Arkansas Net Metering Order Issued

Arkansas will maintain its net metering policy. The state will continue to require that owners of rooftop solar arrays and other distributed generation are compensated at the regular retail rate of electricity for their net excess generation. This 1:1 compensation applies to both residential and non-residential customers.

Background on Net Metering

Net metering is the process by which owners of small distributed generation, most often rooftop solar panels, sell their energy back to the grid when they don’t need it, and use power from the grid when they do need it. In this arrangement, customers only pay for their net use, that is, consumption minus production.

While this process sounds good in theory, compensating distributed generation owners at the full retail rate of their net energy has unintended negative impacts on the grid. The policy fails to take into account both the costs imposed on the grid by net metering, and the fact that peak demand, the point when the grid is using the most energy, occurs after the window during which solar panels are most productive.

So, solar owners take from the grid while demand is high, and put power back into it when demand is low. This forces natural gas plants and other backup generation to sit idle for much of the day, and then suddenly ramp up production more suddenly than they were designed to. This is not the way that such plants are designed to operate, and both the idling, and the ramp up impose costs in terms of efficiency, and wear.

Additionally, grid operators have to match demand up exactly with production, when that production comes from thousands of small arrays that are intermittent instead of from a much smaller group of dispatchable generators, matching supply with demand becomes that much harder.

Net Metering in Arkansas

On June 1st, the Arkansas Public Service Commission issued order No. 28 which implements the provisions of Act 464 of 2019.

It retains the 1:1 full retail credit, for customers without a demand component (those who are charged based on electricity consumed rather than on how in demand that energy is at the time), and for customers under 1 MW with a demand component. These customers will receive compensation of 10 cents/kilowatt-hour for their net generation until at least the end of 2022, when utilities “may request approval of an alternative NetMetering rate structure that is in the public interest and will not result in an unreasonable allocation of, or increase in, costs to other utility customers.”

A grid charge, to compensate for potential costs to the grid, which will initially be set at zero, will be added to the 1:1 compensation structure for demand-component customers whose net-metering facilities have a capacity between 1 MW and 20 MW. In order for the grid charge to reflect any potential cost-shifting, “a utility may request approval of a revised grid charge rate based upon evidence that an unreasonable cost shift to non-Net-Metering Customers is occurring or has already occurred on a cumulative basis”.

Facilities in operation prior to the date of the order and under Act 464 statutory limits will be grandfathered into the 1:1 full retail credit for 20 years, while those over the limit can be approved for up to 20 years of eligibility. Those facilities that come online after June 1, 2020, but before December 31, 2022 are automatically grandfathered in if they are under the Act 464 limits, and eligible for 20 years on a case by case basis if they are over the limit.

Conclusion

Ultimately, this decision will incentivize investment in new rooftop solar arrays and other distributed generation resources in the state. Emphasizing this style of generation has serious externalities for the grid.

Although it seems logical on its face, fully compensating distributed generators for their net generation at the full retail rate fails to take into account the broader grid damage that comes from utilizing them, and consdiering a grid charge on only larger generation does not go far enough to offset this cost. This net metering policy and others like it make it likely that more will be installed in the future, harming the overall health of the grid.

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