Why Will Net Metering Dissolve? What Should Residential Solar Pros Do?

Hawaii has officially abolished net metering (NEM) and switched to a different metric for compensating consumers for their non-firm energy… so what is the industry to do?

If you are in the residential solar field today, changes are coming to your neighborhood very soon. Be prepared for how your business will be forced to adapt, as this could happen overnight. Let me explain why…

Clearly the utility industry was taken by “solar storm” in less than five years and were unprepared for the adoption of renewable energy interest by consumers. But we need to also know the back story of why they became so popular and why places like Hawaii and now Nevada are pivoting.

When we look back to 2008-2009, we saw the world financial crisis. If we remember in the spring of 2008, oil was $145/ barrel. This was a huge inflection point for consumers. They had no control over commodity prices. They already were reeling from losses in their 401k’s and the tenor around the globe was one of grief.

Enter in the President and his bold initiative to provide relief. He ran his campaign on renewable energy and wanted to help. He was advised, that due to the existing mechanism to leverage and harvest tax credits was frozen, by the world financial crisis, that we needed a better way to open the markets. So… the tax credit was turned into a rebate. This unlocked the industry to what it has become today. Other states, like New Jersey, followed Hawaii and California in catapulting renewable energy to the front of peoples minds. It also spoke to their desire for independence and emancipation from controls of utilities and actually gave them some control, in a time of uncertainty.

Today, we have made some tremendous strides in solar adoption and changes in the mindset of the people in the US and globally. We saw investments in renewables accelerate to a point where there was more money chasing fewer deals– and utilities took notice. If you went to a conference in the last 2-3 years, you saw the likes of all the large utilities in the US, wanting as many solar assets as they could find and own. It was quite the reversal of just a few short years earlier.

But it is cannibalizing their businesses. Why, you might think?

Most utilities are in a cost plus business model. They burn, oil, coal, natural gas etc., and mark it up and make a profit. Yes, it is much more deep and complicated, with rate basing power plants and increasing capital expenditures to plead with local public utility commissions for more. But this basic concept should be the focus at the moment, because if you are eroding your customer base and have stranded assets, like power plants, how will you make a profit and keep investors happy with their usual dividend checks?

Hence the pushback.

Hawaii has over 70,000 NEM customers for a customer base of over 400,000. That is a large chunk of customer defection and it impacts the utilities economics. We learned this more clearly during the recent hearings of the potential merger of Next Era with Hawaiian Electric.

Nevada also had expotential growth and with the pushback from Warren Buffett’s investment in their local utility and influence in their PUC, going retroactive and charging consumers more for solar was punitive.

High solar growth places have seen their share of seesawing events. California, New Jersey, and Massachusetts (to name a few) have experienced boom and bust cycles. It happens programmatically through incentive structures. This happened in Germany as well. When incentives are too rich, they cut back and the people react.

Now the latest inflection point is NEM.

If Hawaii and places like Nevada are the canaries in the coal mine, how do you position yourself to adapt and overcome this inevitable transition? There are a few simple things that you need to plan for today if you want to remain relevant in the solar business and create a plan for a world of post NEM today.

Understand that the meteoric growth is most likely over. Without NEM, the value proposition changes in many places and when consumers look at their ROI, they will see a longer payback.

In many instances, the local PUC’s will now allow utilities to impost monthly fees to be connected to the grid as they shift their programs to alleviate the fairness of cross subsidies and the haves versus the have not’s- people that have solar are being subsidized by the people that don’t have solar.

The future will revolve around energy management and storage with a non-firm energy source like PV, to smooth out the ebb and flow of production and consumption of your customers’ energy footprint. Utilities will more likely be interested in deploying these technologies. So whether it is load shedding, load shifting, storage, thermal mass and other promising tech, they need it and need it yesterday. This will also sit favorably with local PUC’s, as they know that the way utilities currently run their enterprises will have to change. Therefore, PUC’s are looking to you to help them create the new grid and infrastructure we sorely need.

Remember to diversify your service offerings to hedge the eventual utility elimination of NEM programs!

Many companies today in Hawaii are offering engineering services and energy management services. Some are identifying the main culprit, energy consumption, and trying to remove it from the equation. This is done by replacing old appliances, air conditioning systems, smart thermostats, LED lighting and finding other ways to create recurring revenue business models to offset the loss of PV installations they used to enjoy.

---

Are you in charge of the financial details behind a solar project? Enroll in the Solar Executive MBA Training for 6 technical, rigorous, and challenging weeks of instruction. 

The course gives you the financial modeling background and perspective often lacking in deal negotiations that will help you quickly and easily navigate the most complicated projects to find the quality projects you want to develop, own, and operate. The course is taught by two instructors: Keith Cronin, who built and sold his solar installation business to SunEdison, and Christopher Lord, a lawyer with extensive banking experience who works with solar companies to find viable projects and qualified investors.

About the Author, Keith Cronin – SunHedge LLC

Keith Cronin is an in-demand business consultant, speaker and founder of The Solar Business Blueprint, a life changing training program that assists business owners with the tools, resources and metrics needed to grow and manage their solar businesses. He has helped solar companies achieve their goals through his training, speeches, coaching sessions and products. Keith’s life changing message reaches people all over the US, Canada, Central and South America. Keith lives in Kailua Hawaii.

• Free Course: Commercial Solar PPAs 101
• Solar Executive MBA Training