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Weighing the Costs and Benefits of Net Metering and Distributed Solar

December 10, 2014 by

Most states have implemented net energy metering (NEM) policies to value the contributions of distributed generation photovoltaics (DGPV) to the electricity grid. In June, South Carolina became the 44th state to institute a state-wide NEM policy. The expansion of these policies has been accompanied by increases in net-metered PV system installations.

Given this growth, utilities have raised concerns about the costs of NEM policies, citing revenue loss and cross-subsidization for transmission and distribution services as potential impacts. Various studies, however, have indicated benefits of NEM policies, including encouragement of solar market growth, statistical connection to more installed capacity, and monetization of solar energy’s benefits to utilities and society.

This debate has encouraged state policymakers and regulators to formally evaluate 1) the costs and benefits of their state’s NEM policies or 2) the value of distributed solar to the grid and stakeholders more generally. In the past two years, several states have released cost-benefit analyses or are in the process of creating them. STAT has summarized key cost-benefit analysis studies from California, Nevada, Vermont, Arizona, and Hawaii in the table below.

State Study Highlights Link
California The California Public Utilities Commission (PUC) commissioned a ratepayer impact evaluation of the state’s net energy metering (NEM) program. The resulting report includes four types of analyses: cost-benefit, cost of service, public purpose charge savings, and income demographic. California Net Energy Metering Ratepayer Impacts Evaluation (pdf)
(Seybert et al. 2013)
Nevada The Nevada PUC commissioned an impact evaluation of the state’s NEM program. The resulting report consisted of three types of analyses: a cost-effectiveness assessment, a macroeconomic impacts assessment, and a demographic comparison of NEM and non-NEM participants. Within the cost-effectiveness assessment, analysts performed various cost tests, including participant, ratepayer, administrator, and total resource. Nevada Net Energy Metering Impacts Evaluation (pdf)
(Price et al. 2014)
Vermont The state’s Public Service Board conducted a cost-benefit analysis of Vermont’s net-metering program. This study looks at gross generation from three types of net-metering technologies from a statewide ratepayer perspective over 20 years: Fixed solar PV, 2-axis solar tracking PV, and wind. Evaluation of Net Metering in Vermont Conducted Pursuant to Act 99 of 2014 (pdf)
(Public Service Department, State of Vermont, 2014)
Arizona Arizona Public Service (APS) commissioned studies of the value of solar distributed generation (DG). These were conducted by R.W. Beck (2009) and SAIC (2013). The Vote Solar Initiative sought to provide an alternative perspective, so it commissioned a report on the impacts of solar DG on APS’s service territory from a ratepayer perspective. This study contributed to an APS-led technical conference that was held to inform the Arizona Corporation Commission’s evaluation of the Renewable Energy Standard 2013 Implementation Plan. The Benefits and Costs of Solar Distributed Generation for Arizona Public Service (pdf)
(Beach and Maguire 2013)
Hawaii The Hawaii PUC commissioned an economic analysis and creation of a methodology to evaluate its options for renewable energy generation procurement. The effort was aimed at fulfilling the state’s renewable portfolio standard goals. This study looks at utility-scale renewables (purchased via competitive bidding), smaller-scale renewables (purchased via a feed-in-tariff) and NEM. The study does not consider externalities and other factors, including reduced sensitivity to oil prices and greenhouse gas emissions. Evaluation of Hawaii’s Renewable Energy Policy and Procurement (pdf)
(Energy and Environmental Economics 2014)

The need for methodologies to value solar’s benefits and costs is likely to grow and evolve as more PV capacity is added to the grid. The states listed in the table are just a few examples of where these valuations are being considered.

NREL is diligently working in this area as we seek to objectively inform stakeholders about issues related to net metering and the value of solar. If you would like more information about efforts underway through STAT, please contact us at

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