Wednesday, May 23, 2012

Dismantling Net Metering and Building the Future

Sortie de l'opera en l'an 2000... A look from 1884 at Parisian
travel IN THE YEAR 2000
If Net-Metering is a net benefit to the ratepayers why would solar advocacy groups such as Vote Solar want to maintain the status quo? These groups should be arguing for a full valuation of solar. At some point you have to admit that net-metering a temporary fix and stop moving sideways. Onwards and upwards are better directions.

Here's a revenue neutral way to dismantle net-metering and replace it with a market based system. 
  • Step 1. List all the things that photoelectrics provide the system and then rank these benefits in order of easiest to quantify.
  • Step 2. Do a study and come up with a rigorous methodology for valuing this benefit.
  • Step 3. Lobby the PUC to have this value get paid out with a monthly check.
  • Step 4. Reduce net-metering payments by an amount equal to the the benefit calculated in step 3.
  • Step 5. Go down the list prepared in Step 1.
  • Step 1. A study determines that the energy value of photoelectricity is the easiest to quantify.
  • Step 2. A value of 5 cents per kWh is determined for the energy value.
  • Step 3. The owner of a 20 kW system which exports 1,000 kWh a month starts getting a check for $50.
  • Step 4. Instead of getting the full retail value the 1,000 kWh that's exported the net-metering payment is reduced by 5 cents per kWh. This means the solar system owner gets $50 less per month for her electricity.
  • Step 5. Repeat...
  • Step 1. Experts conclude the capacity value of PV is the next easiest to quantify.
  • Step 2. A value of $20 per kW year is determined. 
  • Step 3. The 20 kW system would be paid $35 per month in capacity payments - ($20/kW x 20 kW)/12 months
  • Step 4. The solar system owner gets paid $35 less per month for her electricity.
  • Step 5. And so on with quantifying the value of reduced losses, avoided transmission costs et cetera.
At the end of this procedure net-metering has been completely dismantled and replaced by a market regulated pricing mechanism. This procedure is specifically designed to be revenue neutral but it's not completely so. There are several factors which throw off neutrality. First off, taxes must be paid on the revenues from the sales of photoelectricity. Secondly, this system allows residential photoelectric system owners the ability to depreciate their systems. Here's a rough example of how the math works out comparing taxes to depreciation.


Tax rate = 30%
Cost per KW = $3000/kW
Export volume =  800 kWh/year
Export rate = 10 cents/kWh
Taxes = Export volume x Export rate x Tax rate = 800 x .10 x .30 = $24/year
10 year Linear Depreciation Benefit = Cost per kW divided by 10 years x Tax rate = 3000/10*.30 = $90/year 

Net benefit of $66 per KW. If you have a 5 kW system that's $330. For this kinda money people are going to buy the Solar Edition of Turbo Tax.

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