Financial Impacts of Net-Metered DPV on a Prototypical Western Utility’s Shareholders and Ratepayers

Distributed solar PV (DPV) under net energy metering (NEM) with volumetric retail electricity pricing (i.e., uniform compensation of generation in excess of consumption, regardless of its characteristics such as time of generation) has raised concerns among utilities and regulators.  Electric investor-owned utilities (IOUs) are concerned about the effects of DPV on sales and future earnings opportunities from deferred or avoided capital investments under existing regulatory and business models.  NEM reforms have been proposed and, in certain cases, adopted by state public utility commissions.  Importantly, most reforms change the DPV system payback periods and, thus, have the potential to reduce distributed solar PV deployment.

This study quantifies the financial impacts of net-metered DPV on a prototypical Western IOU and identifies the key sensitivities and utility attributes driving lesser or greater magnitude of impacts.  We also identify and assess the efficacy of strategies to mitigate financial impacts to help frame, organize, and inform ongoing discussions of NEM reforms among regulators, utilities, and other stakeholders. 

The study makes several important findings about the financial impacts of net-metered DPV on utility shareholders and ratepayers. First, these impacts on shareholders and ratepayers increase as the level of DPV deployment increases, though the magnitude is small even at high DPV penetration levels. Second, the study explicitly links different estimates of DPV value to shareholder and ratepayer impacts and finds that even rather dramatic changes in DPV value result in modest changes to shareholder and ratepayer impacts.  Third, the mitigation cases demonstrate that what constitutes a financial impact from a particular perspective matters.  While all the mitigation cases improved utility earnings, ROE, and average non-participating customer bills (relative to the case with NEM only), average DPV participating customer bills increased further and, in some cases , pushed DPV system payback times beyond the system lifetime.  Regulators and policymakers may improve their understanding of multiple perspectives by incorporating feedback effects between changes in rate design or compensation mechanisms and DPV deployment rates.

An open-access journal article published in Energies can be downloaded here.