Net Metering Changes Can Spur VPP Adoption

Almost every state in the US has some form of net metering regulation that allows customers with rooftop solar PV systems to be compensated for sending excess electricity generation back into the grid. In recent years, however, several states have started reforming their regulations. Specifics in each state vary, but reforms usually include two major aspects: adding new monthly fees for solar customers and reducing the rate at which they are compensated for exported electricity. While unpopular in the solar industry, these changes can catalyze adoption of virtual power plants (VPPs) in these states.

Net Metering Has Undergone Changes in Popular Solar States

In December 2016, Arizona voted to institute net billing, where exported electricity is valued at a lower avoided cost rate calculated by each utility instead of the full retail rate. In 2017, Nevada adopted a tiered approach, where exported generation is credited at 95% of the retail rate and decreases by 7% as thresholds of rooftop solar capacity are reached until compensation is 75% of the retail rate. The California Public Utilities Commission (CPUC) is considering big changes to the state’s net metering policy. Among other things, the new regulations would move from using the retail rate for export compensation to a lower avoided cost rate and add a monthly grid participation charge based on the kilowatt size of the system. In February 2022, CPUC stated that it needed additional time to determine the effect of the proposed changes on the solar industry in the state before making a decision. These changes to net metering decrease the value of exported solar electricity and increase the payback period for system owners. In sunshine-rich states such as Arizona, Nevada, and California, changes to net metering policies can significantly impact rooftop solar adoption rates.  

VPPs Offer New Value Streams to Rooftop Solar Customers

Decreasing the value of exported solar electricity encourages homeowners to adopt behind-the-meter (BTM) energy storage to increase their use of home-generated electricity. Instead of sending excess electricity into the grid, it’s sent into the battery so it can be used when solar output isn’t sufficient to meet the home’s demand, effectively turning solar into a dispatchable resource. This battery use means that customers can further reduce the amount of electricity they consume from the grid, leading to additional bill savings. Pairing a BTM battery with rooftop solar also means that homeowners can have backup power if there are outages on the larger grid.

Mixed-asset VPPs offer an opportunity for customers with rooftop solar and BTM storage to be compensated for allowing a third-party provider to use a portion of the energy stored in their battery to balance the grid. In the US, there are cases where a VPP provider works directly with a utility to deploy a VPP in their territory. The VPP provider is paid by the utility to dispatch the solar plus storage portfolio when required for grid balancing, and some of that revenue gets passed on to the asset owners. Depending on regional wholesale market rules for the resources used in the VPP, providers can sometimes bid VPP capacity directly into the wholesale market when not serving a utility, leading to more revenue for them and customers. In all instances, the VPP provider ensures that the customer’s battery has enough capacity to power their home when needed. VPPs offer customers added resilience and the opportunity to reduce their utility bill while earning additional revenue, regardless of their state’s net metering regulations.