DERsRate Design

50 US States – Living lab for post-net-metering prosumer regulation

The 50 US states are an inspiring source of information on residential prosumer regulation for policy makers worldwide. Boosted especially by net-metering schemes, fast evolving prosumer markets increase the pressure to change the traditional rate design to a future-proof system based on distributed energy resources (DERs). Being subject to state regulation, the quest for “prosumer regulation 4.0” has led to a large number and wide range of very diverse approaches. No silver bullet has been found yet – there is none!

50 States, 50 ideas

Across the USA, there are many advanced solar prosumer markets, mainly due to net-metering schemes that have successfully boosted residential solar uptake for being simple and financially attractive. But successful net metering schemes sooner or later all lead to the core discussion about fairness among customers, especially regarding grid recovery costs respectively the fair allocation of benefits and costs of DER customers. There are many different ideas for a future energy transition-proof rate design, amongst them:

  • Feed-in tariffs and other compensation rules at retail rate, wholesale rate
  • Compensation considering the value of solar
  • Net Metering, Net Metering 2.0, Net Billing
  • Buy All, Sell All
  • General fixed charges for all customers
  • Residential solar charges: demand charges, standby charges, grid access charges
  • Time-varying rates, time of use-tariffs for DER customers (optional or mandatory)
  • Separate rate class for DER costumers
  • Virtual/Remote net metering, especially for community solar
  • Third-party ownership for DER
  • Utility-led solar programs

Hottest: Value of Solar, Community Solar

According to the (great!) quarterly report s“50 States of Solar” by the North Carolina Clean Energy Technology Center that provides accurate updates on state actions, there are some major tendencies. Firstly, there is a growing movement towards tariffs based on the value of solar/distributed energy resources. Many US states/regulators are currently trying to assess the value prosumers bring to the system. Several states have conducted “value of solar”-studies. There is also a broader trend to encourage low-income participation in community solar programs, especially through credit adders as a method of ensuring the program provides a financial benefit to subscribers.

“Smart but [too?] complex” versus “simple but [too?] inflexible”

It is obvious that there is no “one fits all”-solution. The most appropriate rate design for prosumers depends on many different aspects. It will vary by region or country and – most importantly – by the political landscape. All the options mentioned above range between two main poles: On the one hand, “smart regulation” aims at taking into account the positive and negative impact of prosumers at a certain location, time or grid status, triggering grid-friendly behavior. The “Value of Solar” methodology belongs to this category.

On the other hand, “simple regulation” aims at few and easy to understand bureaucracy and profitability.  Net-metering, feed-in tariffs and other compensation rules are the simplest category and the most efficient tools for all “prosumer developing countries “. Simple compensation rules combined with fixed charges (e.g. considering DER capacity) seem to be the way for many jurisdictions. Many policy and regulatory approaches are a mix of smart and simple regulation.

Value of Solar:  Desirable, yes, but feasible?

Apparently, many US states and countries with large number of prosumers bet on “smart regulation”. It fits perfectly into the inflationary number of fancy smart grid-concepts and policies, using all the buzzwords that have to be in a concept of the energy system of the future in these days: blockchain, peer-to-peer, AI etc. But isn´t “smart regulation” simply too difficult to understand for potential prosumers, too complex to implement technically, legally and regulatory wise? Will it not rather block solar uptake by all kind of consumes instead of pushing it? It´s hard to tell as there is hardly any example for dynamic (network) tariffs, yet.

Net-Metering with fixed charges

Yes, “simple regulation” has hardly anything to do with the “brave new digitized energy world” that is said to be the panacea. And yes, it is a massive “con” that “simple regulation” like feed-in tariffs and net metering does not trigger grid-friendly behavior of DERs at all and, hence, will not lead to a reduction of system costs. But it might push solar uptake and, hence, solve the problem of “desolidarization” fair allocation of grid recovery costs. “Acceptance”, “resilience” and “energy democracy” are often (mis)used buzzwords in this context. But they are valid arguments nevertheless for prosumerism.

It´s all about politics!

Residential solar and storage as well as other DERs play a crucial role not only for the energy transition and climate change mitigation. There are many reasons to empower citizens to become prosumer, individually or as member of a community. Net metering was/is an efficient tool to boost prosumerism. But there is consensus that pure net-metering only serves as kickoff and needs to be replaced by a “sustainable” rate design when the rise of prosumers reaches a critical number. There are many options available for successor tariffs. But the prosumer rate design comes only second. A future-proof prosumer-regulation requires an (ambitious) political decision on the prosumers´ role in the future energy system first.

Holger Schneidewindt

About Holger Schneidewindt

Holger Schneidewindt is an energy lawyer and policy advisor. He has a decade of experience in energy policy with particular interest and expertise in prosumer subjects, especially related to alternative and renewable energies. As consultant for a German energy consumer NGO, he worked on the “Birth and Rise of Prosumers” along Germany’s pioneering energy transition.

Leave a Reply