Utility Regulatory and Business Model Reforms for Addressing the Financial Impacts of Distributed Solar on Utilities

Net-energy metering (NEM) with volumetric retail electricity pricing has been a lynchpin to the growth of distributed photovoltaics (DPV). Although DPV penetration is still well below 1% of retail sales in all but a few states, concerns about possible impacts on utility financial performance and on non-solar customers have motivated a wide range of reforms. This study highlights some of the challenges and opportunities for the DPV market arising from these reforms. It shows, for example, that the immediate elimination of NEM in all states could reduce residential DPV deployment by roughly 30% over the long-run, while universal availability of NEM would increase residential deployment by roughly 40%, relative to current state NEM policies (see figure below). In contrast, other strategies—facilitating higher value forms of DPV deployment, broadening customer access to solar, and aligning utility earnings and profits with DPV adoption—may also ameliorate concerns about the utility financial impacts, but without severely constraining DPV market growth.