Community Solar and Value of Solar

A professional commentator asked me to share some thoughts about how VOS fits with community or shared solar.

Community solar application of the VOS shows the strength of the VOS concept. In the
study by the Connecticut Academy of Science and Engineering in which I participated, we concluded that VOS analysis was the best path for calculating the value of the offset credit. There, we used the term “Shared Clean Energy Facility,” or SCEF, since not just solar and not just in one community.

First, since customers get their offsetting energy from offsite, VOST in a 2-part rate allows us to recognize the distinct locational costs and benefits of consumption and production, each in their own distinct location on the grid.

Second, since VOST is a type of net metering, we still need clarity in several jurisdictions about the ability and legality to offset consumption from a remote site. Ideally, the federal government would also allow residential tax credits for SCEFs configured to otherwise stay within the lines of “generation for use” rather than “generation for sale.” As I read the IRS and FERC precedent, this should not be an issue - it is the purpose of the generation that is dispositive. Location is only indicative.

Third, one would expect slightly lower VOS value since the SCEF arrangement does not avoid all the grid costs that a rooftop system does. Appropriately detailed analysis would address the average “minimum distribution plant” typically allocated to customers and adjust from that. For example, if the average distribution charge assumes 5 miles of distribution system to serve a customer, and if the SCEF is located 2.5 miles from its customers, we might discuss reducing the distribution system avoided cost in the VOS by 1/2.

Fourth, although the VOS might be a little lower, the SCEF model also allows site developers to prospect for lowest cost/highest value sites, as well as exploit economies of plant scale. The SCEF movement should encourage regulators and utilities to get more granular about smart, resilient, valuable siting of these facilities.

This means that utilities should be making available short, mid, and long-term marginal distribution capacity cost at the sub-nodal (feeder?) level to third-party developers, and should be incorporating those values in resource planning.

In other words, my friend, “location, location, location.”

Response to APPA Anti-Solar Blog

Friends and colleagues often ask me to offer some rebuttal to solar attack pieces like the item recently published by the APPA and authored by Ashley Brown of the industry-funded Harvard Electricity Policy Group. I tend to resist public response, characterizing it as “pig-wrestling,” where the pig loves it, and you just get muddy. But today, I want to write a few words to note my differences with Mr. Brown’s views. Mr. Brown doesn’t offer anything particularly new, APPA is just the latest anti-solar organization to give him bandwidth.

My comments are in BOLD ITALICS.

Net Metering: The Dark Cloud in a Sunny Sky
Posted on May 27, 2015 by Ashley C. Brown
- See more at:

In reality, the growth of solar is impeded not by utilities but by well-intentioned but flawed policies and rate structures that have evolved with little or no thought in many states and fail to appropriately price the value and output of distributed solar

It is bizarre to assert that utilities and the rate structures they advance are separate and distinct. It is also simply false to assert that policies and rate structures impacting solar were thoughtlessly adopted in the states. Congress directed utilities to examine net metering in the 2005 Energy Policy Act. Net metering is in effect in 44 states, in some states since the mid-1980s. Dozens of cases have considered net metering at the state and federal level. Those who seek to undermine or eliminate solar net metering have the burden of overcoming this extensive record of public decision-making.

Distributed Solar PV has some very real benefits and long-term potential. The marginal costs of producing this energy are zero. Carbon emissions from the actual process of producing the energy itself, without taking the secondary effects into consideration, are also zero. The costs of solar PV panels have declined significantly in recent years, adding to its potential long-term viability, although as a recent study has pointed out, those reduced panels costs are being accompanied by increased installer charges which effectively preclude consumers from seeing the full savings associated with the declining costs.

This is the first of many unsubstantiated assertions that sound like the “some people say” so often heard on some political TV stations. One study proves nothing in this dynamic market.

