Net Energy Metering Changes Could Aid the Microgrid Industry, but Some Argue for a Better Way to Encourage DER Deployment

With a number of states changing solar net energy metering (NEM) programs to compensation methods that incentivize storage, microgrids could benefit.

However, some argue that to really make the most of distributed energy resources (DER) and microgrids, the utility and regulatory models need to undergo sweeping changes and move away from NEM.

For Cameron Brooks, executive director of Think Microgrid, an advocacy group and affiliate of Microgrid Knowledge, compensating DERs shouldn’t be about focusing on different technologies such as solar and storage in isolated bubbles.

New compensation models needed

“We should be looking for a model that provides more open access to the distribution grid and gets the full value of load flexibility and resilience,” he said. “That’s one of the things that microgrids offer. There really aren’t any great tariffs that give microgrids that kind of value.”

For now, however, NEM and its relatively new variations are the main model.

Utilities and regulators in New York, Idaho, Puerto Rico, Hawaii, Arkansas, Connecticut, West Virginia and other states have implemented or proposed alternatives to NEM, according to a report from EnerKnol Research, “More States Embrace Alternatives to Net Metering Amid Growing Penetration of Solar.”

Under early versions of NEM – preferred by the solar industry – utility customers who send excess solar to the grid generally are compensated with 1 kWh of energy for every kWh they export.

The value of storage increases under new NEM models

But the new compensation mechanisms are often tied to issues like utility avoided costs, or the hour, month or season customers export solar to the grid. That means adding storage helps solar producers store solar and then feed power to the grid during the hours, days or seasons that yield the greatest compensation.

The most controversial measure is California’s move, under which regulators shifted from net metering to net billing, which is lower in value. When utility customers send solar to the grid, compensation is no longer based on typical electricity rates. The compensation varies depending on when the grid needs it most. Other states are implementing similar models.

“In the individual homes scenario, NEM changes are increasing the microgrid market because that means more customers are going to be interested in solar plus storage for individual homes,” said Suzanne Leta, former head of policy and strategy for SunPower during an interview with Microgrid Knowledge before she left SunPower.

Solar installers looking to add storage

Many of the NEM changes could benefit microgrids because the storage component becomes more valuable, said Nicole Green, head of brand, marketing and inside sales for Scale Microgrids. “That's storage, not necessarily a microgrid. But we are upselling to a microgrid for resilience.”

For Xendee, which has a software platform for modeling DERs, an increasing number of solar companies are modeling projects with storage, instead of solar-only, under California’s net billing program.

Clara Richardson, sales engineer at Xendee, said that California’s change in NEM compensation caused a surge in solar installers joining the Xendee platform because the new compensation incentivizes the use of energy storage.

A call for bottom-up electricity planning

But some argue the industry needs to move away from NEM altogether. NEM is based on the principle of customers sizing on-site photovoltaic (PV) systems to meet their own needs, said Lorenzo Kristov, a consultant and former principal of market design for the California Independent System Operator. The customers then export extra power to the grid. Focusing on systems for individuals, as opposed to communities, is inefficient, he said.

“DER technologies are totally flexible and scalable, so we should be planning PV installations at the community or neighborhood level, co-optimizing PV deployment with other critical amenities like tree canopy to maximize PV where the solar radiation is strong and selling the surplus produced at any individual site to serve other customers in the community,” he said.

He’s advocating for what he calls bottom-up electricity planning.

Enphase Energy wants communities to pool resources and share power

Planning for neighborhoods and communities is the idea behind a plan from Enphase Energy. The company is talking to the California Public Utilities Commission about its ideas but has not yet submitted a formal proposal, said Raghu Belur, chief product officer for Enphase.

Under one scenario, three homeowners behind a transformer could all combine resources and create a microgrid. The homeowners could sell power to each other. “It’s possible one home has solar and an EV, the second one has solar and batteries and the third has no resources. You could pool the resources and create a cluster that forms a microgrid,” he said.

The three homes could isolate during an outage and provide resiliency to one another.

Theoretically, that scenario could also play out in a new community of 50 homes. The utility could install a big transformer and bring power in, Belur said. If every home had solar, batteries and electric vehicles (EV), for example, the whole community could be isolated from the grid.

Increasing resilience in communities

“Those 50 homes will sustain themselves for a much longer period of time than one home,” Belur said.

The company proposes to connect many homes in one community with Enphase systems. They could all communicate with each other, and buy and sell energy from each other and the grid, said a spokesperson for Enphase. 

“It could be connected to a larger grid or just maintained within a community. This doesn't exist today, but something we've talked about for the future,” she said.

Brooks agrees that sharing DERs in communities and neighborhoods is a step that’s needed. But that’s not all that the DER industry needs.

“We need to completely change the market models we’re used to. We need a bottoms-up approach that allows customers to invest in technology and participate in an open market system,” he said.