Over the past year and to the chagrin of many, Maryland has struggled to ensure that its net metering program remains an effective policy mechanism for the future of solar deployment. Of particular concern was legislation passed in 2010 that would have significantly weakened the state’s net metering policy by eliminating the ability for a customer to rollover excess generation from month to month at the full retail rate. Fortunately, the state’s renewable energy champions and stakeholders made this issue a priority during this year’s 428th legislative session. Result: Maryland’s net metering program will keep on rolling.
As many of us are aware, the treatment of excess generation is at the heart of net metering and is an imperative fundamental of this policy pillar. Without question, the best net metering programs enable a customer to utilize excess generation from one month to offset the electricity demands in future months. Whereas the most expansive programs allow for the indefinite rollover of excess generation credits, some require customers to donate excess generation credits to the utility at the end of a year or to accept payment for these credits at avoided cost.
Crediting excess generation at the full value of retail electricity (i.e., generation, transmission and distribution charges) ensures that a customer is able to realize all the economic benefits of self-generation despite fluctuations in their electricity generation and consumption throughout the course of a year. Importantly, monthly rollover enables a customer to design a solar system to meet their individual electricity demands.
As an alternative to this tried and true fundamental, in 2010 Maryland explored an arrangement in which a customer’s excess generation would be reconciled on a monthly basis at the prevailing market price in the PJM interconnection energy market. In other words, instead of valuation at the full retail rate, excess generation would be valued according to PJM’s locational marginal price (LMP), or generally speaking, the cost of wholesale power on the spot market which varies from day-to-day, hour-to-hour. Despite this clear reduction in value, considering that solar facilities can generate significant output during periods of peak demand, and thus peak marginal pricing, the proposition proved alluring.
As part of implementing these legislative amendments, however, the Maryland Energy Administration (MEA) undertook an economic analysis concluding there would be an indisputable reduction in the value of net metering if the current practice of carrying a kWh credit forward was replaced with a monthly LMP payment. After a painstaking rulemaking process at the Public Service Commission, it was clear that the pillar that was once Maryland’s net metering policy had eroded to the point of being ineffectual.
MEA’s analysis demonstrates that a net metering regime where excess kWh generation from one month is rolled forward to a future month is the most economically beneficial arrangement for a customer-generator. For example, the MEA analysis shows that a non-electric heat customer who would install solar to meet 100% of their annual needs would pay an electric bill of $94 annually under kWh rollover. On the other hand, under a monthly dollar payment at PJM LMP for any excess generation, that customer’s bill nearly doubles to $175 annually.
Clearly, this modification greatly jeopardized the viability of Maryland’s net metering policy for enabling residents and businesses to generate their own clean energy.
Fortunately, and to the credit of the state’s renewable energy champions, Maryland was able to quickly mend its net metering program through the enactment (May 19, 2011) of Senate Bill 380 and House Bill 860, thus returning its net metering policy to hinge on monthly carryover at the full retail rate. Governor O’Malley, Senator Pinsky and Delegate McHale should be commended for their timely efforts to correct last year’s snafu.
As solar markets mature and larger quantities of solar come online, it will be no surprise that a range of stakeholders will look to improve upon or in some cases undermine the principles of net metering. It is here we should all take pause, and remember the fundamentals that have made net metering one of the most important catalysts of the clean energy economy.