Net-Metered Distributed Renewable Energy: A Peril for Utilities?

Nur Sunar () and Jayashankar M. Swaminathan ()
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Nur Sunar: Kenan-Flagler Business School, University of North Carolina at Chapel Hill, Chapel Hill, North Carolina 27599
Jayashankar M. Swaminathan: Kenan-Flagler Business School, University of North Carolina at Chapel Hill, Chapel Hill, North Carolina 27599

Management Science, 2021, vol. 67, issue 11, 6716-6733

Abstract: Electricity end-users have been increasingly generating their own electricity via rooftop solar panels. We study the impact of such distributed renewable energy (DRE) on utility profits and social welfare under net metering, which is a widespread policy in the United States. Utilities have been lobbying against net-metered distributed solar based on the common belief that it harms utility profits. We find that when wholesale market dynamics are considered, net-metered DRE may be a positive for utilities. That is, net-metered DRE strictly improves the expected utility profit when the utility’s self-supply is below a threshold and the wholesale electricity price is sufficiently responsive to wholesale demand fluctuations. Our paper distinctively considers both downstream and upstream impacts of net-metered DRE on utilities and analyzes the tradeoff between these impacts. Net-metered DRE can increase utilities’ expenses because of their required buyback from generating customers, and reduces their retail sales revenues. In addition, it can either reduce utilities’ wholesale procurement costs or affect their wholesale market revenues. Our results suggest that utilities might benefit from emerging business strategies that motivate their customers to install solar panels. Our numerical study uses data on the distributed solar in California and the wholesale electricity market operated by the California Independent System Operator, and demonstrates that our findings hold under realistic parameters.

Keywords: rooftop solar panel; distributed renewable energy; net metering; wholesale electricity market; utility; social welfare (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (7)

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