In its current, most common configuration, however, solar PV has some drawbacks — it is intermittent, requiring backup from other generation sources. Its energy value is entirely dependent on when it is produced and its capacity value, given its intermittent availability, is, at best, marginal.
Solar PV is intermittent, but this hardly means that backup is required. The penetration rates for solar are so low that the electric system does not need to back it up. Rather, the system takes the solar energy when it is available and backs off other generators that otherwise would have run. Just like the choice to deploy energy efficiency or even to conserve some electricity, solar PV means the existing system, which typically maintains expensive excess capacity margins, does not have to run as hard. Since solar is so highly predictable, utility planners can even save money over the long time by counting on solar to continue to operate maintenance free. The more solar that is deployed, the more reliable the fleet of solar resources becomes.

It is meaningless to imply solar is has “marginal” value because its energy value is “entirely dependent on when it is produced and its capacity value.” Why? Because that statement is a truism. Every resource has a resource value that is entirely dependent on when it is produced and its capacity value. We have excellent solar predictive tools that tell us exactly when we can expect solar systems to generate; this allows us to precisely calculate capacity value using tools like “Effective Load Carrying Capability” analysis.

To fully develop solar as a cost-effective energy resource, it is imperative to provide pricing that offers incentives for productivity and reliability.
This statement does not follow from the previous one at all. Pricing that offers incentives for productivity and reliability might be a good idea, but that is hardly “imperative.” First, solar is highly reliable. Once installed, it operates with nearly 100% reliability whenever the sun is shining. The lack of moving parts, the lack of emissions, and the lack of dependence on delivered fuel via pipelines, rail systems, or fuel processing means that solar PV is much more reliable than rotating machinery, boiler systems, and reactors when the sun is shining. So, to get the most out of solar PV, we should deploy more of it.

There is some interesting potential to create pricing incentives for production during certain periods of the day. South-facing solar systems make the most electricity over the course of a day. West-facing systems make more energy in the late afternoon.

The implication that solar is less than cost-effective as an energy resource because the pricing structures are not present is an illogical argument called “boot-strapping.” That is, Mr. Brown asserts his unproven conclusion as a justification for his preferred course of action. Solar is highly cost-effective in a wide variety of applications already today. Technologists, utilities, and regulators will hopefully find more and better ways to use this clean, reliable form of energy generation. But potential for improvement is not an argument that solar is uneconomic today.


Retail net energy metering, the most commonly used pricing methodology in the U.S., is a very seriously flawed scheme for pricing solar PV distributed generation because it:

• Overvalues the energy produced and the installed capacity by compensating at retail rather than wholesale rates;

As Demmings said, “In God we Trust, all others bring data.” A growing body of rigorous and documented analysis suggests that net metering UNDER-values the credit solar energy should receive. Mr. Brown must prove his assertion with data or abandon it.

• Fails to cover the fixed costs of the distribution system and, therefore, requires heavy cross-subsidization by non-solar customers (in addition to the tax and REC/SREC subsidies it already receives;

This is an oft-repeated canard. The basis for this assertion is that in a system of average rates applied to an entire class of customers, the customer that uses less than the average amount of electricity pays a lower contribution to fixed cost recovery than the average customer or the customer that uses more energy than average. Doh! Mr. Brown’s concern on behalf of the utilities he represents is that if everyone used less than the average amount of electricity, the utility would have no one to charge for those fixed costs.

First, if the customer regularly uses less than the average amount of electricity, they are imposing lower costs on the utility system, so they are entitled to pay less. And if Mr. Brown has a cost-of-service study (the “data”) to prove otherwise, he should produce it. Otherwise, he is just making a perversely socialistic argument that customers who don’t use the class average amount of electricity must pay as if they did.

Second, the cross subsidization argument only applies between rate cases, and only, in this case, if the utility fails to find ways to help expand the base of solar customers. If the utility doesn’t sell the electricity it expected to when it set its rates, it need only go to its regulatory authority or board and demonstrate a threat to its financial integrity meriting a re-assessment of rates. Mr. Brown has again not offered any data showing that the revenue shortfall created by solar is financially significant, or that the system-wide benefits produced by solar are lower than the system-wide costs. Again, the Value of Solar studies show that ALL customers get significant benefits when individual customers invest their money to install solar generation, even when they get public policy and tax support as well.

