What would we get with the Annual Net Metering bill?
Bigger solar systems, an unnecessary ‘pay-back-the-utilities’ fund, and hopefully a math-based end to arguments about the impacts of rooftop solar.
HB 164 would change the Railbelt’s rules governing net metering, which is the way that electric bills work for homes and businesses with grid-connected solar panels. It would incentivize people to install more solar by allowing them to roll over credits from summer to winter. And it would remove the ‘cap’ that limits how much rooftop solar can be installed on the grid. Instead, it would create a fund that could pay utilities back for the sales they lose through these solar panels.
The fund sets up a bureaucratic structure to protect ratepayers against a single source of potentially tiny rate increases, while ignoring all the other sources of much larger rate increases. The point of including it in the bill seems to be mostly that people are far more worried about the impact of solar panels than the numbers suggest, and an “I’m scared of solar panels” fund could cut off these arguments by forcing people to do actual math. Both the new bill and the existing law allow utilities to limit solar installations as needed to protect grid stability and reliability.
There are a number of key questions here, most of which were asked by the legislators in the bill’s April 8 hearing, but none of which the presenters from AEA gave much of an answer to.
How many people would this impact today? How would it change the incentives for future rooftop solar installations? How much revenue could be “lost” by utilities due to rooftop solar? How big would that fund need to be?
An important backdrop to any conversation about rooftop solar is that when people buy less power, per kilowatt hour rates increase. Solar panels are a particularly modern way of buying less power that has increased dramatically in some parts of the world (generally sunnier ones than Alaska), and set off debates about their impact, and whether electric rate structures are fair in the first place. I’ve got a whole other post about that, but the simple upshot is that this is far too tiny a rate impact to matter here.
Today I’m going to take my old analysis of how annual net metering would change the bills for people who have solar panels, and how more net metering under current law would impact overall electric rates, update both, and put them together to take a stab at those key questions.
(I’ll refer to net metering systems as solar systems throughout. The law allows other forms of energy, but it’s almost all solar. I’m also going to model everything based on residential customers and rates. Small business rates are generally similar, and industrial customers tend to pay less per kilowatt hour and would benefit less from net metering.)
With existing installations, not much would change
Utilities buy around 15% of member-generated power at wholesale rates. Under the proposed law, they’d spend a total of $300,000 more to credit the same power at retail rates.
Currently, anyone who produces more power than they use in any given month sells the excess to their utility at a wholesale rate, for about a third of the retail value.
GVEA only reports purchased power, not power fed into the grid, so I assumed the ratio of purchased to net-metered power was equal to the other utilities.
Not much power is sold that way. Utilities buy back only 15% of the power produced by members’ solar systems. Around a third is net metered; credited against a customer’s bill at the retail rate.
A little over half the power doesn’t show up in utility calculations at all. We know roughly how much solar systems produce, but the utilities report receiving much less. Why is that? Most of this power is likely self-consumed; made by the solar panel and used by the house before it ever gets to the meter. Some of it probably really doesn’t exist (solar panels producing less than they theoretically should). And some power may have flowed out to the grid at a time scale shorter than the utility is measuring. For example, if a house was a net importer of energy for a given 15 minute increment (or whatever scale they’re measuring), the utility can’t tell if they were actually exporting for 5 of those minutes, but that export was smaller than what they imported in the other 10 minutes.
If net metering becomes annual, that ‘purchased by utility’ power would turn into credits rolled over to a different month, where they could be credited at retail rate instead. (Assuming any excess production in summer months is balanced by low production in winter - almost certainly true for households with solar.)
The increased costs to the utilities would add up to around $300,000 per year across the Railbelt, saving 3000 net metering customers an average of $100 each. Railbelt utilities wouldn’t notice the less than 0.1% loss to their annual revenue, whether or not the legislature appropriated the money to pay them back for it.
Annual net metering would encourage people to install larger solar systems, and make solar a better investment
The best size to build, under annual net metering, is a system that produces the same amount of power you use in a year.
