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Solar Flare
Why Indiana’s “Net Metering” Showdown Matters

An Indiana House of Representatives committee voted to advance a bill this week that would charge smaller solar energy producers a fee for the energy they sell back to their utilities. Reuters reports:

Indiana utilities are pressing state lawmakers to let them charge a monthly fee to customers who sell excess power from solar panels under a bill that has become a focal point in a battle between traditional and renewable energy companies.

An Indiana state House committee on Wednesday voted 9-4 to advance the bill, which would also give utilities some flexibility over what they pay for energy sold back to them. The bill, opposed by clean energy advocates, goes next to the full state House of Representatives.

Thanks to our day/night cycle, solar energy is intermittent. That’s a problem for small producers, especially as demand tends to peak in the evening (as people turn on lights) just as the sun goes down and the ability to produce power ends. Without storage options, small-scale solar producers have to continue to rely on their local utility for their own power.

This relationship is fundamentally different from the one utilities are accustomed to entering into; both parties are buyers, and both are sellers. When the sun is shining brightly and the supply of solar power exceeds the local demand of the producer, it can sell that excess power back to the utility, in many locations at the same rate that the utility sells its power. This process is called net metering, and it’s a massive headache for utilities. As the Economist put it, net metering is a “startlingly good deal for the producer, less so for the company.”

But this isn’t just about which side is getting the better deal. The utility is expected to maintain the local grid to provide power to its customers, but these grids were not constructed with distributed solar power producers in mind. There’s a cost to start sending power in two directions, and in many places the utility is the only one bearing that cost.

Net metering schemes exist in 43 states, but if Indiana’s state legislature rules that smaller producers have to pay a fee for selling their power back to the grid and may not be guaranteed the favorable prices they currently enjoy, other states could take notice.

That could deal a blow to the fledgling small-scale solar industry. As the president of an Indiana-based solar firm put it, the bill “destroys the solar energy industry in Indiana. It takes away any little bit of economic incentive and puts it right into the pockets of the utility company.” But that may not be a sign of greedy utilities jealousy guarding their fiefdom—at least not entirely—but rather an indication that solar’s day in the sun hasn’t yet arrived.

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  • wigwag

    Disintermediation of the electricity business is a profoundly good thing; that’s what this fight is all about. In effect, every homeowner with a solar array on his roof becomes a small business in the electric generation business. It’s little wonder that utility monopolies hate it and it’s no wonder that the monopolies are pleading with their allies in the Republican Party to rescue them.

    The electric utilities are in exactly the same position as publishing companies or music companies a generation ago; they see technological change as a looming disaster likely to ruin their century old business model and run them into bankruptcy court.

    The reality is that regardless of the outcome in Indiana, for electric utility monopolies the writing is on the wall; they’re living on borrowed time. It’s not just that the price of generating solar power is plunging; it won’t be long before other power generation technologies become price competitive. While fuel cells and full-time microgeneration gas technologies aren’t ready for prime time yet; eventually they will be. Soon technological innovation will allow every home, apartment building, shopping mall and office tower to generate its own electric power on-site.

    The whining of the electric utility monopolies is no different than the whining of full service brokers, long distance telephone companies and department stores watching their market share eroded by the internet.

    The GOP is supposed to be the party that believes the hazards of creative destruction are worth the benefits. The Indiana homeowners with solar arrays on their roofs are the entrepreneurial small businessmen; the Indiana electric utilities are the rent seeking crony capitalists begging the a Government to protect a dying industry.

    It shouldn’t be so hard for Indiana Republicans to figure out the good guys from the bad guys.

    • Kevin

      If there were a competitive market in electric energy then transmitters woukd feel the same way utilities do, it’s an extra cost for them and there is no reason that solar should free ride. Solar’ producing during periods of low demand and wanting to get paid marginal (peak) rates is not sustainable and if they are paid for this they will drive up costs for everyone else.

      If solar producers could provide an equivalent amount if power at all times it would be a different issue, but what they are proposing will not work. Look at the mess in Germany and the UK when off peak producers are guaranteed peak rates for their intermittently produced power.

      • Andrew Allison

        It is true that entrenched de facto monopolies will do everything in their power to maintain their status (witness the True Blue legislative effort to shut down Uber, et. al). It is also true, as you point out, that not only is there a cost to the utility company to accommodate reverse flow which solar producers are not paying, but the latter are being paid peak rates to deliver off-peak power. which represents a cost to all ratepayers. Elon Musk proposes to solve this problem by providing local battery storage. Time will tell what the economics will prove to be, but meanwhile, alternative energy is not cost-effective.

        • iconoclast

          I’ll bet Elon Musk cannot wait to sell millions of batteries for power storage. All at a subsidized rate, of course

          • Andrew Allison

            Of course! Musk has shown himself to be a master at obtaining subsidies, and the taxpayers of Nevada having won the auction to subsidize the construction and operation of the battery factory will pay, and pay, and pay, as will the taxpayers of any State foolish enough to offer incentives to install the batteries (and all of us if Uncle Sugar steps in). Hence my question about the economics.