• Is socially regressive, transferring wealth from less affluent to more affluent consumers. Hides actual costs and enables greater profitability for installers at a significant cost to consumers.

This is an ugly and cynical argument that assumes, contrary to the facts, that (1) only the most wealthy are investing in solar – solar is a middle class phenomena where markets are strongest, (2) that utilities can’t do anything to bring the benefits of solar to low and moderate income customers – there are a growing range of options, like community solar, for bringing solar to all customers, and (3) again, that the data shows no benefits to non-solar customers from solar customer investments – the data from Value of Solar analysis shows that solar can put downward pressure on rates for all customers.

There are a lot of regressive features in the utility system today. If Mr. Brown and his funders really care about less-affluent customers, solar is perhaps the least impactful target for his concern. Mr. Brown has done work for utilities proposing high fixed customer charges, which are very regressive.

Let’s look at the very nature of retail NEM. Meters run forward when solar PV DG customers are purchasing energy from the grid. When those customers produce energy and consume it on premises, the meter simply stops. When the customer produces more energy than is consumed on premises, the meter runs backwards. Thus the solar PV customer pays full retail value for all energy taken off the grid, pays nothing for energy or distribution when self consuming energy produced on premises, and is paid the fully delivered RETAIL price for all energy exported into the system. At the end of whatever period is specified, the meter is read and the customer either pays the net balance due, or the utility pays the customer for excess energy delivered. The reconciliation is made without regard to when energy is produced or consumed.

Mr. Brown is showing his age. This description merely describes what the old spinning metal disk meters did. But it isn’t an accurate description of what happens with net metering. Simple algebra demonstrates that net metering customers are fully charged for 100% of their energy use, regardless of whether they offset that consumption with solar generation or not.

Mr. Brown confuses “offsetting” – which is what solar customers do – with “avoiding.”

Ignoring other charges, Net Metering customers pay a bill equal to:

(Total Consumption minus Total Production) times Retail Rate

Again, this is what the mechanical meter could show. What is in parenthesis is the “net forward progress of the spinning disk.”

But as any Harvard graduate (and most middle school students) could explain, the Net Metering formula is exactly the same as:

(Total Consumption times Retail Rate) minus (Total Production times Retail Rate)

The point is, the net metering customer is fully charged for their total consumption and will be, regardless of how much electricity they make with their solar system.

Many in the solar industry have come to recognize that NEM is no longer a defensible method for pricing solar DG.

This is unsupported by the facts.

NEM was never developed as part of a fully and deliberatively reasoned pricing policy. It is basically a default product of two no longer relevant considerations, one practical and the other technological. The practical reason is that distributed generation had such an insignificant presence in the market that its economic impact was marginal at best. Thus, no one was seriously concerned about “getting the prices right.” The second, technological reason is that the meters most commonly deployed, especially at residential premises, until recently have had very little capability other than to run forward, backward, and stop. NEM was simple to implement and administer, and, there was no compelling reason to go to the trouble of remedying a clearly defective pricing regime.

These assertions are unsupported by the facts. Net metering has been heavily debated, discussed, and analyzed at utilities, in legislatures, in regulatory proceedings, in academia, and in other forums. My past experience does not comport with Mr. Brown’s assertion that the entire industry just took a “SWAG” on net metering because we never thought it would amount to anything.

Many states have now recognized the problems with NEM, but seeing no alternatives to it, put in place production caps to limit any harm caused by a clearly deficient pricing regime. In effect, the production limits are a statement by policy makers that they are using a seriously flawed system, and in effect, saying, “stop me before I do more damage.”

