Net energy metering (NEM) is a special billing arrangement that provides credits for surplus energy to customers with solar photovoltaic systems, at the full retail value of the electricity their system generates. Under NEM, the customer’s electric meter keeps track of how much electricity is consumed by the customer, and how much is excess electricity is generated by the system and sent back to the electric utility grid.
NEM regulations are determined by local, usually state, public utility commissions. Since California is by far the largest U.S. adopter of NEM, the following comments, while broadly universal, specifically relate to rules promulgated by the California Public Utilities Commission.
As currently structured, NEM is a very good deal for the home owner with solar panels, and a very bad deal for everyone else. At any time of day, a customer’s solar system produces more or less electricity than required. When less is provided, the customer buys electricity at normal retail prices, no problem. When the home system generates a surplus, the customer is credited at the full retail rate, which can be as much as eight time the utilities’ wholesale costs. The excessive costs associated with purchasing surplus power is, essentially, a subsidy for home systems, that is borne by all of the rest of the utilities’ customers, and constitutes a hidden and regressive tax in support of green energy policies.
Investors should be cautious when considering opportunities involving subsidies and/or mandates as they are subject to change and, therefore, likely to be less predictable than the economic impact of market forces.
All comments and suggestions are welcome.
Walter J. Kirchberger, CFA