Net Metering Cross Subsidy

Net metering pays solar customers the full retail electricity rate for every kilowatt-hour they export. The problem: retail rates bundle the actual cost of electricity with the cost of maintaining poles, wires, and transformers. That infrastructure is a fixed cost. It does not shrink because a customer installs panels.

When solar customers zero out their bills, they stop contributing to infrastructure costs that do not disappear. The utility spreads them across remaining ratepayers through higher base rates. Non-solar customers, who tend to be renters and lower-income households, absorb the difference. The effect concentrates where rooftop penetration is highest: California's utility ratepayer advocate puts the state's annual cost shift at $8.5 billion by the end of 2024, up from $3.4 billion in 2021. At the lower penetrations typical elsewhere, national lab studies still find only small rate effects, which is why the fight is fiercest in high-solar states.

A utility collects $100/month from a customer: $40 for generation, $60 for grid infrastructure. The customer installs solar and nets down to a $5 bill. But the grid still cost $60/month to serve that address.

Where does the $60 go?

It gets spread across all other customers as a rate increase. A non-solar renter in the same service territory now pays more each month so the solar homeowner can nearly eliminate their bill. That arithmetic, multiplied across 1.5 million solar rooftops, is why California revised its rules (NEM 3.0) in 2023.

This is not an argument against rooftop solar. It is an argument about pricing. Most economists favor crediting exports at the avoided-cost rate (what the utility would have paid wholesale). Most solar advocates favor the retail rate. The gap between those positions is a multi-billion-dollar annual transfer from lower-income to higher-income households.

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