Net Metering is an Important Ingredient for Vermont's Clean Energy Future

This piece was originally published in VT Digger on 12/9/13
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Two years ago, Vermont set an ambitious goal: By 2050, 90% of the state’s energy will come from renewable sources such as solar, hydro, and wind. At present, renewables comprise just 11% of the state’s energy portfolio, which means a lot will have to change in the next 37 years – how we travel, power our buildings, and heat/cool our homes, for example – if we expect to realize this clean energy future.

In 2011, the state legislature updated its existing net metering policy to allow Vermonters with renewable energy systems to sell their power back to utilities in exchange for a 20-cent per kilowatt-hour (kWh) credit. Upon subtracting the retail rate of power from this credit, customers “net” the difference.

As a policy, net metering is meant to incentivize the installation of renewable energy systems by reducing the amount of time it takes customers to make up for the up-front cost of installation. Earlier this fall, however, Vermont Electric Cooperative (VEC) submitted a proposal to the state’s Public Service Department (PSD) to reduce the net metering credit from 20 cents per kWh to 12.5 cents per kWh. If accepted, this proposal would eliminate an important incentive for Vermonters to install renewable energy systems.

VEC is joined by other small utilities in claiming customers who produce power from renewable sources, many of whom generate enough to zero out their energy bills entirely, are being cross-subsidized for fixed costs by those who don’t. In other words, since some net metering customers aren’t paying anything, these utilities contend the financial onus of maintaining the grid’s poles and wires is being unfairly passed on to others.

Although this may be a sound assertion from an accounting perspective, VEC’s proposal oversimplifies a complex issue with many quantitative and qualitative considerations. For one, it ignores many other forms of cross-subsidization taking place in Vermont.

Consider the cost of maintaining what are sometimes many miles of poles and wires to houses in rural locations. Are those who live at the end of dirt roads not subsidized by those who live closer to utility substations?

Similarly, given the added expense of power purchased for use during times of peak demand, are those who use more energy when it’s most expensive not subsidized by those who use less?

What about customers who feed renewable energy into the grid? Are they not subsidizing those who don’t for the cost of climate stabilization and reducing greenhouse gas emissions?

Instead of dwelling on but one of numerous forms of cross-subsidization, it would be more productive to focus on whether net metering as a policy is successfully offsetting the costs – both economic and environmental – Vermont’s energy system and ratepayers would otherwise incur.

According to the PSD, net metering is doing just that. Tasked by law with representing both the commercial and residential public interest in utility-related matters, the PSD published a full analysis of the cost-shift question from a utility/ratepayer perspective earlier this year. It notes, “Vermont’s current net metering policy is a successful aspect of the State’s overall energy strategy that is cost-effectively advancing the state’s renewable energy goals”  (emphasis added).

What’s more, this summer, Vermont Electric Power Company, the state’s transmission and distribution company, determined it was able to defer $250 million in transmission investments thanks to distributed renewable energy generation and improved efficiency.

All of this is not to suggest the current net metering policy is perfect. However, valuing renewably produced energy below the retail rate by lowering the net metering credit will significantly curtail small-scale renewable energy production, and with it, progress toward Vermont’s clean energy goals.

The PSD has been working with utilities and renewable energy developers to craft policy recommendations that include the interests of all relevant stakeholders. As state legislators consider these recommendations this winter, I urge them to bear in mind all of the costs, benefits, and complexities of distributed energy as they continue building a clean energy future for Vermont.

Stu Fram

December 2013