See also: What is net metering?
Net metering is a renewable energy incentive available in various forms to owners of solar and wind-powered systems in about 40 states (in Indiana, for arrays up to one megawatt). It was adopted in Indiana in 2005 and expanded in 2011 for the five investor owned utilities. REMCs and municipally owned utilities typically don’t offer net metering.
In 2017 the Indiana legislature, influenced by the investor-owned utilities, passed into law Senate Enrolled Act (SEA) 309 which began to phase it out over the following 5 years. Renewable energy systems put in place any time on or before December 31, 2017 were granted net metering until July 1, 2047. Similarly, systems installed between January 1, 2018 and June 30, 2022 are eligible for net metering until July 1, 2032. The status is transferable to successor owners with an updated interconnection agreement with the electric company. Customers who add solar systems after June 30, 2022 will be subject to a different billing system and rate, called Excess Distributed Generation (EDG). This same rate will apply to solar customers when they reach the end of their respective net metering eligibility in 2032 or 2047.
Under net metering, a kilowatt hour (kWh) of customer-generated energy and a kWh of utility-provided energy each have the same financial value, equivalent to the retail rate of that electric company for that class of customer. For residential customers, the rate is usually between $0.10 and $0.20 per kWh. Larger commercial accounts pay less than $0.08 per kWh.
At the end of the monthly billing period, the net amount – the difference between the kWh of grid energy used on site and the kWh of customer-generated energy exported to the grid – determines whether the customer receives a financial charge, or a bookkeeping credit. Credits can accumulate month after month; charges are paid when incurred. For systems designed to offset 100% of annual usage, production averaged out over the course of the year, can result in excess energy from Spring & Fall production (with less heating and cooling) that typically offsets the consumption of grid energy in winter, on rainy days and at night.
As of March 2022, utility companies have petitioned the Indiana Utility Regulatory Commission for rate changes. Litigation is proceeding through the courts to address how the new rates will be applied and how excess generation is defined. There are some uncertainties as to what will happen when net metering expires. The greatest uncertainty is whether the rate will continue to be applied on a monthly netting basis (i.e., treated as a kWh difference) or will convert to “instantaneous billing” treated (as a difference in monetary values between exports and inflows of energy, with the clock running continuously on both). Some utility companies have already begun converting from kWh to monetary credits. (See the FAQ on this topic for definitions.)
Solar owners with net metering interconnection agreements approved before July 2022 will continue receiving the benefits of net metering until 2032 or 2047 as stipulated in SEA 309.
To the best of our knowledge, with the court’s decision being an unknown, here is what will likely happen for new solar arrays not eligible for net metering after June 2022. The financial value of exported solar power for new arrays after June 2022 (or earlier for CenterPoint customers) will be calculated with the EDG rate, typically in the range of 2 to 5 cents per kilowatt hour (about 15% to 40% of retail rates). Each company will have a different EDG rate which will be variable, changing up or down annually.
Energy exported to some utility companies can now be measured by smart meters on a second-by-second basis – and so can energy that the customer consumes from the grid. At the end of the monthly billing period, the assigned cash value of the exported energy will be deducted from the full retail price of the energy the customer consumes from the grid. Because the EDG rate is less than the retail rate, this billing mechanism will typically result in reducing the energy savings for customers, and consequently the return on their investment.
The impact of EDG rates on the financial benefits of solar arrays can be estimated by comparing the ratio of the solar annual production kilowatt hours (kWh), to the annual total electrical consumption in kWh. For example, a solar array designed to produce 80% to 100% of the building’s total annual electrical usage will typically export a large amount of produced power to the grid in the peak solar generating spring/summer/fall months, resulting in a large number of kWh being valued at the reduced EDG rate.
How can the value of solar be optimized for new owners under EDG rates?
There are ways to compensate. If the solar array total production is 40% to 50% of the total annual usage, then a smaller amount of power will be exported during peak months, resulting in an improved financial benefit. For arrays sized to produce about 50% or less of total annual usage, the financial impact of EDG rates is less because more of the solar power has retail value when it is consumed on the property as it is being produced.
The ratio of exported energy can be reduced by adding daytime loads to use or store electricity as it is produced by solar. For example, an electric vehicle that is driven 10,000 miles per year consumes between 2,000 and 3,000 kWh annually. Appliances can be converted from natural gas to efficiently use electricity, for example an electric heat pump clothes dryer (500 kWh annually) or hybrid electric heat pump water heater (1,000 kWh annually). Appliances can be remotely operated or put on a timer so that they consume energy during daytime hours. Another option is installing batteries to store peak power instead of exporting it; discharging the battery at night can power the house and reduce the amount of energy used from the grid. All the strategies mentioned in this paragraph will help mitigate the impact of instantaneous billing; they will not make a significant difference if monthly netting is allowed to continue.
An array sized to produce a smaller portion of energy used (e.g., under 50% of total annual usage) should see less adverse impact from the changeover to EDG rates. Likewise, commercial projects using greater amounts of energy will consume all of their solar power, resulting in a direct reduction in their electricity bills which typically have lower rates because of volume discounts.
Several studies have shown that the cost to build and operate utility scale wind turbines and solar arrays is less than the cost of using existing coal or gas power plants to produce grid energy. Economics is driving utility companies to invest in renewable energy around the world.
What is the value of an investment in solar energy?
Studies of the value of distributed solar (arrays located near where the energy is used) prepared by different authors at different times have different results. Reports sponsored by utility companies show lower value because their calculation is limited to the avoided cost of purchasing energy from other sources. Reports not sponsored by utility companies show higher value of distributed solar because other factors such as decreasing air and water pollution, improving public health, and mitigating climate change are included as benefits. No studies on the value of solar have been commissioned or planned by the Indiana Utility Regulatory Commission or the Indiana legislature.
Many solar owners place a high personal value on the intangible benefit of knowing their energy is produced without combustion of coal, gas or oil that contributes to global warming. Generating electricity without burning fossil fuel reduces pollution, improves health and increases life expectancy. Additionally, sunshine and wind are free and inexhaustible fuel sources.
Some people spend more on travel than the cost of a typical solar array, but the enjoyment of travel is relatively brief in its duration. A solar system today costs less than half of what it did a few years ago and it will continue operating for decades. Enjoyment of residential solar energy transfers from the buyer to successor owners who usually will pay a premium for a solar home.
Although the cost of home remodeling projects can be partly recovered when the property is sold, most of their value ls provided as added pleasure for owners. Unlike solar systems, an updated bathroom or kitchen will not provide a continuing reduction of utility costs.
The value of automobiles, furnaces, air conditioners and other appliances decreases with time until they cease to operate and are replaced. Their benefit is the service provided by their function. Solar systems are appreciating assets that will continue operating for decades. Their value will go up as electric rates increase. Their benefit is the service provided by their function of making energy with no fuel cost.
Performance of solar panels after 25 years is expected to be 80% to 90% of their original rated power. Value of solar grows if performance reduction is less than one percent annually and electric rates increase more than one percent. How much have electric rates increased in recent years?
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