Utilities argued for the system and production caps on net metering just like they argued for them with energy efficiency programs, and just like they argue for them with community solar, third-party market entry, and other innovations in the markets place. And for the same reason, to protect their monopolies, their prior investments, and their future profits. No one can blame them for this; it is how the system works. But it is the height of cynicism to say that regulators, long ago facing a tiny rooftop solar industry just threw up their hands and said, at the same time:

“This is not big enough and never will be big enough to do our job the right way,” and

“We want to do something, so we are going to adopt a ‘clearly deficient pricing regime,’ even if we could do nothing,” and

“This technology that we don’t expect to get big has enough potential to get big that we have to put in system and production caps to mitigate the economic distortion we are creating.”

Those must have been some seriously unstable regulators. Or Mr. Brown is merely trying to perform some post-hoc rationalization for his latest round of attacks on solar for customers.


Under NEM, when DG providers export energy into the system, utilities are required to pay them full retail rates for a wholesale product. What many energy experts agree upon is that solar PV DG provides an energy value, although there is considerable disagreement about what that value is. Solar proponents argue that it has a capacity value as well. I believe that value, if it exists at all, is minimal. It is also possible that DG, might relieve congestion on the transmission grid, although that is a matter of local conditions at any given moment in time and not necessarily always the case.

However, both energy and capacity are wholesale products and should be compensated as such. Absent a solar host leaving the grid, there is absolutely no reason to discriminate between wholesale and DG producers in regard to the fixed costs of the distribution system and its operations.

This argument is also classic bootstrapping. Mr. Brown wants retail solar treated as a wholesale generator. So he assumes that generation located behind the customer meter and generating electricity at or near the point of use is a wholesale generator. Having made that assumption, he argues that retail compensation is the wrong rate for a wholesale generator. How neat!

But under cost of service ratemaking, what Mr. Brown “believes” about value is irrelevant. Rather, we can use empirical analysis to find out what distributed generation is worth, by looking at the costs it avoids over the life of the system. The Value of Solar studies show us that rooftop solar is worth more than retail.

This is not surprising. Solar on the roof does all the work that the kWh made, transported, and delivered by the utility does. And the solar energy does it without any volatility in price, without any risk of future environmental compliance costs, without the need for water supply, and with considerable investment from private customers (who also maintain the operating, insurance, and financial risk). So under a cost-of-service model like we use in the utility industry, the numbers from the Value of Solar studies comport with reality, in spite of what Mr. Brown believes.

Solar providers don’t provide distribution services. Under NEM, however, solar PV DG providers are not only relieved of their obligation to pay their fair share of the fixed costs, they are actually compensated at full retail prices for what they provide. That includes the not-insignificant cost of services that they, indisputably, do NOT provide, including distribution and administration costs. There simply can be no justification for forcing consumers to pay a provider for services they not only do not provide, but, in fact, have no capability to provide.

When the solar customer offsets their consumption with solar electricity, they offset all the costs the utility would otherwise face to serve that unit of demand for energy.

It is important to understand what happens when the solar customer makes some excess electricity, too. Excess electricity is injected into the grid, and the laws of physics mean that it serves the nearest nearby load. Typically at a neighbor’s home. Once it passes through that customer’s meter, the utility charges the full retail value for it – even though the utility didn’t have to generate it or use transmission lines to transport it. And since it was solar electricity, the utility didn’t face any environmental control costs for that electricity either.

Mr. Brown thinks the system is unfair because it does not treat solar customers like the wholesale generators he falsely assumes they are. The fact is, it would be unfair to make the assumption that solar is wholesale generation, no matter how much that helps Mr. Brown’s argument.

Solar PV DG producers remain connected to the grid, and unless they pair their solar arrays with battery storage (still a nascent and expensive technology), or perfectly timed demand response, they are fully reliant upon the grid 24 hours of the day, either to import or export energy, or for back up supply.. Under NEM, that solar PV DG producer is excused from paying his/her share of the costs of the distribution system when energy is being produced on premises. If the costs of the distribution system were variable with energy production, that would be sensible, but they are not. Distribution costs are fixed, and do not vary with energy production or consumption. So, excusing solar PV DG customers from paying for their own distribution costs at the time their solar units are functioning has no justification in either policy or economics. As noted, of course, that ratemaking flaw is compounded by paying for energy as if it were a full retail product, when, in fact, it is not. In effect, solar PV DG providers under NEM are compensated three times for the same thing, the energy they produce, the full retail price above and beyond the energy, and being excused from paying their fair share of the fixed costs of the system on which they rely.