        • wigwag

          Most electric company monopolies in the United States are public utilities where both rates and return on invested capital are regulated by state commissions. In many cases power generation and distribution have been cleaved into separate companies, but that’s not true everywhere or even in most states. It is disingenuous for a company that enjoys a state granted monopoly status and has its tariffs approved by a state commission to complain when the state which facilitates it’s monopoly status issues a requirement that benefits a small business which, is in effect, what a homeowner with a roof top solar array is.

          The best analogy is with the telephone monopoly (AT&T) in the 1960s; it had a very comfortable business model that was upended by technological innovation. Fortunately, the government did not get in the way of tiny start-ups that offered competition to Ma Bell. It shouldn’t get in the way of small distributed power generators either. The GOP should be ashamed of itself for siding with the monopolist instead of those who want to use a disruptive technology. But that’s what the GOP often does; it sides with the politically powerful and sclerotic enterprise while hindering innovation. In this way, Republicans resemble no one so much as they resemble the Democrats who are equally complicit. In this case, the Democrats have gotten into the heads of Republicans; the GOP is so sick of being bashed about climate change that it reflexively opposes anything with the word “solar” in it, even when the motivation for using the technology has nothing to do with Green politics; that’s simply stupid. GOP state legislatures seeking to protect the monopoly status of electric utilities are exactly like Democratic City Councils seeking to protect taxi fleet monopolists from Uber.

          But this isn’t just about solar power generation, several new technologies may allow on-site electric generation; they are not ready yet, but it’s likely that they soon will be. Electric utilities know this is coming and they are in a panic. Google “disintermediation and electricity generation” to see what I mean.

          Within a decade or so, electricity utilities may be as relevant J.C. Penny, Merrill Lynch, Atlantic Records, Borders Books and Doubleday. That is unless the GOP reverts to type to and tries to resurrect a business model where rigor mortis is about to set in.

          • Andrew Allison

            With respect, it is disingenuous to pretend that reverse-feed and paying peak rates for low-demand supply are not costs to the utility and hence the ratepayer. There is precisely no analogy to AT&T; specifically, the competitors did not impose direct costs on the utility. They did impose indirect costs by way of competition, but were talking about direct costs here.

    • gabrielsyme

      Nope, forced “net metering” policies act as a forced subsidy from the power company (and hence, from all other consumers) to small solar producers. It makes uneconomic investments pay out for no discernably intelligent public policy. Whether subsidies are direct or indirect, they almost always distort markets and reduce wealth.

  • FriendlyGoat

    Indiana is pretty far above sea level. Laughing at solar works better on the high ground.

  • wigwag
    • wigwag
      • Anthony

        WigWag, reads are enlightening (all three of them) thanks. And perhaps contretemps witnessed is premised on resistance to threat of disintermediation (advance of capitalist creative destruction) affecting traditional institutions (utilities in this instance). The opposition may be perhaps a defensive rigidification in face of economic stagnation among general populace (tensions faced when confronted by disintermediation of sections of nation’s economy – transformation of the country’s way of life).

        • wigwag

          Anthony, I’m glad you liked the links. The demise of America’s electricity utilities is going to have huge ramifications. It’s also going to give the United States an enormous competitive advantage over Europe where sclerotic rules and regulations will make this innovation harder to implement despite Europe’s lust for “green” energy.

          Electric rates have been going up all over the United States and lower fossil fuel prices haven’t caused those increases to abate. If utilities want to stay in the game, they will have to lower their prices to compete with lower off-the-grid alternatives. That’s the warning Morgan Stanley is giving to investors. They are also warning utilities that their moves to reduce the attractiveness of net metering will backfire and inspire many utility customers to go off-grid entirely. None of this has anything to do with environmentalism; it has everything to do with economics.

          A real irony that is rarely commented on is that it’s natural gas utilities who may end up killing electric utilities. As America’s fracking revolution leads to steep declines in gas prices and as technological improvements make it feasible for in home generators to operate full time to produce electricity as opposed to their traditional role of providing back up electricity when the grid has a glitch, there will be fewer reasons for anyone to rely on grid delivered electricity. Electric utilities know this is coming and they are freaking out.

          So many Republicans hate any technology that might have a lighter environmental footprint and we know that there’s nary a monopolist that the GOP won’t shill for, but there’s great news in this even for the Neanderthal wing of the Republican Party. Utility workers are highly unionized and they make high salaries despite needing less education than many other workers. It’s a highly skilled job but you don’t need a college degree to climb a utility poll or change out a transformer.

          As disintermediation of the electricity business picks up, electricity utilities will watch in horror as their revenues plunge. The first thing they will demand is huge give backs by their unionized workers. As business continues to deteriorate, those give backs won’t get the job done and there will be major layoffs of unionized utility workers.

          Given their hatred of trade unions and their contempt for working people, Republicans will be able to sooth their angst that environmentally friendly technologies are beating out coal by celebrating the fact that unionized workers are taking it on the chin.

          With disintermediation and the creative destruction it leaves in its wake, there’s something for everyone.

          • Anthony

            Thanks for the outline; this is an area in which I am not well informed and appreciate your purview; two things: 1) definitely more economic than environmental; 2) unintended consequences of partisan shortsightedness vis-a-vis potential impact on middle wage jobs.

  • GS

    Well, to organize a modest-size energy storage might be doable. usually they do it with the lead-acid batteries, though.

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