A Battle for Solar Power in the Land of the Free

Peter Todd had just finished building his off-grid cabin in the woods—with the help of a local Amish craftsman—when he realized what he wanted to do next. “I said, I really gotta figure out how do I get some solar in here,” he recalled.

That was back in 2020. Now, his getaway homestead at an undisclosed location in the Great Lakes region has enough solar panels to power LED lighting as well as charge Todd’s phone and laptop. Additional solar systems run the fan for his composting toilet and keep his tractor’s battery topped up when he’s away.

Todd, who has a day job in artificial intelligence, spends some of his spare time making YouTube videos of his isolated cabin retreat, which he has nicknamed Hemlock Ridge. While he has collaborated with solar companies on one or two paid promotions, he said he has bought most of his solar panels and accompanying equipment himself. The cabin, he added, is a chance to escape city life. Back to nature. It’s a weekend slice of freedom—and, although it’s out of the question for now, he does toy with the idea of living somewhere like this full-time.

“It’s really neat to think that you could go off-grid indefinitely,” he said.

Only a handful of hardy Americans can do that, however. As things stand, most people live—like Todd does during the week—firmly on the grid. As electricity prices soar, though, home and business owners are increasingly taking electricity generation into their own hands. It’s the next best thing to going off-grid themselves. 

By hooking up a few rooftop solar panels or a wind turbine, people can lower their bills, sell surplus power, and even keep the lights on during a blackout. Great, right? After all, the need to move away from fossil fuels is pressing. But as the sprawling electricity systems that serve U.S. towns and cities adapt to a growing number of small-scale power generators, operators say it is getting more difficult to ensure the grid is stable. That is, supplied with just the right amount of electricity at all times. Advocates of small-scale solar increasingly complain that the big utilities are standing in their way—seemingly, they don’t want the competition. The battle over who gets to push electrons onto the grid—and at what price—gets fiercer every year. It’s a battle for the future of energy itself.

In a country as large as the U.S., you might think that rooftop solar would struggle to meet major electricity demands. But it actually has gigantic potential according to a 2023 study by Barry Rand at Princeton University and colleagues.

“There is a substantial number of states that could meet their demand, currently, only with rooftop [solar],” he said—as many as 15 states. Electricity demand is expected to go up in the coming years as more electric vehicles hit the roads and more people use heat pumps for heating and air conditioning, for example. But clearly, rooftop solar could play a huge role in enabling all of that.

President Biden’s Inflation Reduction Act includes tax credits of 30% on renewable energy projects such as rooftop solar for your home, for example, which could knock thousands of dollars off the cost of installing such a system. For years, though, the key policy that convinced many homeowners to get out their wallets and sling panels onto their roofs has been net metering.

“That turns out to be the only policy that was, in our analysis, effective,” said Rand. 

Net metering allows people with solar panels or other renewable energy generators to sell their surplus electricity to public utility companies and put it on the grid. That can drastically reduce the time required to recoup their initial investment.

Wallowing in the perks of net metering has become harder of late, however. The amount of money you can get per kilowatt hour (kWh) of electricity sold to the grid has dwindled in multiple states. In some places, net metering has even been abolished, as was the case in Indiana last year. Reports suggest that solar installations have subsequently foundered in the state, falling by more than two-thirds. Electricity rates, meanwhile, are going up.

Utility companies have advocated for lower net metering rates, known as net billing, to keep electricity costs down for the average customer, they say. The industry claims that as solar adoption has surged and the number of people claiming net metering payments has soared, they’ve had to raise energy rates to stay afloat. Utilities build and maintain grid infrastructure—power lines, for instance—and are tasked with hardening such infrastructure against the increasingly serious threat of climate change. 

With less revenue from solar users, they argue it is necessary to increase prices for their remaining customers to pay for these costs. The so-called “cost-shift” problem arises, companies say, as wealthier households that can afford solar panels pay less for energy, shifting the cost of grid maintenance onto, by and large, lower-income families who don’t have that luxury. Switching to a net billing approach, away from net metering, reduces that burden, industry advocates say. But some proponents of solar argue that this is a wrong-headed interpretation.

Commenting on the debate, Ari Peskoe of Harvard Law School said that to fixate on the cost-shift problem is to accept the utilities companies’ framing: “This is the way they want you to look at the issue… We never heard that when somebody would buy an air conditioner,” he said.

Weakening or removing net metering incentives threatens to stifle the renewable energy rollout across the U.S., say solar advocates. The policy is a perfect way to kick off solar installations in states where rooftop solar is still sparsely deployed, said Rand, but he argued that such generous payouts can’t go on indefinitely because they risk raising prices for all users of the grid: “It may backfire on low-income residents.”

To understand things a little better, look to the west—to California. There, rooftop solar has been more widely adopted than in any other contiguous U.S. state, with more than 10% of residential customers living under roofs festooned with solar panels. Until recently, they could sell electricity to the grid at the retail rate. This has since changed under the Net Energy Metering (NEM) 3.0 rules that went into effect last April. Now, a solar panel-equipped Californian household can expect to receive, on average, 8 cents per kWh sent to the grid. They used to get around 30 cents, according to the California Solar & Storage Association.

This dramatic shift in policy has apparently caused solar installations to plummet—not unlike what happened when Indiana abolished the incentive altogether. 

A gentler change in net metering incentives in California could avoid spooking consumers away from solar en masse: “You may want to do that in more steps,” said Janet Gail Besser, chair of the National Academies of Science, Engineering, and Medicine (NASEM) Study Committee on The Role of Net Metering in the Evolving Electricity System. She and colleagues published a report on net metering last year that showed how the cost-shift problem is negligible when hardly anyone has rooftop solar, but it becomes much more of an issue as increasing numbers of people install solar panels while net metering payments remain high. California is a special case since electricity rates there are roughly 80% higher than the U.S. average, which would further exacerbate the cost-shift problem, based on the findings of the NASEM report. 

Last year, Severin Borenstein at the University of California, Berkeley and colleagues published a report on the state’s net metering quandary. According to an analysis he sent to Atmos, electricity sold to the grid by rooftop solar installations in California would only save a given utility company six cents per kWh in costs. Compensating people several times that amount is unwise, he explained, and less desirable than supporting the expansion of commercial solar projects, in his view. 

California resident Grace Peng is highly critical of the original, high-payout net metering policies. She said net metering as previously implemented by the state was “a mistake,” arguing that it allowed relatively wealthy solar panel owners to cash in without ever requiring them to curtail their energy use at times when the grid was under strain from high demand. Extreme weather and other factors occasionally push California’s electricity system to the limit, leading to rolling blackouts. Peng pointed out that NEM 3.0 offers higher rates for electricity sent to the grid in the evening, so in principle, it encourages people to get battery storage and to export energy at times when it is actually needed.

Not everyone is happy with how things now stand in California. Jean Su, Energy Justice Director at the Center for Biological Diversity, a nonprofit, suggested that the broader merits of solar energy are getting lost in arguments over how to power and run the grid.

“They’re ignoring the health benefits, the environmental benefits,” she said, noting that rooftop solar arrays—unlike large-scale solar plants built in wilderness areas—have a potentially smaller impact on the local environment. Su and her colleagues recently challenged the California Public Utilities Commission over its net metering policy, to no avail. They are now taking their fight to the state Supreme Court. Whatever happens next, Su said she worries that the debacle over net metering in California will only encourage the further evisceration of such incentives in other states nationwide, stifling a policy that’s been shown to accelerate solar deployment.