“Many of life’s failures are people who did not realize how close
they were to success when they gave up.”
— Thomas Edison
A little over two years ago, I wrote about the challenges faced by traditional utilities in the face of distributed renewable energy technologies and energy efficiency requirements and wondered how utilities would respond.
In the ensuing years, utilities have reacted by suing to maintain their position and promoting legislation in a variety of states trying to making it harder to implement renewable energy and energy efficiency. Now, the Michigan Legislature faces a choice on whether to support utility-backed legislation that guts these programs or continue to support these technologies, as industry and consumer groups are urging.
Crain’s Detroit Business reporter Jay Greene has written several articles chronicling legislation that the Michigan Legislature is currently debating that seeks to remove the state’s renewable portfolio standard and energy efficiency requirements. The legislation also seeks to scale back net metering, which allows those who create their own energy through systems like rooftop solar to get paid for putting some of that energy into the grid. Instead of paying energy producers the value of the electricity, they would, instead, have to purchase energy that they use from the utility at the retail price and sell back to the utility the energy they produce at the significantly lower wholesale price.
Focusing solely on one aspect of the proposed legislation, “net metering” allows someone who generates their own power to offset their energy costs by essentially selling the energy they create back to the utility at a specific rate. Michigan has its own net metering program. Residential producers can only sell their energy to a utility, which caps participation rates. Energy sources include solar, wind, biodigesters, landfill gas, hydroelectric and biomass systems.
Opponents to current net metering argue that it imposes more costs to society as a whole and provides benefits to the more affluent who can afford to install such systems at the expense of the less well off. Further, opponents argue that energy producers are getting a ”free ride” by avoiding the actual costs of operating the grid into which energy is distributed. Some Michigan legislators are pushing back with legislation that would preserve current solar net metering.
In essence, the argument against net metering is that it allows the rich to benefit from generating their own power, while driving up costs to those who are forced to remain purely consumers and avoiding the costs the utilities must incur to keep the grid running. As more people switch to distributed energy, utilities fear fewer people will support their systems, often referred to as the “death spiral.” By reducing the rate at which participants get reimbursed for energy they put into the system, the utility ostensibly avoids those “costs.”
So, what are the benefits of promoting distributed energy? Recently several states have decided to conduct cost-benefit studies of net metering. For example, the California Public Utilities Commission conducted an evaluation of the impacts of net metering on ratepayers, with solar power being the primary focus. That study concluded that net metering actually resulted in a small net financial benefit to utilities. The economic benefits take the form of avoided energy costs, transmission costs and upgrades for capacity. Nonmonetary benefits include reduced toxic air and greenhouse gas emissions from large-scale plants, reductions in water use and local job creation.
Other states studying the cost-benefits of net metering have been consistent with California’s findings. Michigan has not conducted a cost-benefit analysis of its net metering program, although a Michigan Public Service Commission study group has reviewed other states’ studies in connection with its review of DTE’s and Consumers Power’s residential solar programs.
Challenges to existing net metering laws like the one in Michigan have had mixed success, as some proposed legislation seeks to impose charges to those who install rooftop solar, while other states try to reduce the amount credited to distributed energy system owners. Of course, net metering is only one of the targets of new legislation being proposed in Michigan.
Overall, it appears there is a direct challenge to existing energy policy in favor of the status quo without the benefit of a detailed cost-benefit analysis as other states have done when establishing energy policy. Given the changing energy future in light of advances in technology and regulation, the question is whether this is the best path for Michigan?
- Senior Attorney
A senior attorney in Plunkett Cooney’s Bloomfield Hills office, Saulius K. Mikalonis leads the firm's Environment, Energy and Resources Law and Cannabis Law industry groups.
Mr. Mikalonis focuses his practice on all aspects of ...
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