Starting in August, new solar projects installed through the net metering program in Vermont will see a lower rate of compensation for the power they provide to the grid.
Net metering is a program where utilities credit electric customers who install solar at their home or business for the power they produce from their solar panels.
That credit is intended to incentivize property owners to install rooftop solar, but also to reflect the value that the power they create offers other ratepayers.
It’s a system that has been highly effective at deploying small-scale solar in the state, but has sometimes drawn criticism for creating a dynamic where people with the means to finance solar panels are compensated by other ratepayers at above what regulators say is market value for the power they produce.
What that value is has long been a topic of debate. Last week, the Public Utility Commission released its updated net metering rates — a process that happens every two years.
This time, the credit net metering customers receive will decrease by roughly three-quarters of a cent per kWh. Regulators have been chipping away at the compensation new net metering projects receive since 2017.
Renewable developers say the cut will make financing small rooftop solar projects more challenging and slow the deployment of small-scale solar projects in Vermont. State regulators argue it will collectively save Vermont electric customers about $1 million a year in electricity rate costs.
“Net metering is the most expensive way to procure power to meet our Renewable Energy Standard,” said TJ Poor, director of utilities planning for the Department of Public Service, which proposed the cuts.
How net metering boosted solar on rooftops and parking lots
For more than a decade, Vermont has incentivized homeowners and businesses to build solar panels through the program by offering them a credit on their electric bill, at a premium. The idea was to require utilities to pay above market rate for this new, small-scale solar electricity, so that installing it would make financial sense for property owners.
The net metering program is the primary means of subsidizing new rooftop and small solar arrays in Vermont in places that have already been developed, like parking lots, garages and school buildings, but also homes. In recent years, it’s been the primary means of getting new solar generation built in the state — something the PUC has said it would like to see change.
The program boomed about a decade ago, and new installations have lagged in recent years as regulators have slowly decreased the subsidy for new net metering.
According to data presented by developers using numbers from the Department of Public Service, applications for new net metering projects have declined by more than 62% since the program’s peak in 2018, with annual installations falling by about a third over the same period.
Developers say lower compensation rates are to blame. But state regulators point out that Vermont is still installing enough new solar to meet its commitment to 75% renewable power by 2032.
Between 28 and 33 MW of new net metered solar were installed in the state from 2020 to 2023, keeping the state on track to meet its existing goal of getting roughly 10% of its power from new in-state renewables by 2032.
Renewable developers say net metering projects play a critical role in Vermont’s efforts to clean up its electric portfolio because they tend to be easier to build and deploy than larger solar arrays. The latter generally create cheaper power but can take longer to permit, and are more likely to be developed in natural areas rather than parking lots or on roofs.
Developers also argue that state regulators, who have long raised concerns about the cost of the net metering program, underestimate the value net metered power has provided to Vermont electric customers through reducing electricity demand and line losses as power travels across the grid.
Overpriced and inequitable, or effective and fair?
Vermont now has so much behind-the-meter solar power on its grid, that the state’s peak time of electricity consumption has shifted into the evenings. New England’s regional grid operator predicts other states in the region will soon follow suit.
When Vermont’s peak demand for electricity was at midday, new solar in the state was directly offsetting the state’s reliance on imported electricity, much of which comes from natural gas power plants in southern New England. That solar was directly lowering both carbon emissions and electric rates.
But as Vermont’s peak has migrated into the evenings, new net metering delivers less of a value in the market — in part because it doesn’t contribute much power at dinnertime, when Vermont is paying the most for imported alternatives.
And as the cost of raw materials for new solar continues to decline, regulators at the Department of Public Service, which is tasked with advocating for electric customers, say the solar power that new net metering provides in Vermont today is unnecessarily costly.
“Every incentive dollar that we put towards net metering ... that is above that market value is paid for by Vermonters."TJ Poor, Vermont Department of Public Service director of utilities
DPS argues that non-net-metering customers are paying for a growing gap between what net metered solar power costs and what other solar power costs on the open market.
The department has long argued that the current structure is inequitable, because other electricity customers are essentially paying people with net metering a premium for solar power that could come from a cheaper source — utility-built projects or those built without subsidies by developers.
Further, they say developers have falsely equated a potential decline in new net metered solar projects with a decline in new solar projects in Vermont. Regardless of net metering, the state’s Renewable Energy Standard would still require utilities to procure a certain amount of power from new in-state renewables.
“Every incentive dollar that we put towards net metering — and that’s what these bill credit rates are, because the price that we’re paying for net metering is above the value that utilities can otherwise purchase renewable energy for — every dollar that we spend that is above that market value is paid for by Vermonters and it’s paid for by Vermonters that don’t have access to net metering,” said Poor, with the department.
Poor says many of those people are renters or can’t finance a solar project, and likely have a higher energy burden already.
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Solar developers argue the department underestimates the value that net metered solar continues to provide to all ratepayers.
Additionally, they say net metering is essential to make small-scale solar projects in the built environment — roofs and other similar locations — cost-effective. Those types of installations are inherently more costly, in part because they require more labor.
Developers say larger projects like the ones the Department of Public Service and PUC say are more cost effective often see opposition from local communities. Those types of projects also carry environmental and land-use impacts that rooftop solar avoids.
