposite. I’m concerned about low-income customers subsidizing solar customers. Also, even though the tipping point for most utilities is far away, this is the sort of problem that gets more intractable over time, as public opinion sets up like concrete. PV is not the bogeyman, but it is a major lens through which much of the public will view any proposals to tinker with the utility revenue model. Any proposal to introduce higher fixed charges (or demand charges) for residential customers, even if it comes with a reduction in energy rates, is going to be framed by advocates as an attack on solar. Right now, solar is way more popular than utilities (as well as nerds that really care about utility revenue models), and that framing is going to really resonate with the public. Public resistance doesn’t preclude progress on this front, but it’s certainly a major obstacle. Thanks again for your comments, and I look forward to continuing our dialogue.

If batteries are cheap enough, I believe people will defect, even if the Sydney study doesn't believe it. My PV supplier has started to promote a solution using batteries: It doesn't require any sort of action by the PUC.

Thanks for commenting, Kevin. Sure, some people will defect, no matter the cost of batteries. They will do so for emotional reasons, not for economic ones. The economics are just too strong for customers who have access to both the grid and net metering to stay, which will keep the amount of customers that leave down to levels the utilities consider trivial. Grid tied PV homeowners get free storage services and free backup. Furthermore, the storage services via the grid come without roundtrip efficiency losses, self-discharge losses, summer excess generation losses, space requirements, maintenance costs, and capacity loss. In addition, grid tied systems are more reliable. All those factors make for a compelling reason for solar homeowners to stay on the grid even if batteries are free. Again, thanks for adding comments to this post.

Contributing Authors

Board Member, Senior Fellow

Jay Stein is focused on expertise development, research skills development, quality control, new product development, and technology assessment. Jay is a specialist in HVAC, high-tech industrial process technologies, and the IT industry; he works closely with the E Source Technology Assessment Service.