A proposed agreement between Duke Energy (NYSE:DUK) and solar advocates that would significantly lower the net metering rate residential rooftop solar owners would receive for their excess power was hailed on Tuesday as a forward-looking compromise that would ensure ongoing growth for residential solar in North Carolina.

The agreement, filed with the North Carolina Utilities Commission on Monday, would change the compensation rate, beginning Jan. 1, 2023, from the full retail rate solar owners now receive to a lower “avoided cost” rate, according to Daniel Brookshire, regulatory and policy manager for the North Carolina Sustainable Energy Association (NCSEA).

“I don’t think there’s any getting around that it’s a small dip” in compensation for new solar customers, Brookshire said. But the agreement also includes new time-of-use rates and other incentives that could motivate customers to add storage or other smart energy management devices to their homes, he said. Thus, storage owners could charge their batteries during off-peak hours and use the power to avoid paying higher peak rates.

Over the long term, Brookshire said, customers on the old or new net metering rates would come out about even.

He and other stakeholders in the process, which included a series of meetings with Duke earlier this year, said they were all keenly aware of the need to avoid a long, adversarial process for reforming net metering, as is occurring now in California. The net metering agreement Duke reached with solar advocates in South Carolina in 2020 provided the framework for the nearly identical North Carolina agreement, said Lon Huber, the utility’s vice president of strategic solutions.

“We all recognize that really, the system is changing. There’s going to be a substantial amount of more renewables on the grid in the coming years,” Huber said in a phone interview with NetZero Insider. “We know that the resources at the grid edge have to help bring reliability and lower costs to the overall system. [They become] a pillar of that future system. And so, yes, at this point in time, we’re sort of right-sizing that compensation.”

The new net metering rates would apply to solar customers in both of Duke’s North Carolina utilities — Duke Energy Progress (DEP) and Duke Energy Carolinas (DEC). Duke is hoping to get an expedited approval from the NCUC to give it the time it needs to set up and educate customers on the new rates, Huber said.

Duke’s current residential retail rate, as listed on the company’s website, is $0.093/kWh; the avoided cost rate based on rates paid to larger, commercial projects would be about $0.03/kWh. According to the agreement, existing solar owners would be able to keep receiving the retail rate through 2027, after which they would be able to choose between retail or TOU rates for compensation.

The agreement also offers new solar owners generous upfront rebates — $0.39 per watt — provided they also install smart thermostats and enroll in Duke’s demand response program for 25 years. To qualify for the incentive, homeowners would also need to use electricity to power their home space and water heating, cooking and clothes drying.

Other components of the proposed rates include:

• A minimum bill for solar owners of $28 for DEP customers and $22 for DEC customers.
• Non-bypassable charges designed to recover all costs related to demand-side management and energy efficiency programs, as well as storm cost recovery and cyber security.
• A grid access fee for systems of 15 kW or more, which would likely have little impact on residential customers. The average rooftop array in North Carolina is around 6-7 kW, according to Brookshire.

It’s Complicated

The concept behind net metering — that residential solar owners should be compensated for the excess power they put back on the grid — emerged in the early days of the rooftop solar industry. At the time, system costs were higher and the payback period on a system was longer. Net metering at retail rates was seen as an added incentive to help homeowners offset the costs of their systems.

But as solar prices dropped — and electric rates rose — utilities began to argue for revision of retail rate net metering, which they said resulted in system costs being shifted from solar customers to non-solar owners. Lower compensation and TOU rates, along with non-bypassable charges, have been framed as ways to ensure solar owners pay their fair share of system costs while receiving compensation that mirrors the rates paid for larger, commercial installations.

For solar advocates, on the other hand, retail rate net metering has been seen as critical for ensuring a competitive return on investment for retail customers.

The original impetus for the North Carolina agreement was HB 589, passed in 2017, which mandated that the NCUC revise net metering rates by 2027. If approved, the agreement will ensure a revision well before that date.

The agreement’s complicated solution combines net metering with the TOU rates. For example, the electricity produced by a rooftop installation during off-peak hours can only be applied to lower the customer’s off-peak rates, while on-peak generation can only be applied to on-peak consumption. And in North Carolina, on-peak hours — 6-9 p.m. in the summer and 6-9 a.m. in the winter — correspond to times of low solar production.

Duke’s TOU rates may range from an on-peak high of $0.19/kWh to a super-off-peak low of $0.06/kWh, according to the company website.

Huber acknowledges the complexity, but he said, “The grid is getting a lot more complicated, and so if you want to encourage new types of technologies to solve the grid challenges, you can’t mask the price signals for simplicity’s sake.”

Like Brookshire, he sees opportunities for customers to benefit through changing power consumption patterns and adding storage, smart thermostats and other energy management technology to their homes.

“If the customer engages in grid-beneficial behavior, there are also more rewards,” he said. “If they control that peak usage, now they can get some savings from responding to the TOU rates. If they charge their vehicle at the right times, they’re helping soak up excess [renewable] generation, getting a discount on that. So there are more opportunities to grab benefits.”

Huber also described the TOU rates as volumetric — based on how much power a customer uses — and easy to model for installers. As part of the agreement, Duke has committed to setting up an online calculator to help customers estimate savings under the new rates.

Brian Lips, senior project manager for the North Carolina Clean Energy Technology Center, which was not a stakeholder in the agreement, said that the result, while complicated, follows other net metering reform efforts across the country. The importance of the model is in the process, in which “all the relevant parties get together and actually reach an agreement and come to the [NCUC] with that agreement,” he said. “I think the commission certainly appreciates that. So, just in terms of coalition building and coming to an agreement, I think that’s a pretty welcome process.”

Other Reactions

NCSEA is one of several solar organizations signing off on the agreement, including the Southern Alliance for Clean Energy, the Southern Environmental Law Center (SELC) and Vote Solar. Under the agreement, all the organizations committed to publicly support the compromise, issuing a joint press release with statements of endorsement on Tuesday.

Bryan Jacob, solar program manager with the Southern Alliance, said the agreement balanced the need for customers to be fairly compensated for the services they provide to the grid with rates that are “designed to align customer behavior with controlling utility costs when possible.”

“This agreement recognizes the important role that solar can play in keeping the electric grid strong and resilient,” said David Neal, senior attorney at SELC, pointing to the upfront solar incentives as a spur for more residential solar deployment.

Lindsey Hallock, southeast regional director of Vote Solar, highlighted another provision in the agreement that commits Duke to exploring options for a low-income solar program. Bringing the voices of low-income customers to the table will “remove prohibitive cost barriers and unlock the benefits of solar for more North Carolinians,” Hallock said.