The United States is in the throes of an energy revolution, and with any revolution comes controversy. Technological advancements and production economies of scale have driven down costs on formerly cost-prohibitive renewable energy sources, such as residential wind and solar. As renewable energy continues to heat up, there are few topics that will be more pressing than the integration to the country’s electrical grids of residential and commercial entities generating energy for their own use.
Residential, or “rooftop,” solar comprises the vast majority of “distributed generation” (DG). However, rooftop photovoltaic (PV) currently makes up only a small portion of total U.S. electricity generation—about 0.5% in 2016. Still, dipping costs of solar energy production—down 72% since 2009—have made rooftop PV more affordable for residential consumers, and by 2040, rooftop PV is projected to account for five percent of electricity generation in the United States.  As soon as 2023, PV is expected to be cost-competitive with new-build gas plants in this country, and by 2027, PV could be undercutting existing gas plants for energy production.
These predictions likely come as good news to advocates of clean energy, but not everyone will be beaming. Namely, the boom in residential solar has caused concern for regulators and investor-owned and not-for-profit municipal utilities, which have had to grapple with integrating new solar consumers with the vast base of non-solar consumers. These utilities are thus faced with two challenges: the technological challenge of adapting antiquated grid infrastructure to appropriately allow for and measure electricity—generated by DG customers—flowing into the grid system, and the more policy driven question of how to compensate DG users for that electricity. This article focuses primarily on the latter.
Utilities and Ratemaking
Though the cost of residential solar has decreased dramatically, it is not yet cost-competitive with existing or new-build gas plants for electricity production. In light of this fact, most states offer subsidies for consumers to establish rooftop PV for their homes. Although there can be any number of approaches to incentivize rooftop solar, a common—and contentious—method is net metering. Net metering is ubiquitous in part because it is relatively simplistic; where a residential solar consumer generates more electricity than she can use, the excess is “sold” to the utility. In most cases, the utility pays the retail price—the price that the utility charges its customers—rather than the lower wholesale price (i.e., what the utility could pay to receive that power from third-party large-scale electric producers). Currently, over forty states and the District of Columbia maintain net metering programs.
However, the pervasiveness of this approach is not necessarily indicative of widespread support; though advocates of net metering insist that paying consumers the retail rate is essential to incentivize rooftop solar and appropriately account for the benefits of renewable energy generation generally, utilities are beginning to push back. Under current pricing models, most utilities are allowed to use ratepayer revenue only to cover grid-operating costs, and take any profit as a fixed percentage of capital expenditures on infrastructure. By compensating DG users at the retail rates, utilities argue that DG users are not covering their fair share of grid-operating costs, which in turn causes rates on non-solar consumers to rise. Taken to its logical conclusion, rising rates on non-solar customers would force more customers to “go solar,” reducing a utility’s ratepayer base until the utility can no longer maintain the grid. Indeed, this sort of vicious cycle has come to be known as a “utility death spiral.”
Net metering is also oft criticized for not accounting for the peculiarities of self-generated solar renewable energy. Particularly, solar energy generation is time-sensitive, with highest levels of generation taking place midday and low to non-existent generation at night. The plentiful midday production is much less valuable than the capacity to generate during the late afternoon—a high-demand period when both homes and businesses are consuming energy. These time-sensitive value differences are not adequately reflected by the retail rates that utilities are paying DG customers. Such drawbacks to net metering have forced some states and municipalities to look for other solutions.
Alternative Approaches to Net Metering
Whether to impose net metering or some other approach is a state and local issue. The Federal Energy Regulatory Commission (FERC) does not regulate local or intrastate distribution of power, nor does it regulate the self-generation of power. State-regulated and investor-owned utilities engaged in intrastate distribution are thus allowed to work to rates that are just and reasonable.
Some states, such as California and New York, have taken recent action to modify net metering practices by implementing “time of use” rate changes, allowing utilities to pay back to solar DG customers a rate that reflects the value of the surplus energy at the time it was generated and used. Closer to home, Austin Energy has garnered national attention for its implementation of a so-called value-of-solar tariff (VOST). Under this system, the residential solar consumer continues to pay a monthly rate to the utility based on her total kilowatt-hour usage, but additionally receives a credit for the number of kilowatt-hours that she generates, which is then subtracted from her bill. Unlike a net metering program, which usually “nets” generation over a long period of time and causes a utility to pay the average retail rate, Austin Energy’s value-of-solar rate is set annually, taking into account the greater advantages from the self-generation of renewable energy, including a lower environmental impact and costs avoided by the utility.
