How Power Companies Profit from Net Metering #mnleg

One of the nice things about residential solar systems in Minnesota is that they’re eligible for net metering. You have an upstream meter and a downstream meter and are charged for electricity based on the net consumption. So, if your home uses $40 of electricity over a month but your panels produced $60, you’ll get money back from Xcel. Not $20 back, since there are base fees to cover, but you’ll still get a check.

A common beef from the pollution industry and their legislative allies against net metering goes something like this:

Residential solar users are freeloaders. They’re selling electricity to the grid at retail rates, yet benefit from being attached to the grid when they really need it.

Or, as Rep. Pat Garofalo puts it “solar is dumb“.

Granted, this argument makes sense at a high level. If the price a residential solar user receives for the energy they contribute to the grid is the same as what they take off the grid, that’s a pretty sweet deal.

But, it’s a bit more complicated than that, which is something the anti-solar crowd chooses to ignore.

Here are Xcel’s current rates for electricity (not counting base fees, taxes, etc.):

Energy Charge per kWh:
June through September…$0.08671
October through May…$0.07393

But, Xcel offers other pricing models, including Time of Day pricing where customers are charged far higher rates during peak grid times, then far less during off-peak times.

Xcel Time of Day Pricing

That’s a significant difference. They charge more than 2X as much for electricity during the day, and offer a whopping 70% discount on overnight power consumption.

Now, let’s look at what hours solar panels generate power. Here is data from the past three days from my home’s roof:

Three Days of Solar Generation

Looks like 6am – 6pm is the energy producing window. So, during those hours, my panels are a net-contributor to the grid of most of that energy. That’s when my power meter runs backwards (technically, there’s a separate upstream meter).

My family is generally out of the house well before 9am, so our morning electricity consumption would be considered off-peak by Xcel in their time of day pricing plan. We’re generally home by 5:30pm, so there is some on-peak consumption between 5:30 and 9pm, but generally nowhere near what was added to the grid throughout the day.

So, I’m selling around $3/day of electricity during peak-grid hours Xcel at $0.08671/kWh. They can then turn around and sell that electricity for more than twice what they pay me for it. Of, if time shifting makes more sense to you. They sell me back my own electricity overnight at a time when electricity is 70% cheaper than they paid me for what I generated.

I’m a net-contributor of electricity to the grid at times when the grid needs it most. I’m generating that electricity locally so it doesn’t need to be transmitted from polluting power plants or rural wind farms. I’m selling electricity for far below market rates, and I’m buying electricity for far above market rates. Yet, I’m the freeloader?

Oh, did I mention that Xcel doesn’t allow solar power generators to use Time of Day pricing? Net metering is only allowed when net metering allows Xcel to arbitrage the power they’re buying/selling to solar power generators.

My guess is that the return on my solar panel investment would be around twice as fast if I could net meter at rates available to others. Taking away this ban on market rate solar sales/purchases seems like a good way to stimulate private investments in locally produced power.

7 thoughts on “How Power Companies Profit from Net Metering #mnleg”

  1. Good point on the TOD rates, demonstrating that Xcel puts a premium on energy during the day. At one point, you actually could sign up for net metering + TOD; maybe it depends on who you talk to.
    At the end of the day, I think the fundamental problem is that per-kWh rates are structured to include non-generation costs. IOWs, the monthly grid connection fee that you, I, and all our non-solar neighbors pay is exactly the same. But if we don’t consume enough, we’re not doing our part to “support the grid.”
    I don’t know if you’re net positive for the year, but I’m not. Suppose that my block has 4 houses: My solar house, a super-efficient house, a house with an elderly widow, and a vacation home. We all pay the same monthly fee to Xcel and we all have very low usage. But I have solar; ergo I am the freeloader? I don’t buy it.
    So how else could rates be structured?
    We could do a residential demand charge like they do for large customers, where you are billed primarily for your peak energy draw during the month, because this determines the size of the grid infrastructure needed to service your home. Under this scenario the majority of your bill is determined by this maximum power draw, and the energy you use is actually very cheap. It’s probably too complicated to fly.
    We could raise the monthly connection fee to “cover grid costs” even if you use negligible amounts of electricity, but then that discourages conservation, because you can keep approaching $0 and not save much money.
    You know, in the end, I’m rooting for Tesla to sell me batteries at a price where I can just flip Xcel the bird, eventually. 🙂

  2. Heh, great minds think alike, this is a good article:
    http://www.greentechmedia.com/articles/read/NRG-Executive-questions-why-solar-is-the-bad-boy

    “If you think about it, if I put LEDs in my house, I don’t have to pay a higher fixed charge than my neighbor who’s got incandescents in his house. I’m using less energy, I’m paying less for the utility’s transformers and wires, but the utility doesn’t come along and say, ‘Steve, you’ve got to pay $10 per month compared to your neighbor who is using old technology that is inefficient,’” he said. “But somehow, when it’s solar, it seems like it’s OK for them to come and say, ‘You’ve got to pay $50 or $20 per month, and your neighbor doesn’t have to pay anything.’”

  3. @Eric, nice find. Improving efficiency makes a huge impact on power needs. We really should have more programs designed to tackle this. Though, that wouldn’t be as sexy as subsidizing Telsa car buyers.

  4. @Gordon, consider the source. Is it all that surprising to hear energy monopolies campaign for monopolies on energy production? And, for lawyers representing those companies to write opinion pieces supporting the people who pay them?

    Distributed solar power generates power close to where people consume it, cutting down on distribution costs and infrastructure. Grid infrastructure is designed to handle peak loads. That’s when solar tends to be most productive. So, it’s taking pressure off distribution at ideal times.

    To get a feel for how strange it is to call solar users freeloaders, try reading that article again while replacing residential solar users with people who drive down their energy costs through increased efficiency. Are people who put in more efficient refrigerators freeloaders too?

  5. @Ed, The fossil fuel industry (mainly coal) and the utility lobby (Edison Electric Institute) have paid ALEC (that is how ALEC does business) to come up with the Electric Freedom Act, which focuses on DG as the problem, and nothing to do with the solution.

    ALEC and the Heartland Institute, two of the biggest climate change denial groups for years, have recently started denying they are/were denying. The angry reaction of a growing number of Tea Party and other groups that have discovered the benefits of DG, and then found out their trusted advisors at ALEC were funding the efforts to take it away from them, most certainly had something to do with this change of tune. I haven’t heard the Minnesota Tea Party catching on as of yet.

    Also of note; The legislature in the state of Maine funded a study to assess the real value of DG, and the study determined there was enormous value to everyone in DG. http://www.nrcm.org/news/nrcm-news-releases/maine-puc-solar-power-study/

  6. @Gordon At the end of the day, Brian Potts, who wrote the article you linked to, is paid by the WSJ to write those types of articles. Mercury limits in lakes and streams? Who needs them, after all, how many pregnant women do you know that actually go fishing, and of those that do, how many really need those fish for food. Those are the type of things Brian writes, so as Ed says, consider the source.

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