While solar has received many forms of market transforming subsidies over the years that have dramatically reduced its costs, net metering in an efficient retail market is not one of them.

Net metering provides access to the local retail electricity market. The net-metered kilowatt hour (kWh) tends to lower the price of delivered retail electricity to all customers by competing with the utility and other suppliers. The effects on the utility and other customers can be examined by considering three situations.

In the first, consider what happens when I use a kWh. Some remote generator increases output somewhat more than a kWh to cover losses, the power is sent over the transmission network perhaps to distribution sub transmission and then to a substation that reduces the voltage to serve the feeder wires that run down my street. I pay for that kilowatt hour of services provided by the utility.

In the second case I reduce my use of power by one kWh by using efficient light bulbs or simply turning them off when I leave the room. In this case, generation, transmission, substations and local distribution see reduced load. I don’t pay the utility for services that it didn’t provide.

In the third case I generate and export a kWh to the feeder. In this case, the effect on the grid is exactly the same as in the saved kWh case. The upstream power flow from the generators to my location is reduced by one kWh. Power that I generated is used by a downstream neighbor who pays the utility full retail price for services that the utility did not provide. If I get a credit at the full retail price for my kWh the only economic effect on the utility is the revenue loss due to reduced sales.

This is exactly the same result that occurred from efficiency or turning out the light when I left the room. Other customers do not pay more and get the benefits of increased competition.

While today, a full retail credit does not cost the utility anything it does not provide a fair payment for the limited service the utility does provide in delivering the exported kWh to the neighbor. The problem is the legacy inefficient distribution tariff that does not reflect variations in the cost of serving customers in different locations and different times. It costs more to serve a customer at the far end of the feeder than at the substation and when the system is heavily loaded. The proper distribution compensation for the utility is the difference in price between the locations.

In New Hampshire, under the current net metering rules, small systems give up three-quarters of the distribution credit and larger systems that may provide group access for low-income customers, get no credit for distribution displacement. Because of the large credit reduction, the utility is subsidized by the distributed generators.

We should keep in mind that according to the New England Independent System Operator (ISO-NE), the organization that manages the regional electricity grid, the effects of load loss due to efficiency improvements have been and will probably continue to be much larger than the effects of distributed generation.

With the low level of net metering in New Hampshire, we have the opportunity to get it right. We may be able to avoid the questions of rate increase and other utility subsidies if the pace of revenue loss is less than depreciation, and if the costs of increasing “beneficial electrification” can be constrained.

The added load of electrification of transport, space and water heating and other uses can help reduce revenue loss at low cost or it can raise peak load and raise cost. A real time locational dynamic pricing structure for transmission and distribution would allow shift of load away from high cost time and location. Customers able to respond could reduce costs to everyone by optimizing their investment and operating decisions toward load, storage or generation.

(Pentti J. Aalto lives in Pembroke.)