Research & Commentary: Net Metering Reform

Published June 16, 2016

In 40 states and the District of Columbia, utility customers who generate their own energy – also called distributed generation, which occurs most often using rooftop solar panels – can sell any excess electricity they produce to a utility company for resale to other customers at a rate established by state law, a process known as net metering.

Many state legislators are now debating what the proper reimbursement rate ought to be, with free-market energy experts arguing the price should be set at the wholesale price rather than the market price, since those using net metering are still using the grid and therefore should pay for that use. But this approach is being challenged by the solar industry, which currently enjoys this and other taxpayer-supported solar subsidies.

The NC Clean Technology Center (NCCTC) at North Carolina State University reports 25 different states were “reconsidering” their net-metering policies in 2015. In just the first quarter of 2016, 22 states put 35 different “actions” up for consideration related to net-metering policies. Nine of those states considered changing the compensation rate for real-time excess electricity generation, and seven states considered placing aggregate caps on net-metering capacity. Hawaii has already cut its net-metering retail rates in half, and the recent vetoing of a bill by Maine Gov. Paul LePage (R) effectively means net metering in Maine will be decided by the state’s Public Utilities Commission. Additionally, Nevada’s Public Utilities Commission ended net metering at retail rates in December 2015.

Utilities pay significantly more to purchase customers’ excess electricity than they can charge when reselling to other customers, so they are calling for more balanced rates for net metering. Currently, utilities must pay the retail price for electricity instead of the wholesale price, which means solar owners are getting reimbursed not only for the electricity they provide but also for the costs associated with building and maintaining the electric grid. As a December 2013 paper from the Harvard Business Law Review Online noted, “net metering causes a re-allocation of transmission, distribution, and reliability costs to those customers who do not own distributed generation.”

Such cost-shifting impedes social equity because rooftop solar owners have generally higher incomes than others, so lower-income ratepayers end up paying extra to subsidize higher-income customers. A California Public Utilities Commission study found customers who installed net metering systems since 1999 had an average median household income of $91,210, significantly higher than the state’s median income of $54,283 and the investor-owned utilities service territories’ median income of $67,821.

Solar power advocates oppose aligning net metering rates with wholesale electricity prices. Although owners of rooftop solar panels should be paid for the electricity they sell back to the grid, they should be paid at the same rate conventional sources are paid, reflecting the true wholesale cost of electricity. It is particularly unfair for solar owners to be paid for the costs of maintaining the grid because the intermittency of solar power actually increases those costs. Moreover, these maintenance costs are shifted onto homes without solar panels, unfairly raising homeowners’ monthly bills. State net-metering programs should be reduced and ultimately brought to an end, as should all energy subsidies. This would create a truly free, consumer-friendly energy market where all utilities and small-scale power providers are given the right to compete for customers.

The following documents provide more information about net metering and renewable energy subsidies.

Ten Principles of Energy Policy
In this Legislative Principles booklet, Heartland Institute President Joseph Bast identifies the ten most important energy issues facing the nation and outlines the energy policy actions that will lead to the highest, most efficient production at the lowest cost to consumers.

Ten State Solutions to Emerging Issues
This Heartland Institute booklet explores solutions to the top public policy issues facing the states in 2016 and beyond in the areas of budget and taxes, education, energy and environment, health care, and constitutional reform. The solutions identified are proven reform ideas that have garnered significant support among the states and with legislators.

Net Metering 101
The Institute for Energy Research provides an instructive explanation about the fundamentals of net metering, net-metering policies, and renewable energy.

The 50 States of Solar (Q1 2016)
The purpose of this report by NC Clean Energy Technology Center is to catalogue the proposed and enacted legislative changes to regulatory policy and rate design affecting the value proposition of distributed solar photovoltaics during the first quarter of 2016, with an emphasis on the residential sector.

Residential Solar: Myth vs. Fact
This study by the Institute for Energy Research explores several myths surrounding solar power, including the false beliefs roof-top solar is cost-effective, better allows utilities to manage their peak loads, and the view residential solar has achieved “grid parity” in many parts of the United States. The study also shows that without large subsidies, solar energy fails to make economic sense and creates problems for utilities trying to manage the electric grid.

Isaac Orr: Net Metering
In this edition of the Heartland Daily Podcast, Isaac Orr, research fellow at The Heartland Institute, discusses the Champagne wishes and caviar dreams espoused by net-metering proponents.

California Net Energy Metering (NEM) Draft Cost-Effectiveness Evaluation
This California Public Utilities Commission report found net-metering policies are raising electricity prices throughout the state, harming low-income residents more than any other group. The report states rooftop-solar customers have an average household income of about $91,000 per year, well above the state average of $54,000 per year. Under the pricing mechanism of net metering, utilities pay artificially high prices to rooftop-solar customers for the excess electricity they produce, the cost of which is paid by other customers.

The Reliability of Renewable Energy: Solar
This study from the Institute of Political Economy at Utah State University shows solar power is inefficient and unreliable because the Sun is not always available and because it cannot consistently meet electricity demand, which means it must rely on backup power sources. The study notes solar power is the most expensive source of power in the United States and requires significant tax dollars to maintain production. The study’s authors say these high costs come with limited environmental benefits.

The Regulatory Challenge of Distributed Generation
This December 2013 paper from Harvard Business Law Review Online summarizes much of the latest research on distributed generation and net metering. Net metering is described as a “controversial regulatory practice,” mainly because of the huge subsidy it creates for distributed generators, which the author says is “over and above the tax subsidy provided to all renewable generation.”

Bright Consumers: Cost Inequity in Solar Power Generation
Stateside Associates, a state and local government relations firm, covers the basics of net metering, how it works, and how it distorts balanced markets. 

Updating Net Metering Policies Resolution
On December 6, 2013, the American Legislative Exchange Council’s (ALEC) Energy, Environment, and Agriculture Task Force adopted a model resolution calling for net-metering policies to be updated to address cost-shifting to stabilize the grid and financial solvency. The resolution was approved by the ALEC’s Board of Directors on January 9, 2014. The National Association of Regulatory Utility Commissioners, National Policy Alliance, National Conference of State Legislatures, National Black Caucus of State Legislators, and Southern States Energy Board have passed similar statements calling for reform of net-metering policies. 


Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this and other topics, visit the website of Environment & Climate News at, The Heartland Institute’s website at, and PolicyBot, Heartland’s free online research database,

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