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Why aren’t we talking about net energy metering for LEDs?

Catherine Wolfram, faculty co-director, Energy Institute at Haas | March 17, 2014

The fights over net energy metering have gotten loud and heated. For those of you who have missed the drama, here, in a nutshell, is what “net metering” means. Say I install enough solar panels on my roof to provide about half of my electricity over the course of a year. On a sunny afternoon, if I’ve turned off my Tivo and my refrigerator and dryer aren’t running, my system might be generating more electricity than my house is consuming.

Net metering means that my utility will credit me for the “extra” power my system generates at times like this and charge me based on the difference between my total consumption and my total solar production, i.e. my net consumption. I will be selling back to the grid during the sunny afternoons when my own consumption is low. (See Severin’sprevious post on this.)

solar panels

Will your neighbors admire your solar panels?

So, how does this apply to LEDs? From a purely technical perspective, it doesn’t. An LED would never bring a house below zero consumption so that it’s selling back to the grid. But the zero consumption threshold isn’t what all the fights are about. If my consumption without the solar panels puts me on the fourth tier, where my rates are as high as 36 cents per kWh, my solar system helps me avoid paying for some pretty expensive electricity. Even if I never go below zero, a solar system will keep me down on the lower tiers, paying only 13 cents per kWh. (On a side note, the solar installers who have approached me understand this and size their systems to avoid the expensive power but not the cheaper stuff.)

But, PG&E has fixed costs, which won’t disappear just because I install solar – it still has to run distribution wires to my house and pay for my meter. It’s paying property taxes and financing costs for its power plants no matter how much electricity they produce.

The basic problem is that utilities are collecting fixed costs – which by definition do not vary as a function of how many kWh customers consume – on a volumetric basis. So, every time someone installs  solar panels, the remaining ratepayers have to pay slightly more to cover those costs. Yes, my neighbors (and all of PG&E’s residential customers) would have to pay for my meter and my “share” of the distribution lines running down our street if I got a large solar system.

The opponents of net metering argue that it provides unfair incentives for people to install solar, which leave the rest of the users on the hook to cover the utilities’ fixed costs. They cite the “death spiral,” meaning that rates get higher for non-solar customers, which induces more of them to switch to solar. The more sophisticated opponents note that solar installations are generally on rich people’s houses, so net metering is regressively subsidizing the rich.

This brings us to the question posed in the title. Why isn’t anyone complaining (at least very loudly) about unfair cost shifting or the death spiral when I buy an LED bulb? Just like a solar system, my LED bulb will help me avoid the 36 cent power, and, given that some of that is collecting fixed costs, my neighbors will be left paying a tiny bit more – if not tomorrow, after PG&E’s next rate case.

Energy efficient lightbulbs

Lots of potential?

My first guess was that we’re not talking about an energy efficiency death spiral since we’re still talking about the energy efficiency gap, which implies that customers are not investing in seemingly cost-effective energy efficiency measures. In other words, customers have been leaving the proverbial $20 bills on the sidewalk and bypassing energy efficiency opportunities, like replacing their incandescent bulbs with LEDs, even though the switch could save them money.

But, I did some rough calculations and concluded that annual energy savings from LEDs could be on par with or even larger than distributed solar, especially when you bring in commercial lighting. Very roughly, California added approximately 1,000 MW of solar in 2013. At an estimated capacity factor of 17%, that’s roughly 1,500 GWh of annual solar production. This report estimates nearly 1,000 GWh of annual savings from light bulb standards in California, climbing to 11,000 GWh by 2018.

And, we’re talking about potentially large amounts of money shifted across customers, as a large share of the typical utility’s costs is fixed. The California Public Utilities Commission put out a study on net energy metering that calculated that the typical solar customer paid bills that were 54% higher than the utility’s incremental cost of serving them before they installed solar and 12% less than the incremental cost of serving them after they installed solar. This is suggestive of just how much fixed costs are collected on a volumetric basis, particularly on the higher tiers.

So, I predict many more years of heated discussions about rate restructuring. I’d guess that we will look back with amusement at the contentious debates about whether to add a monthly fixed fee to PG&E rates, because the typical customer will be paying a much larger share of their bill as a fixed charge.

Cross-posted from Energy Economics Exchange (tag line: Research that Informs Business and Public Policy), a blog of the Energy Institute at Haas.

Comments to “Why aren’t we talking about net energy metering for LEDs?

  1. The California Public Utilities Commission put out a study on net energy metering that calculated that the typical solar customer paid bills that were 54% higher than the utility’s incremental cost of serving them before they installed solar and 12% less than the incremental cost of serving them after they installed solar.

    Utilities companies have continued to remain extremely strong amidst the slowdown in natural resources such as oil and gasoline. Declining prices in solar technologies should only add fuel to their fire.

  2. Great analogy on the LED bulbs. The real reason we aren’t talking about LED bulbs costing low-income customers is that the story the utility companies tell is not true. The utilities benefit from solar installations because they do not have to invest as much in peak-power sources or more power plants. In fact, each solar installation is offsetting a capital cost for them, as they are mini power plants.

    What they don’t like is that they see the writing on the wall. Eventually, we’ll realize that we don’t need the utility companies. For now, they’re trying to get the energy from individual investments in solar for less, by whining.

    I can’t wait until the day everyone realizes that it’s about us, people like you and me, not about the profits of some industry.

  3. Solar has a proven, standardized and guaranteed product. I don’t know if LEDs are on par with that yet. Also the “solar is for rich people” argument is kind of weak 🙂

  4. “Is it too hard to go to the moon, eradicate smallpox or end apartheid? Is it too hard to build a computer that fits in your pocket? No? Then it’s not too hard to build a clean energy future, either.” (Check out the Reality Drop climate project.)

  5. Wow — sometimes it seems like market forces and gamification are not the best tools for controlling the burning of fossil fuels or encouraging efficiency.

    [he said, marveling at how lost in the numbers business people get, when they can’t see past the dollar signs in their eyes.]

  6. One of the more interesting points raised about LED lighting, but misses the key point about the net effect being that while we continue to increase overall electric usage, utilities will no longer have to add capacity, a substantial boon to keeping electricity rates from rising.

    Transmission lines will have to be maintained, but the overall cost of generating electricity should decline as solar becomes a larger component vs. fossil fuels, and capacity expansion ends.

    I understand the short-term implications to the low-income consumer, but slowing the impact of solar adoption by eliminating or taxing net metering will just put us back on the same increasing price spiral we have been on. At least politicians haven’t yet suggested a tax on LED bulbs because they increase the burden on low-income consumers…

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