Residential solar power and net metering usually cause angst for utilities, which often charge that net metering causes them to unfairly charge customers in their network for those customers who have gone solar. Now, new research from Fitch Ratings suggest that net-metering could pose potential long-term threats to the creditworthiness of investor-owned utilities. However, the company also suggests that the risk is manageable.
“The key to sustaining long-term IOU creditworthiness in the face of rapid distributed generation (DG) growth is modification of volumetric-based tariff design to incorporate a larger fixed charge component,” Fitch explained. “Failure to address NEM rate design issues could lead to an unsustainable cycle of rising monthly bills for non-NEM customers, incentivizing them to acquire residential DG systems and leading to further rate increases and more departures.” This has been called the death spiral for utilities.
The report, Net Energy Metering (A Secular Credit Challenge for IOUs), observed that solar power and rooftop solar in particular is growing rapidly though it currently represents just 1 percent of the US’s electric production. “Annual residential PV solar installs increased 71 percent in 2015 and at a 55 percent CAGR from 2005-2015,” Fitch said.
Growth in residential solar, according to Fitch, is fueled by the subsidies, lower costs of equipment and net metering. “NEM allows customers with residential PV systems to offset energy purchases from their local utility and export excess power to the grid, receiving credits often at the full retail rate,” the company stated. Those higher payments for the distributed generation are generally deferred and recovered, at lower volumes, by the utilities. At higher volumes the utility will likely need to raise rates to reduce the impact of more net metered solar customers.
To alleviate this Fitch recommended using existing technology and adopting calibrated tariff mechanisms rather than variable cost-recovery mechanisms and avoided cost-based payments for exports to the grid. It added: “The emergence of disruptive technology which enables customers to economically and permanently disconnect from the grid in large numbers is, in Fitch's view, a low-probability risk factor that cannot be ruled out.” Such likely technology would be truly inexpensive energy storage systems coupled with solar or wind that reduce the need for utility-supplied electricity.Tweet