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Solar Energy in Michigan: The Economic Impact of Distributed Generation on Non-solar Customers

Research or Whitepaper
Net Energy Metering   
On April 20, 2017, Michigan’s new Clean and Renewable Energy and Energy Waste Reduction Act and revisions to Michigan’s general public utilities act (Public Acts 341 and 342 of 2016) took effect. Among other things, the new laws require the Michigan Public Service Commission (“MPSC” or “Commission”) to “conduct a study on an appropriate tariff reflecting the equitable cost of service for utility revenue requirements for customers who participate in a net metering program or distributed generation program” within one year.

This new statutory provision reflects the rapid growth in the installation of solar distributed generation (herein referred to as “solar DG”1) systems, and concerns regarding the impact of net energy metering (NEM) policies on ratepayers and utilities. Opponents of NEM argue that giving net metering customers full retail credit for the surplus energy they generate overvalues both the capacity and energy that solar DG systems provide. As a result of this pricing structure, opponents assert that net metering customers are able to avoid paying for the grid support services on which they rely and are, therefore, being subsidized by non-solar customers. Establishing a new tariff that reflects the equitable cost-of-service is a means to ensure fairness for both for those ratepayers who have installed solar DG systems and those who have not.

Rather than endorsing additional costs on non-solar ratepayers, however, a majority of studies conducted to date have concluded that the utilization of NEM for solar DG offers net benefits to the electric system as a whole, including non-solar customers. Rather than shifting costs to other ratepayers, the growth of solar DG systems in most cases helps to reduce overall costs and represents a net benefit to all utility customers.

This report by the Institute for Energy Innovation (IEI) is intended to (1) summarize the national data related to evaluating the “value of solar” (VOS) to the overall grid; and (2) to outline “best practices” for compensating net metering customers. Through this report, IEI seeks to inform discussions regarding net energy metering (NEM) across Michigan, and ensure that the aforementioned study being conducted by the MPSC accurately reflects the true costs and benefits of solar DG in Michigan.