While the entry of solar PV into the electricity mix has enabled the system to reduce carbon intensity, it created a new category known as distributed energy resources (DER). It became a complex problem for regulators as, on the one hand, they try to influence its adoption to customers by favourable discounts. But on the other hand, sometimes, it creates strange consequences for the non-adopters of DER.
Net metering is one of the mechanisms to incentivise adopters of (rooftop) solar PV. Burger et al. report a study on the topic in their working paper titled “Quantifying The Distributional Impacts of Rooftop Solar PV Adoption Under Net Energy Metering”. They used data on electricity consumption and income characteristics of 100,170 customers in Chicago, Illinois, which followed the net metering under default tariff.
The net metering scheme enables rooftop PV owners to push the unused electricity into the grid, and for every kWh, they receive the retail price. The question arises, what amount of money should one get back? Ideally, the sender should get the generation cost (energy cost) for every unit send. But it turned out that in the scheme that was in place, customers not only gained the generation cost but also part of the transmission and distribution costs! It happened because the latter were charged not as fixed prices but as volumetric charges (charges proportional to the energy consumed, kWh)!
And who are the adopters of rooftop PV? In the income scale, they were disproportionately more families of the higher income bracket. And naturally, this means when the grid owner recovers their fixed costs, they will charge more from the non-adopters, who are lower income classes, through volumetric charges.
Ironically, perhaps unaware of the underlying economics, the environmental groups also advocate for such schemes to continue in pursuit of increasing renewable penetration.
