In January, state legislators introduced bills in Indiana, Minnesota, and Montana to reform their respective states’ renewable-energy policies, including net metering and solar-energy subsidies.
Net-metering reform has become an increasingly hot-button issue in recent years. The NC Clean Technology Center (NCCTC) at North Carolina State University reported 28 states considered or enacted 73 changes to net-metering policies in 2016, up from 42 actions in 25 states in 2015.
Net-metering laws require utilities to purchase excess electricity from households with their own electricity generation source, usually in the form of rooftop solar panels, at the retail prices ratepayers pay for electricity. Utilities typically buy electricity wholesale or generate it on their own, so the power they purchase from these “distributed-generation” sources costs them more, which they pass on to other ratepayers in the form of higher prices.
Eliminating Renewable Subsidies
Six separate bills have been introduced in 2017 in the Montana State Legislature, including Senate Bill 154, which would end some of the state’s renewable-power incentives, including eliminating five out of Montana’s 13 alternative-energy tax credits and the state’s energy loan and grant programs for net-metering solar power systems.
“I hope the [solar] industry does grow, but not at the expense of Montana taxpayers,” said state Sen. Mike Lang (R-Malta), who introduced SB 154.
In Minnesota, House File 235 would end the “Made in Minnesota” subsidy program, which provides homeowners a subsidy worth roughly 40 percent of the cost of installation of solar panels and an annual rebate for the power those panels produce, if they are manufactured in Minnesota.
In Indiana, Senate Bill 309 would end the state’s net-metering program by 2022, grandfathering in existing customers for 10 years. Instead of paying the retail price for excess electricity produced by rooftop solar systems, utilities will pay 125 percent of the average annual wholesale market price. The current retail price for electricity in Indiana is around 11 cents per kilowatt hour (kwh), and the wholesale rate is around 3 cents per kwh.
John Eick, director of the American Legislative Exchange Council’s Energy, Environment, and Agriculture Task Force, says Indiana’s push for net-metering reform is a good start toward eliminating government-mandated distortions in the system.
“Indiana’s bill minimizes the shifting of grid costs from solar owners to non-solar owners, a step in the right direction,” Eick said.
Inequitable Cost Shifting
Because under net-metering laws, utilities pay the retail price for electricity from distributed sources of electricity, instead of the wholesale price=, distributed-generation customers don’t have to cover their share of utilities’ costs of building and maintaining the electric grid. Such cost-shifting is regressive, because rooftop-solar owners have generally higher incomes than others, so lower-income ratepayers end up subsidizing higher-income customers.
The California Public Utilities Commission determined customers who have installed net-metering systems since 1999 have had an average median household income of $91,210. This is significantly higher than the state’s median income of $54,283.
‘A Government-Created Problem’
Eick and James Taylor, president of the Spark of Freedom Foundation, say state governments created the problem they are now trying to solve.
“All across the country, state policymakers are starting to understand the many problems associated with subsidizing rooftop solar through net metering and other direct subsidies like tax credits,” said Eick.
“The dispute over net metering is a government-created problem,” said Taylor. “The amount of power utilities must purchase and the price they pay for solar power from small-scale providers is a political issue only because most state governments created and enforce a monopoly electricity market.
For Taylor, opening electric markets to competition would solve the problems government mandates and monopolies have created.
“Utilities point out small-scale solar is not cost-competitive, and they can generate or purchase power at lower prices elsewhere,” Taylor said. “Resolving this problem in a just manner would mean allowing consumers to purchase power from whomever they want, better ensuring any solar power that is cost-competitive will find a market, and nobody will be forced into or shut out of electricity-purchase decisions.”
Timothy Benson ([email protected]) is a policy analyst at The Heartland Institute.
Autumn Proudlove, et al., “50 States of Solar,” North Carolina Clean Energy Technology Center, North Carolina State University, January 18, 2017: https://heartland.org/publications-resources/publications/50-states-of-solar