Value of solar studies account for all the costs and benefits, and they show that the retail rate for electricity underpays solar customers, increasing their contributions to the utility and non-solar customers. If Mr. Brown has data to support these arguments, repeated from above, he should produce the facts.

To make matters worse, the costs solar PV DG providers do not pay under NEM are either reallocated to non-solar customers or have to be absorbed by the utility. Both outcomes are unacceptable and unjustifiable. There simply is no reason why solar PV DG customers should receive much of their service compliments of either their neighbors or the utility. It runs directly contrary to the age old principle of both utility regulation and sound economic principle, namely that the “cost causer pays for the costs he/she causes to be incurred.”

Again, there is no merit in Mr. Brown’s argument because the actual analysis shows that solar customers who only receive retail rate offset credit are actually subsidizing the utility and other customers, as Value of Solar analysis demonstrates.

There is still another cross-subsidy. It relates to the intermittent nature of solar energy. No utility can fully rely on the availability of solar when it is needed. This gives rise to two types of cross-subsidy. The first arises when the distributor relies on the availability of solar for making day-ahead purchases, and the other arises when it does not do so. When it does rely on the availability of solar and it turns out that solar energy is not available when called upon, the utility is compelled to purchase replacement energy in the spot market at the marginal cost, which is almost certainly higher than the price of the solar energy on whose availability it had relied.

These values are fully accounted for in assessing the performance and load carrying capability of any non-utility generator. Effective load carrying capability (ELCC) analysis is properly and fairly an element of fairly compensating these generators for what they bring (and do not bring) to the system. ELCC analysis is included in Value of Solar analysis. So, this cross-subsidy exists only in Mr. Brown’s imagination, unless he can produce data to show that the Value of Solar studies are wrong.

This is, in notable contrast to what happens in the wholesale market when a supplier who is relied upon fails to deliver. When a generator whose capacity is contracted for fails to deliver, he/she is required to pay the marginal cost of available energy. Solar DG providers, under net metering, assume no such risk. The incremental costs incurred by the failure of a solar DG provider to deliver when called upon are borne by the utility, which passes them on to all customers, as opposed to being borne by the specific solar PV DG customer whose failure to deliver caused the costs to be incurred.

This is getting repetitive. First, rooftop solar under net metering is not a wholesale generation business – it is generation primarily for use at the home or building where the system is installed. Mr. Brown’s assumptions do not make it so. Second, Value of Solar analysis shows that even accounting for the intermittence of solar, the net metering offset at the retail rate actually under-compensates the solar customer for the value they bring to the system.

The second cross subsidy arises if the distributor, in recognition of solar’s intermittency, instead chooses to hedge against the risk of solar’s unavailability, the cost of the hedge is likewise passed on to all customers rather than simply those whose supply unpredictability caused the cost to be incurred. Because the solar provider assumes no risk associated with a failure to deliver, its capacity value is virtually nil. The essence of capacity value is that the generator can be called on to deliver and he/she either does so, or bears all of the risks associated with failure to deliver. Given that solar DG providers, under NEM, are not callable, their capacity value is, at best, very marginal.

This is a shell game of an argument. The good utility planner with a solar generator in the system will plan on the amount of solar generation they can reasonably expect. ELCC analysis will enable that expectation. They will then acquire other resources as necessary to meet the total system demand. This is not a “hedge,” it is just system planning for diverse load and demand profiles. The capacity value that the solar system is not impacted by the amount of contractual risk the solar generator assumes. The essence of capacity is the ability to meet electrical demand, not the contractual relationship between the utility and the generator. Mr. Brown is trying to argue that capacity and dispatchability are synonymous. They are not.


