Net metering changes could drive people off grid, Michigan researchers say

Michigan lawmakers’ attempts to redesign the state’s solar net metering program may drive more ratepayers to leave the grid entirely, particularly in the Upper Peninsula where electric rates are already high, say researchers from Michigan Technological University.

In a paper published last month in Energy Policy, a team of researchers sought to quantify the potential for grid defection in the U.P. with residential self-generation systems using solar, storage and gas-fired cogeneration.

The declining price of solar and the area’s relatively high electric rates mean roughly 65 percent of single-family owner-occupied households in the U.P. could meet grid parity – when the cost of generating your own electricity is less than or equal to buying it from the grid – and afford the systems by 2020, according to the research.

Up to 92 percent of seasonal households and about 75 percent of year-round households in the U.P. “are projected to meet electricity demands with lower costs,” the report adds.

“The results imply that economic circumstances could spur a positive feedback loop whereby grid electricity prices continue to rise and increasing numbers of customers choose alternatives,” the report says.

Joshua Pearce, Michigan Tech professor of materials science and engineering, said the modeling is a continuation of research on the feasibility of self-generation systems in the U.P., but was also done in the context of “potential law changes that would essentially destroy net metering and encourage people to leave the grid.”

Pearce, who has a solar installation at his home and would consider leaving the grid if net metering was eliminated here, said utilities should be concerned about the potential for grid defection across the country.

Increasing electric rates and the declining cost of installing renewable energy has been referred to as a “death spiral” for utilities’ traditional business models. In Michigan, major utilities are supportive of lawmakers’ efforts to restructure net metering as an issue of “fairness,” though the latest proposal to credit net metering customers’ bills at wholesale rates and charge grid usage fees appears to be stalled in the state legislature until the end of the summer.

“If net metering were to go away or utility rates become punitive, the option is to stay on the grid or leave,” Pearce said. “It makes far better sense for utilities in the long term to encourage customers to (net meter) and partake in it. You need to allow new technologies on the grid and that’s much better than being antagonistic toward customers. You never will win that one.”

But just because someone can afford to go off the grid doesn’t mean that they will.

“Beyond high initial costs and perceived lack of financing options, common social barriers include lack of institutional support and inert social norms, poor consumer knowledge, low customer confidence, inadequate workforce skills, concerns about aesthetics of renewable systems and the uncertainty, risk and liability of grid defection,” the report says.

While grid-defection research has focused on states like California, Hawaii and New York, Pearce said the Michigan Tech team wanted to find the potential in a much different region like the U.P.

“Because of its low solar potential and low-income population, the UP case represents a relatively difficult market for off-grid solar-hybrid systems,” the report says. “If it is economically feasible to defect from the grid here, then it might be even more likely elsewhere.”

Approaching the cap

Additionally, some U.P. utilities are approaching the 1 percent cap on the amount of generation that qualifies for net metering, Pearce said. This caused anxiety for customers of one U.P. electric co-op last year, which abandoned original plans to restructure its net metering program after customer backlash.

According to the latest net metering report from the Michigan Public Service Commission, the Upper Peninsula Power Co. (UPPCO) and We Energies each had less than 50 percent of cap space left for net metering after 2014. At the time, all other investor-owned utilities in Michigan had between 81 percent and 97 percent of cap space left. The two largest utilities, DTE Energy and Consumers Energy, had 85 percent and 95 percent of cap space available, respectively.

Cloverland Electric Cooperative, which services the eastern U.P., had 88 percent of net metering cap space remaining after 2014, according to the MPSC.

Dan Dasho, the utility’s president and CEO, said last week Cloverland has about 15 people who net meter, with about one more customer added a year. The utility doesn’t “have a cap issue,” he said, because residents are aware of its 44 percent renewable energy portfolio, largely from hydro resources. Additionally, Cloverland has some of the lowest electric rates in the U.P., Dasho said – another factor working against grid defection.

Grid defection “is not an issue that we’re worried about,” Dasho said, but he agrees that state policy that takes away the incentive to net meter could drive some residents off the grid.

The relatively small number of people that are off the grid in the U.P. are “iconic – they’re rock stars,” said Sam Lockwood, treasurer of the Keweenaw Renewable Energy Coalition.

“Unfortunately it’s just rhetoric, we haven’t seen any real penetration at all,” of solar generators, he said.

Lockwood said he offsets about 70 percent of his energy use with a wind turbine on each of his two properties. He’s adding solar this summer and is considering going off the grid entirely with the declining cost of storage options and should state policy change.

The U.P. – particularly the western region – is also unique not only for its high rates but also relatively low reliability, Lockwood said.

“I can see a Tesla battery on the wall for times when storms knock out power between Green Bay (Wisconsin) and Calumet (Michigan),” Lockwood said. “It happens a lot. It sounds like doomsday preparing a bit, but being secure in our own nest is very real for us.”

Usage fees ‘absurd’

But on the question of whether net metering is increasing costs for non-solar-generating customers, Pearce said it depends on “who is funding” the research.

“Distributed generation saves the utility money by decreasing the need to build new power plants,” he said. “Until you see very large penetration rates, like 25 percent (of ratepayers with solar installations), you don’t really need to change the grid. All you’re doing is reducing the amount of coal that needs to be imported to the state.”

Dasho said with increasing numbers of ratepayers who move to generate their own electricity, “There will be an issue regarding selling back more energy than you use and you become a power producer. I think the state should go to a place where people do not subsidize you if you put in solar or wind, and by other people who may not have the opportunity or are well off enough to do something like that.”

With the goal of avoiding this alleged cross-subsidization, Pearce said more utilities are pushing monthly user fees to “level out” and bring order to the revenue coming in.

“That’s absurd,” Pearce said. “Consider going to McDonald’s: To have the right to eat McDonald’s you’d have to pay $100 a month and instead of a dollar menu, everything is 25 cents. They have found a way to charge customers on a per-unit basis, and electricity can also be sold that way. It used to be, but it’s continuing to go the opposite way.

“You can force customers to do that until they have an option,” Pearce said, referring to punitive measures driving grid defection. “Now people have an option.”

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