The solar and wind industry trade group Renewable Energy Vermont asked the PUC to hold off on lowering rates for another two years, largely over concerns about how high interest rates are affecting project costs.
“The net metering cuts are falling faster than the technology price is falling, when you take into account the cost of financing the system,” said Jonathan Dowds, with REV.
He says that someone installing new rooftop solar in Vermont after the new rates go into effect on Aug. 1 will see several thousand dollars less in returns than someone installing prior to that date, over the course of the lifetime of their solar panels.
And while Poor, with the Department of Public Service, says people who don’t have net metering are paying about $40 million each year to people who do have net metering (a demographic that skews more affluent and white), Dowds says this this rate adjustment will yield just a $2 per year savings on the average Vermont household’s electricity bill.
Legal experts at Vermont Law School’s Institute for Energy and the Environment echoed many of Dowds' concerns, saying the 0.7 cents per kWh cut is going to have a much larger market impact than the PUC and administration say it will.
“In the end, it really is a 2-cent reduction [rather than three-quarters of a cent],” said law professor and staff attorney Jenny Carter. She says that’s after you account for the cost of inflation.
Poor, with the public service department, didn’t affirm Dowds' calculation, but said it’s the Scott administration’s view that if there’s a more cost-effective way to procure electricity, utilities should have to do it.
He says this is of heightened importance as Vermont looks to further decarbonize its electric portfolio, and suggested that if Vermont wants to see more solar in the built environment, we consider specific policy to support that.
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Six environmental groups condemned the PUC’s decision to cut rates — including Conservation Law Foundation, 350Vermont, Vermont Natural Resources Council, VPIRG and the Sierra Club.
“The Public Utility Commission’s cut to the net metering program is a step in the wrong direction if Vermont wants to encourage rooftop solar,” said Sierra Club spokesperson Robb Kidd.
Is there a more cost-effective path to more solar?
Lawmakers are preparing to try to override Gov. Phil Scott’s veto of a bill called H.289, that would take Vermont to 100% renewable electricity by 2035 and double the amount of power that utilities must purchase from new renewables built in Vermont.
Fifty-three House lawmakers signed a letter urging the PUC not to reduce compensation for net metering this year, saying, “Given the urgency of the climate crisis before us, we ask that you make it easier, not harder for Vermonters to access net-metered solar, particularly in the built environment like homes, parking lots, and commercial buildings.”
In its decision, the PUC cited concerns that if electricity rates increase too rapidly, it could stall the switch away from using fossil fuels for transportation and heat — the state’s two leading sources of climate warming greenhouse gas emissions.
Jenny Carter, with Vermont Law School, says the inequity baked into the cost shifting set up by net metering is a real environmental justice concern — one state regulators are right to point out.
“But what we do take issue with is we don’t see the PUC replacing [net metering], really doing anything about those concerns, other than making it more expensive for people to install solar,” she said.
Carter says this cost-saving approach the PUC and Scott administration are advocating for favors large solar arrays, rather than smaller projects. The latter don’t benefit from economies of scale, and installing solar in the built environment will always be more labor-intensive, and therefore cost-intensive, than doing it in an open space.
“To advance the PUC and the Department’s vision for solar in the future, which is large-scale solar — if that’s where we’re going, I think a lot of groundwork needs to be laid to get buy-in from Vermonters for that,” she said. “And we’re just not there yet.”
Dowds and Renewable Energy Vermont want to see Vermont regulators do a comprehensive analysis of the value that net metered solar provides before making efforts to slow the growth of net metering.
“Behind the meter generation provides some distinct advantages that are unique from what you would get from a standard offer style project, a larger project,” he said. “Both, we think, are very beneficial and have an important role to play in the climate crisis."
Unlike states like New Hampshire, Vermont doesn’t have a formal community solar program. New Hampshire’s program specifically connects electric customers who qualify for energy assistance with net metering credits from nearby arrays.
The Department of Public Service advocated to lawmakers this year for creating a community solar program in Vermont, and H.289 commissions a study of what a program could look like.
If the Renewable Energy Standard reform bill becomes law, it would eliminate group net metering in Vermont, which allows groups of electricity customers to invest collectively in net metered solar that doesn’t have to be installed right next to their residence or business.
And while some group net metering projects have earned criticism for driving up costs, Carter has worked within the net metering program to launch community-backed, group-owned solar projects. She says even before H.289, this latest cut in compensation for net metering has made it so they’re no longer financially viable.
“The PUC orders over the last half dozen years have been death by a thousand cuts,” she said.
Carter says if regulators want to see less new net metering, the state should consider alternative policy to support small-scale solar in the built environment.
And Vermont isn’t the only state to follow this trend. As programs to deploy rooftop solar across the country age, states like California have also cut subsidies. California cut compensation by roughly 30% in 2021 and saw a subsequent decline in new rooftop solar installations.
Regulators and developers say Vermont’s regulatory system and market are unique, so it’s difficult to compare its policies to a state like California’s. Further, this cut is nowhere near a 30% decline.
But experts like Carter warn that as Vermont looks to source more of its power from renewables built within its borders or in the region, the state would be wise to think about what sorts of projects it wants to incentivize — and what policy solutions will get there.
The new rates only affect new projects proposed after Aug. 1, 2024.
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