Electricity prices can be quite volatile over the course of every day, and, of course, vary seasonally as well. Rather than reflecting those prices, NEM simply treats all energy the same regardless of the time during which it is produced. For example, it fails to differentiate between energy produced on peak and off peak. It pays off-peak solar PV DG a price that is averaged with on-peak prices, thus effectively over-valuing the off-peak energy. Conversely, if solar PV DG were actually produced on peak, NEM would average that price with off-peak prices, thus undervaluing the energy. Any form of dynamic pricing, ranging from time of use to real time, could address this issue with more precision than flat, averaged prices.

It is ironic that the foundation of Mr. Brown’s argument that solar customers do not pay their fixed costs is that these customers do not use the average amount of electricity for their customer class, and at the same time, that NEM is fatally flawed because the offset rate is the average retail rate for the class. Value of solar analysis shows that an average rate for all solar production can account for both the high and low value electricity produced by the solar system, and that an average retail rate for offsetting under-compensates solar generators. That is what averaging does. If Mr. Brown has analyses or data to back his assertions, he should produce them.

For example, Lakeland Electric, a public power utility in Florida, revised its net metering tariff so that customers who sign an interconnection agreement after October 1, 2015 will be on a demand pricing rate schedule. Residential customers will pay a $4.80 per kW-month demand rate. They will still be credited at the energy rate, but the energy rate will now be lower. According to Lakeland’s tariff, billing demand charge is based on the “maximum 30-minute integrated kilowatt demand in the month.” This kW demand is intended to be a fair representation of the capacity that the utility is required to stand ready to supply to the customer.

Forcing residential solar customers to pay a demand charge may or may not be a good idea for the solar customer and the utility. The Lakeland Electric rate may or may not be fair. But the fact that the utility put the rate into effect proves nothing, regardless of the intent behind it. Similar charges have been rejected after full and open hearings in other regulatory forums as unfair, unnecessary, and not in the public interest.

Residential demand charges will enable solar PV customers to continue to receive a billing credit that is the same as the kWh energy charge, but these same customers will pay a higher proportion of their overall cost to the utility through the demand charge. This allows the utility to collect revenue from customers based on their peak usage each month.

In public utility ratemaking, the cost of serving a customer is determined through a cost-of-service study. If Lakeland Electric, Mr. Brown, or anyone else proposes a new rate on solar customers, they must support that rate with a cost-of-service study. This is the due process equivalent of “In God We Trust; all others must bring data.”

If solar units produce on peak, they will be better compensated than if they are off peak, so their financial performance will be driven in large part by their efficiency as producers. However, most solar vendors seek a pricing regime that has, at its core, the assurance of profitability, without regard to productivity or efficiency. NEM accomplishes that for them. The New York Times recently did a story showing one of the adverse consequences of NEM. The main incentive under net metering is to produce kWh without regard to the time it is produced, even though solar energy has greater value when it is coincident with peak than when it is not. To achieve that, most solar panels in the U.S. face south, an exposure that contributes to the fact that most solar production in the U.S. is off peak. Time sensitive pricing for solar, however, would incentivize solar installers and hosts to deploy panels for western exposure, a direction that would produce fewer kWh, but which would produce at the time it has the highest system value. Thus, simple retail NEM is a powerful price signal for inefficiency and reduced value. Rational price signals would do exactly the opposite, namely incentivize efficient production not sub-optimal performance.

Value of solar analysis accounts for the timing and value of solar energy production, and under a variety of installation designs. The Maine, Minnesota, Austin, and other studies performed by Clean Power Research include this accounting. Mr. Brown offers no analysis contrary to the results that show that even when accounting to the time and value of produced electricity, a retail offset rate under-credits solar customers for the energy they produce.


Solar hosts, and I use that term to generically encompass both owners and lessees of solar panels, have very unique characteristics. They are users of the distribution system, either as active users or passive users (i.e., reliability backup), depending on when their panels are generating energy. They also depend on the system to deliver their excess output for sale. Under NEM they do not, however, pay for the service the grid provides them when they are consuming their own energy production.

