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Designing Compensation for Distributed Solar Generation: Is Net Metering Ever Optimal?

David P. Brown and David E. M. Sappington

Year: 2017
Volume: Volume 38
Number: Number 3
DOI: 10.5547/01956574.38.3.dbro
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Abstract:
Electricity customers who install solar panels often are paid the prevailing retail price for the electricity they generate. We demonstrate that this rate of compensation typically is not optimal. A payment for distributed generation (w) that is below the retail price of electricity (r) often will induce the welfare-maximizing level of distributed generation (DG) when the fixed costs of centralized electricity production and the network management costs of accommodating intermittent solar DG are large, and when centralized generation and DG produce similar (pollution) externalities. w can optimally exceed r under alternative conditions. The optimal DG compensation policy varies considerably as industry conditions change. Furthermore, a requirement to equate w and r can reduce aggregate welfare substantially and can generate pronounced distributional effects.



Compensating Solar Prosumers Using Buy-All, Sell-All as an Alternative to Net Metering and Net Purchasing: Total Use, Rebound, and Cross Subsidization

Peter M. Schwarz, Nathan Duma, and Ercument Camadan

Year: 2023
Volume: Volume 44
Number: Number 1
DOI: 10.5547/01956574.44.1.psch
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Abstract:
Electric utilities are challenging net metering, which compensates owners of residential solar photovoltaic systems by crediting solar generation at the retail rate instead of reflecting the value of solar to the utility. In 2012, Austin Energy was the first US utility to replace net metering with Buy-All, Sell-All, where prosumers purchase all electricity at the retail rate and sell all electricity at the utility's value of solar rate. Using Austin Energy customer data for hot weather months, a load curve comparison of comparably sized houses shows that prosumers have higher consumption than non-solar customers during system peak hours. Regression analysis finds that prosumers use more energy for air conditioning, with a rebound effect of 20%. A simulation shows that under net metering and net purchasing almost 7% of prosumer bills would be paid by non-solar customers while total subsidy would be 18% due to the inclusion of increasing block rates.





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