These graphs show what the bill savings would look like for each utility’s average customer with solar panels, now and under the annual net metering proposal.
Monthly residential consumption from 2022 sales, Q2 2025 electric rates, solar capacity based on real-world data where available, PV watts modeling otherwise. HEA has a ‘system delivery charge’ for low-consumption customers.
Of course, bill savings are only half the equation. One way to try and determine whether it makes sense to install solar panels is to look at them like an investment, and calculate an ‘internal rate of return.’ Doing this requires a whole lot of assumptions. So rather than looking at the exact numbers in my graphs, it’s better to look at the pattern. Your specific rate of return will be shifted higher or lower based on individual circumstances. Factors that impact electric rates or panel costs will shift them all higher or lower together. But the way the values change with system size and annual net metering will stay the same.
Solar panels are always a better deal in places with higher rates. Annual net metering makes the math much more attractive, especially for larger systems.
Assumptions: Tax credits continue at 30%, rates increase 3% per year, initial costs based on system size here, monthly energy use equal to average residential use for that utility in 2022.
Net metering rules allow systems up to 25KW, much bigger than I’ve shown here. Will people just build bigger and bigger solar systems with annual net metering? No, because the credits expire after a year, and there doesn’t appear to be a mechanism in the bill to credit that excess annual power at wholesale rates. Anything you produce over your own annual needs becomes literally worthless. (This is likely why the bill allows people to elect to stay under the current structure -- someone who wants to produce and sell lots of power at the wholesale rate can still do it).
Rooftop solar produces less than half a percent of Railbelt energy today.
Right now, there’s around 17,500 kilowatts of net metered solar on the Railbelt, producing around 0.35% of our annual energy. In recent years, homes and businesses on the Railbelt have installed around 2,000 kilowatts of solar each year. At that rate, it will take around 15 more years to get to a point where net metering produces 1% of our energy.
However you measure it, this tiny amount of energy equates to a tiny revenue loss for the utilities.
The bill allows a utility to “seek recovery of revenue losses attributable to the entity's net metering service,” through a system where the Regulatory Commission of Alaska would set up rules for how to count the losses, the legislature would put money (or choose not to) into a fund to pay back those losses, which would be administered by the Alaska Energy Authority.
The structure is reminiscent of the Power Cost Equalization fund, but the similarity ends there. Power Cost Equalization is “equalization.” The state built cost saving hydropower projects for the Railbelt, Kodiak and Southeast, and set up an interest-earning fund to try and give similar benefits to small communities. Power Cost Equalization is also very important to the people receiving it. It lowers residential rates on the order of 20 or 30 cents per kilowatt hour. In contrast, with changes to net metering rules, there’s no particular reason the state owes a subsidy to Railbelt electric customers. The theoretical rate increases due to other people’s solar panels are irrelevantly small, and dwarfed by all the other rate increases the state won’t help you with.
The point of including it in the bill seems to be mostly that people are far more worried about the impact of solar panels than the numbers suggest, and an “I’m scared of solar panels” fund could cut off these arguments by forcing people to do actual math.
So, how big would the “I’m scared of solar panels” fund need to be?
It depends on how much solar is installed, and how ‘revenue loss’ is counted. There are three obvious ways I can think of to count revenue loss.
Difference vs Current Law: The revenue loss is the difference between the current monthly net metering framework and the proposed annual net metering framework.
Power ‘Fed Into the Grid’: Here, we take not just the power the utility is already buying at wholesale rates, but all the power they receive from customers. This would be a way of paying back the current cost of net metering, rather than only the new costs from letting the credits carry over month to month. It’s the difference between the retail rate a utility pays for the customers’ power and what the utility would have spent to produce the same power.
Self-consumed Power That People Might Have Bought: In this case, you calculate how much power all the rooftop solar panels should produce, and assume that it would have otherwise been bought from the utility. This assumption is probably wrong, partly because some systems might under produce, and mostly because energy production and consumption aren’t independent.
