by Lisa Wood, Vice President, The Edison Foundation, and Executive Director, IEE

In a world of around-the-clock news feeds, various social media platforms, smart phones, tablets, and a host of other electronic devices that keep us constantly connected, it is critical that we have a reliable supply of electricity to power our ever-growing digital “addiction.” Our economy depends upon electricity and a resilient electric grid to power our industries and our businesses and to enable communications and other services. Yet, the electric grid—an essential part of our national infrastructure—largely remains below our collective radar, precisely because it delivers on-demand electricity with just the flip of a switch.

The National Academy of Engineering identified the electric grid as the greatest engineering achievement of the 20th century. The grid connects thousands of electricity generators with millions of electricity users. It makes sure the power delivered is safe, reliable, and adequate—operating synchronously and in conformance with many critical technical requirements. Today’s modern electric superhighway—equipped with tele-communications and information technologies—is also becoming more resilient to storms, cyber and physical attacks, and other threats. New technologies have enabled more change over the past 10 years than in the previous 100 years.


Figure 1. DG customer electricity use over 24-hour period. Source: IEE

The electric power industry is transforming the grid through innovation and a commitment to significant capital investment. Investor-owned utilities have invested $670 billion in their systems over the past 10 years. Latest projections show that the industry’s capital expenditures last year reached a record $90.5 billion; expenditures are projected to be $95.2 billion for 2013, with 38% of that investment going into transmission and distribution.1 These investments in a robust power grid are necessary to ensure that all Americans continue to have access to safe, reliable, and increasingly clean electricity.

DG Customers and the Grid

Today, across the country, there is growing customer interest in using rooftop solar panels and other small-scale, on-site power sources known as distributed generation (DG). DG systems are located at or near customers’ homes or businesses. Some common examples include rooftop solar panels, energy storage devices, fuel cells, microturbines, small wind turbines, and combined heat and power systems.

DG systems allow customers—residential and small commercial customers—to generate some or most of their own electricity. But, still, the vast majority of these customers continue to utilize grid services every day, around the clock. In fact, the electric power industry has made investments and enhancements to the grid to accommodate rooftop solar panels and other DG systems.

Contrary to some claims, DG customers are not “free from the grid.” They simply use the grid differently and in more sophisticated ways than non-DG customers. In fact, DG customers continue to use the grid 24 hours a day, 7 days a week.2

For example, unlike customers who use the grid only to buy power, customers with rooftop solar systems use the grid both to buy power during times when their systems are not producing enough electricity to meet their needs and to sell power back to the grid when their systems are producing more electricity than is needed.

Figure 1 illustrates a DG customer’s electricity use over a 24-hour period. The customer’s own power generation, the power it buys from the utility, and the power it sells to the grid interact constantly over this time frame.

Figure 1 also demonstrates the energy usage pattern of a typical DG customer. During most hours of the day when the customer’s solar panels are not generating enough power, it is buying power from the grid. During a few hours of the day, the DG customer is selling power back to the grid. Solar power also can appear or disappear rapidly over the course of a day, requiring the grid to provide quick-start generation resources and reserves to assure continued reliable delivery of electricity to that DG customer.

Indeed, a typical residential or small commercial customer with rooftop solar panels uses the grid throughout the day. DG customers continue to depend on the grid to maintain a stable frequency of power, to ensure that voltage variations do not impact the quality of power they receive, and to buy and sell power. Essentially, the grid helps to maintain a reliable, stable, and safe supply of electricity to DG customers.

That means, even if a customer’s total on-site energy production happens to equal consumption over the course of a monthly billing cycle, the customer is still using the grid every day of that month.

The Need to Update Net Metering Policies

To encourage the introduction of DG systems when they first came to market years ago, many states approved a billing system called net metering. While net metering policies vary by state, customers with rooftop solar or other DG systems usually are credited at the full retail electric rate for any excess electricity they generate and sell to their local electric company via the grid. Electric companies are required to buy this power, even though it typically would cost less to produce the electricity themselves or to buy the power on the wholesale market, at wholesale prices, from other electricity providers.

Under net metering, customers do not pay for the costs of grid services and equipment—the poles, wires, meters, and other infrastructure that make the electric grid safe, available, and reliable. Instead, the costs of grid services are shifted to those customers without rooftop solar. These fixed grid costs are substantial and can comprise about 55% of a typical monthly residential electric bill.3 Shifting these costs from DG to non-DG customers is simply not fair.

A recent draft study released by the California Public Utilities Commission projects about $1 billion in cost shifting per year in 2020 due to net metering in California.4 This places an unfair burden on customers without DG systems and means non-DG customers are paying for DG customers to use the grid. It is time to end this cost shifting.

International experience also shows the economic impact of overly generous subsidies and provides important lessons for U.S. policymakers. In Germany, for example, renewable mandates and feed-in tariff (FIT) programs, which are incentives designed to promote the deployment of renewable energy, triggered the rapid deployment of renewable energy sources and caused electricity prices to skyrocket. German customers now face the highest electricity costs in Europe and pay an average of 300% more for electricity than Americans.5

DG customers derive benefits from the grid, and net metering policies should be updated so that these customers pay for grid services that they use. This will ensure that all customers have safe and reliable electricity and electric rates that are fair and affordable.

Ensuring a Robust and Reliable Electric Grid

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As the use of rooftop solar and other DG systems increases, so, too, does the two-way flow of power on the electric distribution system. To ensure the continued safe and reli-able delivery of electricity to all customers, the electric power grid increasingly must have the capability to safely manage and control the flow of two-way power and to integrate the fluctuating levels of power created by variable resources such as wind and solar.

It is critical for our nation to have safe and reliable electricity at an affordable price, and solar power and other on-site power sources surely will play a role in our energy future. However, the grid is, and will remain, the backbone of our nation’s electric power system. And it’s only fair that everyone who uses the grid should help pay to maintain it and keep it operating reliably at all times.

Lisa Wood is Vice President of The Edison Foundation and Executive Director of IEE, an Institute of The Edison Foundation focused on Innovation and Efficiency in Electricity. Wood is also an Adjunct Professor at Georgetown University and is a Fellow in the Energy Security Initiative at the Brookings Institution.

IEE is an Institute of The Edison Foundation focused on advancing the adoption of innovative and efficient technologies among electric utilities and their technology partners that will transform the power grid. IEE promotes the sharing of information, ideas, and experiences among regulators, policymakers, technology companies, thought leaders, and the electric power industry. IEE also identifies policies that support the business case for adoption of cost-effective technologies. IEE’s members are committed to an affordable, reliable, secure, and clean energy future. To learn more, visit www.edisonfoundation.net/iee.

  • 1 Sources: Edison Electric Institute Finance Department, company reports, SNL Financial.
  • 2 Lisa Wood and Robert Borlick, Value of the Grid to DG Customers, updated October 2013.
  • 3 Ibid.
  • 4 California Net Energy Metering (NEM) Draft Cost-Effectiveness Evaluation, Prepared by California Public Utilities Commission Energy Division, September 26, 2013.
  • 5 “Germany’s Energy Poverty: How Electricity Became a Luxury Good,” Der Spiegel, September 4, 2013.