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Fitch sounds warning on net metering


August 5, 2013

With distributed generation (particularly rooftop solar panels) expected "to grow substantially," Fitch Ratings cautioned that net metering incentives could cause an "overbuild" of systems. "We consider credits for excess supply and caps on total net metering production with higher fixed demand charges as essential components of rate design as net metering programs grow," the credit rating company said in a release entitled, "Solar panels cast shadow on U.S. rate design."

Integrating renewable and efficiency energy policies "into an equitable customer rate design remains among the largest challenges facing the U.S. utility industry," Fitch said.

Two recent decisions by state regulators highlight the growing controversy, Fitch said. Recognizing the potential for overbuild of solar systems, the Idaho Public Utilities Commission rejected Idaho Power's proposal to raise service charges for residential and business net metering customers to more fully reflect their use of the company's distribution system, Fitch said. The Idaho commission instead provided for credits for any excess generation rather than cash payments to the net metering customer under a feed-in-tariff. The Louisiana Public Service Commission voted against a similar proposal by Entergy, the credit agency said.

A similar net metering that "led to the destabilization of the power markets in Spain in late 2008 is a cautionary tale," Fitch said. "It was directly tied to incentives given to owners of small solar generation systems under feed-in-tariffs that were introduced in 2004."
 

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