Beyond net metering: alternative solar power subsidies around the world

JP Casey 8 June 2020 (Last Updated June 5th, 2020 10:18)

Net metering is an effective and straightforward measure to minimise the upfront costs of new solar installations, but its critics point out that it places a burden on power utilities. With the US state of Utah looking to move on from net metering, we profile some alternative solar subsidies around the world.

Beyond net metering: alternative solar power subsidies around the world
The Panda solar power plant in Datong, China. China is the largest producer of solar power in the world. Credit: Antti Lipponen

While few doubt the environmental credentials of solar power, its economic viability is often a sticking point, with the cost of installing solar panels, especially on a small scale, often swallowing whatever long-term economic gains the technology could provide. But considering the increasingly dire state of the world’s environment, and the importance of delivering a clean energy transition to protect the Earth’s climate, many governments have implemented policies to support nascent solar power infrastructure, targeting domestic and small-scale solar as a means to generate significant solar power across a country.

From the relatively straightforward feed-in tariffs of China, to the more complex models of Spain and Germany where users are paid back in exchange for the power they actually produce, these policies are as varied as the countries that employ them. One of the more common policies is net metering, a programme traditionally favoured by many US states that sees electric utility companies reimburse domestic solar panel owners at full retail rates. However, a number of states are moving away from the process, which critics argue stifles economic development by needlessly burdening large solar utility companies.

This poses the question: is the US set to move on from net metering? And what other policies are in place around the world that its states could employ?

Is the US turning away from net metering?

Among those to turn away from net metering is the state of Utah, which was responsible for 2.3% of the US’s total solar production as of February this year, having produced 1.88GW of electricity. This total makes the state the tenth-largest solar producer in the US, which is itself the world’s second-largest source of solar capacity, behind only China, and an influential player in the global solar power industry.

This growth has been both encouraged, and potentially stifled, by the state’s embrace of net metering. Rocky Mountain Power (RMP), the largest utility in Utah and the provider of 80% of the state’s power, provides reimbursement for homeowners with their own solar panels equal to 92% of that power’s retail value. The significant subsidy has encouraged $186m in solar investment in 2019 alone, and driven an increase in annual residential capacity installed from next to nothing in 2010 to close to 100 MWh in 2017.

However, this growth owes a lot to the subsidies of RMP, which is eager to see its financial obligations scaled back as the state’s solar sector becomes more financially independent. The utility and state government agreed to scrap net metering for an as-yet undecided programme, putting in place a temporary solar tariff that will see RMP pay out $0.92 per kilowatt hour of electricity produced. However, the company is targeting a dramatic decline in its contribution, to just $015 per kilowatt hour, a move that would force the Utah solar sector to become more independent but could withdraw its primary source of financial support.

California’s commitment to net metering

While RMP believes Utah is ready to move on from net metering, there are no such calls in California, the US’s leading source of solar power. California produced 38% of the US’s total solar power in February this year, and were it a country, its total installed solar capacity of 12,338MW would be enough to make California the world’s eighth-most productive solar player, behind the United Kingdom and ahead of Spain.

California’s massive solar production is underpinned by a commitment to net metering, which sees homeowners reimbursed for their excess solar production equal to 100% of the power’s retail value, an even greater proportion than in Utah.

The state relies on three privately-owned power utilities – Pacific Gas and Electric, San Diego Gas and Electric, and Southern California Edison – helping to spread this significant economic burden among multiple actors, unlike in Utah where RMP is left to shoulder this cost alone. There is also a significant level of support for the system; when the first net metering policy expired in 2015, the state implemented a second, similar programme that lasted until 2019. Additionally,  time-of-use (TOU) conditions were introduced to the reimbursements, which will see a greater value placed on energy produced and sold during times of greater energy demand.

Potential and challenges of time-of-use in Spain

California is not alone in relying more on TOU systems, as the flexible framework is the default solar power scheme in Spain. The system has significant economic and power potential, as it enables domestic producers to adapt their energy production and purchases based on hourly shifts in the supply, demand, and price of electricity. A 2019 report from the International Renewable Energy Agency (IRENA) found that in a pilot study in Sweden, the proportion of energy consumed during expensive peak hours fell from 23% to 19% over two years, cutting electricity spend for homeowners and reducing the burden on energy utilities at peak times.

Spain has wholly invested in this flexible system, going so far as to make TOU schemes the default form of subsidy for new solar installations in the country. The move has resulted in 40% of residential customers being placed on TOU contracts, a higher proportion than the European average.

However, Spain has also faced a number of challenges in implementing TOU policies. In addition to the usual technological and infrastructure challenges – the system relies on smart meters to be both readily available and installed across a number of homes – the so-called “duck curve” graph presents an issue for all TOU schemes.

This is the phenomenon where domestic energy demand is at its highest in the evenings, when people return home from work and school, but this is the time where domestic solar production begins to fall as the sun sets. This dichotomy artificially inflates the price of power at a time where most people are drawing on supply from utility companies, and can undermine many of the economic arguments in favour of TOU systems. A report from Frontier Economics found that despite Spanish adoption of TOU tariffs, the average consumer would only save a few cents a year due to this phenomenon.

Flexible power and self-consumption in Germany

One solution to the duck curve problem is the use of battery and storage technologies, which enable consumers to store excess power produced during off-peak times and use it during peak hours. Doing so removes reliance on additional power from the grid and prevents strain on utility companies that would in turn cause high premiums. Such a system has been implemented in Germany, with the limit on power used under the self-consumption model dramatically increased from 30 kWP in 2010 to 500 kWp today, leading to a similar growth in the spread of self-consumption models.

Indeed, German solar manufacturer SMA reported that the vast majority of domestic and industrial properties could see between 90% and 100% of their energy needs met through energy from self-consumption sources.

Of course, this model can only work with significant investment in energy storage technology – as of 2019, German Government research incentives for battery research projects totalled $94.7m a year – and so may not be viable for Utah in the short-term, but could be a long-term blueprint to follow. Germany’s decentralised solar and battery infrastructures are developed to such an extent that utility tariffs are minimal; the country’s feed-in tariff figure of $0.14 per kWh is significantly lower than the raw price of electricity, which can be up to $0.33 per kWh, according to Guidehouse Insights.

China’s feed-in tariffs and a blueprint for the rest of the world

While feed-in tariffs, TOU systems, and battery investment represent increased phases of solar subsidy complexity that Utah may wish to progress through, the world’s biggest solar producer is still reliant on simple tariffs. China dominates global solar production, with its installed capacity of 205,493MW dwarfing the 62,297MW produced by the second-largest producer, the US, according to figures from IRENA. This is backed by vast central investment in solar power from the Chinese government, which has committed $367bn to renewable power projects, including solar, wind, and hydro power, between 2017 and 2020.

China’s economic infrastructure is radically different to that of the US, with state-owned companies able to make these kinds of vast investments, unlike the more fractured, privately-owned framework in the US, which could make its example difficult to follow in places such as Utah. However, in other parts of the world, the Chinese model of massive investment alongside a relatively simplistic tariff structure could help increase the uptake of solar power, without having to rely on the adoption of parallel technologies such as private battery installations.

A report from IRENA, ‘Future of solar photovoltaic’, noted that Latin America could see some of the fastest growth in solar power in the world, with the region’s solar capacity predicted to increase from 7GW in 2019 to more than 280GW by the middle of the century. The report also claimed that the global cost of electricity would also fall from $0.085 per kWh in 2018 to as low as $0.0014 per kWh by 2050, a dramatic decline that would make systems such as simple feed-in tariffs all the more economically viable around the world.