This is a reprint of an article originally published in 2015

I want to unleash a new solar revolution – we have a million people living under roofs with solar panels and that number needs to increase

These were the words of Amber Rudd, the new Energy and Climate Secretary in the UK government. Indeed last year, the UK already installed more solar capacity than any other European country, and there is some reason to believe that this may yet be the case even in the wake of further budget tightening.

Rudd’s plans are not new, having found support in the previous coalition. These plans would expand the solar rooftop scheme whilst scaling back larger and more centralised solar farms. This is a smart idea, not least because it encourages local and small businesses to install capacity and provide jobs over a long-term period in contrast to a larger project with a larger and not local company such as Siemens importing technicians and other workers on a short-term basis.  Additionally, leaving the upfront capital cost to household owners can allow much greater investment over a shorter period of time – if the incentives are right.

Brushing aside the issue of whether or not this could be done in a time of budget cuts across the board, it’s important to think about the issues that intermittent and distributed power generation might cause for energy companies and end-users of electricity. One such issue is net metering which has been advocated by many, though they frequently do not discuss the drawbacks and simply focus only on the positives.

Whilst the UK has been cautious to adopt net metering with only one company offering it so far, the majority of US states already have (as well as Turkey, the Netherlands, Belgium and Denmark pg12), and have demonstrated some perverse effects on consumer bills. There is currently no government support for net metered distributed generation, but it is important to understand the negative effects it could have all the same.

Net metering is where a ‘net meter’ measures the difference between the amount of electricity produced by a consumer and the amount of electricity supplied, the bill is calculated with this difference. In this instance, a customer could have a bill of £0/year if they produce exactly the energy they need.

The benefits of net metering (or NEM – Net Energy Metering in the US) are that it:

  • Allows the consumer to size installed capacity to meet annual load rather than peak. Capacity factors for renewable technologies mean that when the sun is shining or the storm is blowing, they produce excess, but when the weather’s overcast and the breeze is dead the lights will be off. Being able to take energy off the grid when necessary taking into account on how much you put in earlier means that you need less capacity to generate what you need all the time.
  • Allows for small short-term fluctuations (such as when a cloud passes over the house).
  • Eliminates the risk of investing in domestic renewable energy, as there will be no issues of intermittency for the consumer to worry about, and there will be a guaranteed power purchase by the consumer.

Fixed Costs

With any electricity grid, there are going to be a number of fixed costs such as maintenance, infrastructure investment, and so on. These are generally charged ‘within’ the cost per kWh, and so are greater distributed to energy intensive users that are more likely to be able to afford it. In an ideal system, the utilities would recover their fixed costs with a fixed cost bill as a ‘grid charge £/month’ and their variable costs of generation as a variable tariff ‘electricity charge £/kWh’. However, this is not the case.

If distributed generation reaches a significant level – even at 5-10% – this system breaks down. All of a sudden there is a large portion of their customers who are freeriding on the others. The distributed and intermittent generation means that utilities will also need to pay more for flexible power generation and potentially costly storage capacity to keep the lights on and the grid running. To balance the now more volatile flows of electricity, and manage a transition from the one dimensional grid (from generators to consumers) to a more balanced interconnected grid, tariffs will inevitably be raised. Those without distributed generation will pay more for the same amount of energy, subsidising richer customers.

Vulnerable Consumers

The major source of the net metering subsidy would be the elimination of fixed costs charged by the energy supply company. These would then be passed onto other consumers.

As a study in California found out, customers without the means to provide renewable energy to the grid paid around $1 billion more every year. These consumers paying more were on average around $35,000/year less well-off. The ‘profile’ of someone who is likely to benefit from Rudd’s solar scheme in the UK is a homeowner, in a single family home, who has enough income that they are able to front the costs of solar installation. What’s more is that the UK’s solar potential is mainly based around the South of England – a place that is disproportionately better off than the rest of the country.

Solutions?

If there is a strong push for net metering in the UK, as has happened in other countries around the world, there will be potential challenges for our energy system – namely protection for vulnerable consumers, competitiveness of the market, and continued investment in infrastructure.

To balance this, it would be wise to eliminate some of the negatives of net metering whilst still maintaining the support it provides for renewables. One way of doing this would be to introduce net purchases – where your electricity produced is valued at wholesale prices (without transmission costs) and this amount is taken off the final energy bill. Alternatively, the government could take the financial hit themselves, or where that is not possible a ‘carbon tax’ could be added to carbon-intensive energy sources, which would put solar and other renewables on a better position for ‘grid parity’ or a competitive market price.

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