If the title wasn’t clear enough, I’m feeling surly today. A couple of years ago, I talked with a couple of British personal finance bloggers and I loved the way they casually would say sentences like in title and make it seem normal. This is a family blog, so for today, I’m going to borrow some British language to express how I feel.[Yes, part of the reason why I’m surly is that Le-Vel is suing me for this review. I go out of my way to help consumers make informed choices and they through a frivolous lawsuit at me. That’s a topic for another day.]
I’ve been saving this article for a couple of months now.
There’s a battle going on in the world of solar energy. Even if you don’t have a dog in this fight, I think it is a very interesting debate. Let me set the table so we can get started.
When you have solar panels installed they produce power during the day when the sun is out and not at night. (Yes, this is really basic stuff.) People, however, use power round the clock. You can buy a battery to store the excess energy during the day to use at night. Unfortunately these are expensive and still not very efficient.
The solution to the problem has been something called “net metering.” This means that as your panels produce power it moves the electricity meter backwards as you “sell” power back to the grid. At night, the meter moves forward as you use electricity. So you only pay the electric company for the “net” amount that you use when the production is subtracted.
And this “net metering” solution made everyone happy… until it didn’t.
It turns out that the electric company can’t easily take this produced power and just move it to the next house. There’s a some grid infrastructure stuff that needs to happen. It wasn’t a big deal for a long time because few people had solar. Now that more and more people are getting solar power, include families like ours (read our solar journey), it becomes a big deal.
It’s become enough of a big deal in Nevada, that the Public Utilities Commission (PUC), changed the net metering rules. Instead of being able to “sell” back excess power at an equivalent rate, they’re only going to buy it back for 25 cents on the dollar.
The economics of going solar are fairly straight-forward. People put up an initial investment of tens of thousands of dollars based on analysis that it will save them money in the long run while helping the environment. When we bought our solar panels the math was pretty clear that they’d pay for themselves in year 7 or 8 and after that we’d be saving money.
The federal government encourages people to switch to solar by offering them a 30% tax credit. My state had grants to further lower the cost. The message that I was being sent by both levels of government was pretty clear, “We want consumers to adopt this technology so much we are going to cover half the cost ourselves.”
If my state were to institute the same net metering math of Nevada the panels we bought would break even probably sometime after their 25-year life expectancy passed. We, like most people, made the buying decision based on a hundred factors (such as location of roof, trees blocking the roof, typical sun, cost of local energy, etc.) none of which anticipated a net metering change.
In order to qualify for the state grant, the power company had to tour my home and make sure that we weren’t going to waste the power by using our energy inefficiently (old light bulbs, refrigerators, etc.). I don’t know if Nevada offers (or offered) state grants. At a minimum they should have had a similar process of meeting with the customer and telling them the risk of changing the net metering agreement. As best I can tell this never happened.
Maybe the power companies were blindsided by the problem, but now they are passing it onto consumers. As SolarCity said in the article above, “The Nevada government encouraged these people to go solar, and now the government is putting them at great financial risk.”
That article makes the point that, “The PUC staff has said customers generally understand that utility rates are subject to change, and the state never promised unchanging prices, even if solar companies did during the sales process.”
This is why the Nevada PUC should get stuffed. Everyone expects prices of electricity to change. That’s one of the main reasons why people choose solar. By producing electricity through solar, the cost is zero due to the initial outlay. When the cost of electricity goes up, the value of the power by the solar panels should go up too. This isn’t Nevada changing utility rates. This is changing a core policy. I wonder if the Nevada PUC highlighted this risk when the net metering was entered into. If it was, you’d think they would have said, “We informed all customers entering a net metering agreement that the rates at which you ‘sell’ energy back to us can change to whatever we see fit.”
Imagine if the government next year passes some kind of legislation that amounts to them saying, “We are going to tax all Roth IRA withdrawals at 75%. We don’t expect this to be an issue because the American public generally understands that tax rates change.”
Assuming that the typical Lazy Man and Money reader has been putting money in Roth IRAs for years, I think we’d be pretty upset. I think that’s probably what the solar customers of Nevada must be feeling right now.
And while this article has focused on Nevada, it isn’t just happening in Nevada. Many states have this issue of infrastructure expenses. The result of Nevada’s action has lead to a potential federal law to protect those who have already bought from such changes.
The other hope is that the batteries get better. Tesla has introduced a product it calls the Tesla Powerwall, which has a lot of potential.
