Renewables Increase Costs

Renewables Increase Costs

There has been a running debate about whether the special advantages given to renewables, such as renewable portfolio standards (RPS) and net metering, add to the price consumers pay for electricity.

PV rooftop solar installation. Photo by D. Dears

Net metering was introduced to encourage the use of solar generation, initially for PV rooftop installations, but which spread to larger community and commercial installations as well.

Typically the utility pays the owner of the solar installation the retail rate for any electricity the owner doesn’t use. For example, a homeowner’s PV rooftop system could easily generate more electricity than the home can use, which allows the homeowner to sell the excess to the utility at the retail rate.

This has forced utilities to pay more for electricity than if they generated it themselves.

The average retail price for electricity in the United States is around 12.5 cents per kWh, but the utility could probably generate the same electricity for around 6 cents per kWh.

With net metering, the utility is required to pay more for electricity than if it produced the electricity, and this added cost is passed on to consumers.

In states where the residential price of electricity is high, such as in New England and California, the utility could be paying three times more for net metered electricity than for electricity generated by the utility.

Because environmentalists have been pushing for net metering in all states, some states have agreed to net metering but have limited net metering payments to the cost of generating electricity.

However, most states pay the retail rate, which forces utilities in these states to pay above-market rates for electricity.

Now there is proof that net metering increases the cost of electricity for consumers, putting an end to environmentalists arguments in favor of net metering.

The Vermont Public Utility Commission (PUC) has said, 

Net metering is the most expensive of the state’s renewable energy programs because the utility is essentially buying power at above-market rates.”

Green Mountain Power said, “Net metering now adds about $2.3 million per year to rates.”

And Vermont is a small state.

Unfortunately, the Vermont PUC is merely scaling back its net metering program while admitting net metering adds to what consumers pay for electricity.

Importantly, there is now proof that net metering adds to the cost of electricity paid for by consumers.

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4 Replies to “Renewables Increase Costs”

  1. In addition, when the fraction of renewable energy becomes a significant part of demand, the utility may have to cut back on power generated via its other means (gas or coal). Then, a power source that must be maintained for reliability becomes less efficient so that a power source inherently inefficient gets priority.
    No wonder cost increases.

  2. In Florida, providers like SECO apply the extra power generated by house tops to the account of the home generating the electricity. When a grey day comes around and less power is generated, the home owners use power from the bank they have generated to keep things running. While it doesn’t generate revenue for the home owner, it does sound like a reasonable compromise between the home owner and the electric company.

    • I don’t happen to be familiar with SECO’s approach to the issue of net metering.
      What you describe sounds reasonable. Some states limit net metering credits to the estimated cost of generating electricity. There is still the question of whether the homeowner with rooftop solar should help pay for maintaining the distribution network. The homeowner has the benefit of being able to get electricity from the grid anytime he needs it, such as when his rooftop system doesn’t supply all his needs. The utility has to pay to maintain the distribution system and the homeowner isn’t paying for it when he only uses electricity from his rooftop system. Some states have said the homeowner should pay a fee, perhaps $50 per month, but this has been contentious.