The one time HEA actually measured before/after electricity use for net metering customers, they found that the average customer who’d installed solar panels reduced their purchases only 485 kilowatt hours from April - June (comparing 2018 to 2020). A 4 kilowatt solar system (closer to the average in 2019) should produce about three times that much. Therefore, those customers must have been actually consuming substantially more, on average, after they bought their solar panels. It’s hard to know exactly why. Sometimes people purchase solar panels precisely to go with other electricity-intensive purchases, like an electric car or heat pump. Sometimes people use more energy once they have solar panels because it feels free.
So the theoretical generation is an overestimate, but it’s what I modeled below.
If installations increase a lot, the production becomes meaningful, but revenue losses are still very small on the Railbelt scale
In the ‘current installation rate’ scenario I assumed that the percentage of net metering and overproduction equals that of today. In the increased installation scenarios, I assumed only 1/3 of power was self-consumed, with 1/3 each over produced or consumed within the month, to account for larger installations being incentivized.
If solar installation rates increase dramatically with annual net metering, the power produced starts to become a lot more meaningful. If ten times as much got installed every year; 20 megawatts instead of 2 megawatts; those solar panels would be producing nearly 5% of our power by 2035, saving over a billion cubic feet of gas (southern utilities) plus millions of gallons of oil (GVEA) per year.
Theoretical revenue losses would also increase, to over $30 million dollars per year with the most dramatic increase in installations and the most generous way of counting losses. This sounds big, but the rate increase you’d be preventing is still well under a cent per kilowatt hour.
It’s very weird for the state to pay utilities because a law encourages conservation
The most extreme bar in my graphs, looking at the impact of home solar based on “Power People Might Have Bought”, is often how net metering is considered. But it’s bizarre it is to pay utilities if we create a policy that leads to people buying less of their energy, and we don’t do it in any other case. For instance, when the state ran the home energy rebate program from 2008-2018, they put a substantial amount of state money into reducing energy use in homes. Afterwards, the state bragged about the $261 million people saved in home energy bills. These savings were considered a great success, and no one ever considered paying utilities to offset any increased costs for non-participating houses.
Forcing utilities to actually do the math might get us out of a cycle of unreasonable fear of solar panels, allowing them to focus on bigger things.
While philosophically the fund doesn’t make much sense to me, maybe it’s a great idea, since it will force utilities to spell out actual economic impacts of net metering under some sort of formula. That would be a marked improvement over the current state where utilities are spending time, energy, and RCA filings painting rooftop solar as a bogeyman when they should be worrying about bigger things.
The person presenting the bill at the April 8 hearing mentioned that utilities, particularly MEA, were already worried about the rate impacts from net metering.
So, if this passes, MEA could go to the legislature and say, hey, under annual net metering, the rooftop solar already on our grid is costing the other customers around $60,000 to $390,000 per year (depending on which method is used to count it). If you allocate money to the fund, we can lower rates a tiny fraction of 1 cent per kilowatt hour.
If I were a legislator, I’d focus on other issues that can have vastly larger impacts on household finances. But the option is there for them to decide otherwise.
Conclusion
In conclusion, making net metering annual would increase the economic benefits of rooftop solar, and incentivize people to install larger systems. It would save some people a lot on their energy bills, and give the solar industry more business. It’s impossible to know how much difference that incentive would make to overall installation rates. If it makes a big difference, the amount of power produced and fuel saved by these solar systems could rise from tiny to meaningful, but would still be small.
The fund to pay back utilities for revenue they might lose through these net metering systems seems like an awkward bit of bureaucracy to solve a non-existent problem, protecting customers from miniscule potential rate increases that are dwarfed by the actual rate increases we don’t protect them from. But if it forces people to actually do the math, the “I’m scared of solar panels” fund might stop us from arguing about the theoretical impacts of rooftop solar so we can focus on the much less theoretical impacts of the Cook Inlet gas crisis.