I don’t know where all this is going to end up, but as Terrell Owens used to say, “Getcha popcorn, ready!”
I am a Nevadan who has invested in solar power, so thank you for your article and sympathy. I like your comparison with Roth IRA’s. My comparison is with floating interest rates. We all understand what the “can change” clause means. We also know what it is NOT, namely it is NOT a carte blanche for the bank to dramatically raise interest rates, citing “you were warned/informed.” We have consumer protections against such predatory tactics. With net metering, we have protections too; our protector is the Public Utilities Commission. They betrayed us.
As someone who worked in the power industry for almost a decade, I can see both sides of this story. However to me the price should be the wholesale cost of power. This is what the power company is paying other companies for excess power generation. This is exactly what is going on, people are selling power, to the power company. Instead of one company working with a single person/company, they are working with 1000’s. However when a customer uses power, they pay the rate price for consumption.
My idea, which would be the most fair would be as follows. Meters which read the Net every 5 minutes are $200. This should be the cost of the power company, as they are buying power. They pay the spot price every 5 minutes for each net for the delta in the power generation. Example:
Time Power Spot/Rate Price $Net
1:00 + 1.4KwH $100/MWh + $0.140
1:05 + 0.8KwH $92/MWh + $0.073
1:10 – 2.0KwH $0.11KWh – $0.22
As you can see the Spot price changes. I have see the spot price get into the $300/MWh range during hot afternoons. The rate listed above is $0.11 per KWh. So in my examples the first 5 minute time slice a large amount of generation was shipped back to the grid. The second 5 minutes less is being shipped back the the grid, and the spot price dropped a little. The last 5 minute time slice would have been for using 2kwh from the grid, paid at full rate price. Technically this would have worked out to about a net zero over the 15 minute time frame.
What this does is it allows you access to the Markets, and selling power when demand is most (in afternoons when no one is home but ACs are running). Secondly, You get charged the proper rates for usage from the grid. Third if there were more people putting solar up, then the spot rates would be less during a specific time. This is managed by the power company on how they manage power generation. The output is monitored by the ISO companies (Your is NE ISO) and validated.
I know it is not as much money as what you are originally betting on, however it takes the power company’s issues into play, and gives you the biggest bang (and are not undercut by crap from the power company).
Lazy Man says
That’s a good point that the changes are drastic. I’m not quite sure I covered that as well in my article. They could effectively eliminate net metering by saying, we’ll just make the percentage you sell back to us 0.0001% of the retail price.
I see both sides of the argument too, which why I find it interesting. As a solar power owner, I have a dog in the fight, so I’m clearly biased. It does feel like a bait-and-switch and my suggestion would be to grandfather the previous people in. Going forward, your idea makes sense, but I wonder if that makes getting solar too unpredictable. If I have to anticipate what the on-demand energy markets are going to be over the next 20 years it seems like a very tough sell.
I believe it is the Nevada PUC who is telling solar owners and installers to get stuffed. Solar in the Southwest is one big battle. Another utility, SRP, added a “demand charge” to solar owners’ bills, which ends up being something like $50 per month for the typical house, and they are not allowed to offset the charge by producing and selling extra solar power. It’s rough out there. I also have a dog in the fight up on my roof, and when I read about non-grandfathered “FU Solar Owners!” stories like this it makes me wish I hadn’t. I thought I was diversifying my risk by buying a physical item with an ROI, but I didn’t realize how risky the ROI was – how easy it can be for assumptions to be invalidated.
Joe OBremski says
I have solar and I feel NV Energy should 100% grandfather as well. We all did the math and at a 1 to 1 net metering rate we jumped into tens of thousands of dollars in financial obligations. Then NV Energy says “Huh, you know we miscalculated our expenses so sorry, we are changing your agreement.”
It would be like buying a car and the dealership comes back a year later and says “That car I sold you for $35k…. we need another $10k have a nice day!” and there is nothing you can do about it…
What is funny is I just read an article the other day that NV Energy is buying 100% of the power from that solar reflector plant up near Tonapah for the next 20 years @ 13.5 cents a kWh…. Why is mine only worth 2 cents a kWh then?
Lazy Man says
Thank you, Joe. This is exactly what I was thinking. It’s NV Energy’s error.
I’d think that NV energy would say that they can manage the solar reflector’s energy more efficiently.