Texas is one of a few states that have not imposed net metering, but the state’s capital provides an example of a potentially more effective method for integrating DG users to the grid. The key takeaway is not that Austin Energy’s VOST is the optimal solution in all cases, but that states and municipalities should rather take advantage of the relative lack of federal guidance on the issue and craft more equitable solutions that are tailored to the needs of their constituents, with an eye on long-term regional uptake of renewable energy.
 James Conca, Net Energy Metering – Are We Capitalists Or What?, Forbes (Nov. 28, 2014), https://www.forbes.com/sites/jamesconca/2014/11/28/net-energy-metering-are-we-capitalists-or-what/#7dddf3572fbf.
 Julian Spector, Renewable Record: Wind and Solar Supplied 10 Percent of US Electricity in March, Greentech Media (June 14, 2017), https://www.greentechmedia.com/articles/read/renewable-record-wind-and-solar-crossed-the-10-percent-threshold-for-us.
 Bloomberg New Energy Fin., New Energy Outlook 2017: Executive Summary 2 (2017), https://data.bloomberglp.com/bnef/sites/14/2017/06/BNEF_NEO2017_ExecutiveSummary.pdf?elqTrackId=431b316cc3734996abdb55ddbbca0249&elq=a35761f9e16244a0896a423187a923b1&elqaid=7785&elqat=1&elqCampaignId=; Seb Henbest, Henbest: Energy to 2040 – Faster Shift to Clean, Dynamic, Distributed, Bloomberg New Energy Fin. (June 26, 2017), https://about.bnef.com/blog/henbest-energy-2040-faster-shift-clean-dynamic-distributed/.
 Seb Henbest, Henbest: Energy to 2040 – Faster Shift to Clean, Dynamic, Distributed, Bloomberg New Energy Fin. (June 26, 2017), https://about.bnef.com/blog/henbest-energy-2040-faster-shift-clean-dynamic-distributed/.
 Conca, supra note 1.
 N.C. Clean Energy Tech. Ctr., http://www.dsireusa.org/ (last visited Sept. 29, 2017).
 Conca, supra note 1.
 Jacques Leslie, Utilities Grapple with Rooftop Solar and the New Energy Landscape, Yale Env’t 360 (Aug. 31, 2017), https://e360.yale.edu/features/utilities-grapple-with-rooftop-solar-and-the-new-energy-landscape.
 Id.; MIT Energy Initiative, Utility of the Future: An MIT Energy Initiative response to an industry in transition 39 (2016), https://energy.mit.edu/wp-content/uploads/2016/12/Utility-of-the-Future-Full-Report.pdf.
 Leslie, supra note 10.
 Steven Ferrey, Nothing but Net: Renewable Energy and the Environment, MidAmerican Legal Fictions, and Supremacy Doctrine, 14 Duke Envtl. L. & Pol’y 1, 108 (2004).
 Id. (citing Conn. Light & Power Co. v. Fed. Power Comm’n, 324 U.S. 515, 523 (1945)).
 The Fight to Put a Value on Rooftop Solar Power: Understanding Critical Issues in the Nation’s Rapidly Changing Electricity Markets, Climate Nexus (Apr. 20, 2017), http://climatenexus.org/climate-issues/energy/the-net-metering-fight/.
 Annie Lappé, Austin Energy’s Value of Solar Tariff: Could it Work Anywhere Else?, Greentech Media (Mar. 8, 2013), https://www.greentechmedia.com/articles/read/austin-energys-value-of-solar-tariff-could-it-work-anywhere-else.
 Id.; see also Austin Energy, Value-Of-Solar Rider (2016), http://austinenergy.com/wps/wcm/connect/c6c8ad20-ee8f-4d89-be36-2d6f7433edbd/ResidentialValueOfSolarRider.pdf?MOD=AJPERES (providing a rate schedule and calculations of the value-of-solar rate); MIT Energy Initiative, Utility of the Future: An MIT Energy Initiative response to an industry in transition 84 fig.4.3 (2016), https://energy.mit.edu/wp-content/uploads/2016/12/Utility-of-the-Future-Full-Report.pdf (noting that Texas has “no statewide mandatory rules” for net metering).