As explained above, solar customers operating under NEM pay a full retail rate for all of their consumption. Mr. Brown argues that they should not be allowed to reduce their BILL by offsetting their consumption with self-generation. That is an argument for and on behalf of a monopoly utility, but not for or on behalf of economic efficiency or fairness.

Moreover, under NEM, they are paid as if they were providing distribution services even though they provide no such service. Those are a very unique set of characteristics that I do not believe are shared by any other class of customers, and that justify the imposition of a facilities charge on them that may not be imposed on a different class of customer.

This is simply not true. Further, Mr. Brown needs to support what he does and does not “believe” with data.

Indeed, the failure to recognize that solar hosts are a different type of customer, as is implicit in NEM, imposes more costs on non-solar customers and is, in fact, discriminatory as to those customers because it forces them to pay costs which they did not cause to be incurred.

This is repetition; and repeatedly false and unsubstantiated.

In regard to the demand charge, solar PV DG customers are unique. They are intermittent and somewhat unpredictable generators of energy, but the utility has an open ended obligation to serve them. The utility will have to buy energy at the marginal cost to serve solar hosts when they fail to generate their own supply, or it will have to hedge against that contingency. Either way, those costs arise from the nature of solar PV DG and are attributable to the hosts of those facilities. It is hardly discrimination to compel a customer to pay for costs he/she caused to be incurred.

This is more bootstrapping. It assumes the “truth” of previously unsubstantiated assertions in order to justify imposing a cost on solar customers for which there is no analytical support.


We now have pricing methods that are more capable of measuring DG production as well as consumption on a more dynamic basis. In addition, solar DG market penetration has dramatically increased to the point that it can no longer be dismissed as marginal, so appropriate pricing is now a non-trivial issue.

More bootstrapping.

We now, in our organized markets, have very precise, location-specific energy and transmission price signals (LMP) that provide a very transparent market price by which one can measure the economic value of distributed generation. Even in the non-organized markets, there are proxies for LMP that can be deployed and are able to achieve a reasonable approximation of LMP values. Coincident with the evolution of more sophisticated prices is the deployment of smart meters that are capable of measuring far more than gross input and output. In fact, NEM is a system that was put in place not as a rational, reasoned pricing system, but rather because with “dumb meters” and “dumb” energy prices, there were few options. Moreover, as long as solar DG deployment was not widespread, the actual costs associated with such an inferior pricing system were hardly worth worrying about. With smart meters, sophisticated wholesale pricing, and widespread use of solar DG, there can be no justification for reliance on a hopeless relic of a bygone era. It is now time for a full-blown policy consideration of the most appropriate pricing policy for distributed generation.

The essence of this argument is this:

Customer-sited rooftop solar generation is wholesale generation.

Wholesale generation systems have developed LMP pricing to encourage efficient wholesale markets.

Therefore, customer-sited rooftop solar generation should be priced like wholesale generation for “efficiency.”

Of course, the logical fallacy occurs in the major premise – the bootstrapping argument that rooftop solar is wholesale generation.

NEM reduces the competitiveness of the market. What some in the solar industry are seeking is not the right to compete, but rather the right to be compensated at arbitrarily high levels justified only by the highly inflated price derived from net metering, a primitive and unsophisticated relic of the age of dumb prices. The effect of the status quo on net metering is to require consumers to pay a higher price for a designated technology — distributed solar PV — and provide less market opportunity for other, more efficient producers. This is a point that was noted in a recent MIT study on “Future of Solar,” which stated that solar DG should not be given a price advantage over larger scale, more efficient, solar, and that pricing solar based on kwh produced , rather than stimulating solar energy, could, in fact impede its development. The logic is quite simple. Subsidizing without end, a product that is inefficient and not competitive with other sources of comparable energy (e.g. large scale solar), rewards lack of productivity and provides absolutely no incentive for improvement.

This argument assumes that the wholesale LMP price is the right price for all electricity generated in the system, regardless of where, when, and by whom. The data does not support this assumption.