Evaluating the Benefits and Costs of Net Energy Metering in California
This paper explores recent claims by California’s investor-owned utilities (IOUs) that the state’s net energy metering (NEM) policy causes substantial cost shifts between energy customers with solar photovoltaic (PV) systems and other non-solar customers, particularly in the residential market. We conclude that the utilities’ concerns with the impacts of NEM on nonparticipating ratepayers are unfounded. Recent changes in residential rate design and updated models of the costs which the utilities avoid when they accept NEM power exported to their grids show that NEM does not produce a cost shift to non-participating ratepayers; instead it creates a small net benefit on average across the IOUs’ residential markets. NEM is even more cost-effective for non-participants in the commercial, industrial and institutional (C&I) market. Moreover, the costs of NEM can be further reduced through residential rate design changes which more closely align California’s retail electric rates with the utilities’ cost of service for residential customers; such changes will ensure that net metering remains cost-effective for residential ratepayers even as the penetration of PV systems continues to grow.