By Charlie Agnew, Vice President, Energy Services
Two years ago, I wrote a Competitive Energy Services’ Insights’ blog titled “Net Energy Billing and Your Business: What’s Next?” focused on Maine’s net metering program. The story of net energy billing in Maine is still unfolding, with great successes for early participants but now rife with challenges for those late to the game. Legislative changes have thrown several curve balls at the program and 2024 will reveal more winners and losers among prospective projects. With a 12/31/2024 deadline to complete any net energy billing project over 2MW, we will see throughout the year which projects get stalled, stranded, and qualified to participate – should be an exciting year!
As these chips fall, we expect that post-2024 Maine’s program will look more like others in New England, and so I thought it was an opportune time to revisit the subject again.
So, what is net metering exactly? And how do you know if your company or business could participate and benefit from these programs? The answer to these questions is both simple and nuanced. Small solar projects will likely continue to enjoy the benefits of net metering. This will allow commercial customers in the region to either continue to find ways to participate in an offsite renewable energy project or maximize the value from an onsite project. In the following article, I will recommend how to utilize net metering and I will touch upon common mistakes that are often made – and how to avoid making them. Finally, I’ll provide a glimpse into the future of net metering programs in New England.
Use of the Program
Typically, the greatest benefit of net metering programs has been the financial savings participants have realized and will continue to realize through the next couple of decades. In all cases, net metering customers have been attracted to a “discount” on their electricity bill. This discount or savings is commonly derived from a credit applied on a utility statement, and then a lesser payment due back to the renewable project. The implied difference provides a net financial benefit to the customer.
The utility bill credit received through net metering programs is paid by utilities, who may monetize the energy, capacity, and/or renewable energy value produced by participating projects, depending on the program design. However, these value streams do not usually fully offset the costs of the program resulting in an additional cost that must be covered by all electricity ratepayers. For some potential customers, this cost may seem to reduce the positive financial benefits from the program. The way I see it, if customers are not participating, the net metering costs still impose a cost burden but without any benefit. Which path would you choose?
One of the other major benefits of net metering has been the ability to connect your organization’s electricity use with a new renewable energy project and associated additional, renewable benefits. For many electric customers, building sufficient and cost-efficient renewable energy generation projects on one’s own property is impossible due to lack of scale and with more variable financial paybacks. Therefore, where customers can obtain valuable Renewable Energy Certificates (RECs) as part of their net metering agreements, this is a huge win. These RECs are valuable in that they can be retired to claim the renewable benefits and report fewer greenhouse gas emissions, or they can be sold in the lucrative New England markets for additional financial savings. In either case, customers can use the benefits to further their sustainability efforts, through reducing scope 2 emissions or funding energy efficiency or a green revolving fund. For additional context, read “REC Markets & Trends,” an article penned by CES’ Managing Director of Analytics, Simon Pritchard and Senior Energy Analyst Tarik Cetin which explains RECs in detail along with future trends in the REC markets.
Any positive financial benefit in these net metering programs is always going to help mitigate a participant’s utility expenses, which is valuable in a world where electricity costs continue to rise.
Common Mistakes
One of the first potential mistakes we have seen with net metering programs is waiting to get involved. Without exception, novel programs like these tend to fill up fast as lucrative incentives drive high demand, which drives up program and project costs and the pool of opportunity shrinks. In many cases rapid development and high costs for ratepayers lead to limits on programs and future iterations typically have reduced incentives so the customers who wait end up with less of a benefit. Snooze, you lose!
Another common mistake we have seen is tied back to the RECs associated with a renewable energy net metering project. This is where a customer is unaware of the cost and benefit relationship of the RECs and forfeits them to the project owner without identifying that this is part of the financial exchange. For those unfamiliar with REC programs, it can be a confusing equation, when a customer is faced with option A with RECs but reduced financial benefits versus option B that provides no RECs but higher financial value. Without the appropriate context for this decision, it is easy to make a mistake!
Another frequent mistake is purchasing too much of a good thing with net metering credits. You may ask, is there really such a thing? Yes, is the answer! Especially for a project that might have a thin discount (high payment relative to the value of the credit), we have seen customers who over-subscribed get in some trouble. Trouble? Trouble in oversubscribing shows up with a balance of net metering credits that go unused, that is, they don’t offset any additional utility bill costs. The financial benefit of these programs is derived from offsetting a utility expense. For example, say you have a $150 credit that offsets well over 100% of a $100 utility bill, but you have to pay 80% of the credit value back to the project ($120)- in that case you would have been better off without the project to begin with! While this happens frequently under these programs, it is one of the easier issues to address as long as it gets some attention – something that CES is very familiar with. Managing utility account allocations and doing the math to consider credit values, project payments, and utility costs, is something CES has been doing with our clients since many of these programs began.
Future of Net Metering
Most existing net metering programs in New England are shrinking and becoming more targeted to smaller systems or specific project types and locations. There are areas that still have remotely located projects needing customers, but the opportunities are limited and may have special carve outs associated with them. We are seeing most state net metering programs as successful in achieving a goal of rapid adoption, but with expensive price tags to carry for the next couple of decades.
Policymakers and state energy offices have turned their attention towards larger scale renewable energy projects to meet established renewable energy goals, as these can often be built more cost effectively. However, these projects face continued headwinds with development costs rising and challenges in siting and transmitting energy from these projects whether they are in rural parts of the states or in nearshore and offshore waters.
For customers looking to adopt more local renewable energy generation, it is important to pay careful attention to any remaining offsite net metering opportunities, and to consider projects that could be built onsite. The latter will yield lesser scale, but with the added benefit of visibility and marketing benefits, and new IRA incentives have the potential to keep those projects financially viable depending on your organization’s goals.
If you have questions regarding Net Metering as an option for your business, contact Charlie Agnew at (207) 576-3490 or email cagnew@competitive-energy.com