The NEM Stalemate August 29, 2013 | By John Sterling In Samuel Beckett’s seminal play Waiting for Godot, two vagabonds named Estragon and Vladimir spend the better part of two days waiting – somewhat impatiently – for the arrival of a mysterious man named Godot. They generate verbal diversions to pass the time, vacillating between periods of heated discussion and long stretches of quiet deliberation. At many points, Estragon forgets where they are and what they are waiting for, only to be reminded by Vladimir that they simply wait for Godot. The play ends, unfortunately enough for the two, with another day passing that seems a surreal replication of the previous day, which was much like the day before that, all without ever achieving fulfillment in the form of the never-present Godot. It strikes me that the debate surrounding Net Energy Metering (NEM) has reached much the same impasse that faced Vladimir and Estragon. In multiple jurisdictions across the country, NEM has become a topic hotly debated by utilities and solar stakeholders, and in many cases it seems like resolution is not only difficult but potentially nonexistent. Part of the issue today is that all parties are hoping to see a solution arise that meets everyone’s needs from day one, and that the current NEM framework, to the extent required, can be switched over to a new paradigm overnight. If we are waiting for that solution, we will likely get no further than Vladimir and Estragon. Rather than searching for a one-size-fits-all magic bullet, all parties should take a longer view and look for a solar transaction that combines near-term needs with long-term sustainability. What does that look like structurally? Essentially, it requires a defined transition plan to ensure that the interests of utilities and the solar industry are progressively aligned and, ultimately, individually and mutually sustainable. What does that mean in plain terms? The first step is to recognize that any changes to the current NEM transaction will have a direct, immediate, and likely negative impact on the economic value proposition for solar adoption, so a defined transition must be designed to moderate that impact. Whether through the imposition of a new cost (in the form of demand charges or standby fees), or a move away from retail rate compensation (via wholesale market-based bill credits or the Value of Solar model), modifications to the status quo often have been proposed as changes that must occur immediately. We need to introduce any change with more deliberation. Abrupt changes in how distributed solar transactions are compensated have drawn the ire of customers, interest groups, and the solar electric power industry because there is little time afforded to consider how business models can be transformed to survive in the new regime. To counterbalance that concern, utilities may want to look at a staged approach to implementing their proposals, which allows for the market to adjust how deals are structured and also recognizes the expected decline in solar installed costs that should persist for the next several years. A phased-in transition period can consist of the introduction (or reintroduction for some utilities) of a transparent incentive (either in $/watt or $/kWh) with an explicit step-down schedule, or, alternatively, a ramp-up over several years of any proposed demand or standby charge. In either case, the goal would be to: 1. Envision a future point in time where utilities, industry participants, and solar electric customers are in concord with the value solar provides and how it is compensated; and, 2. Outline a clear and transparent path forward that supports the needs of the solar industry and consumers in the near-term while providing a long-term solution utilities can accept. Elevating the conversation away from an immediate impact that causes market disturbances and toward one that sustains today’s market momentum while aligning with a long-term market transformation will enable all parties involved to break the stalemate and allow a sustainable solution to occur. If we don’t change the debate and attempt to find realistic common ground, we may all become stuck like Vladimir and Estragon, waiting in vain for our proverbial Godot to arrive. Share Share on TwitterShare on FacebookShare on LinkedIn About the Author John Sterling Senior Director, Advisory Services, SEPA John Sterling joined SEPA as Senior Director of Research and Advisory Services in March 2013. In this role, John is responsible for helping SEPA members develop strategic and operational plans for programs, products and services that will drive the integration of solar resources into utility resource portfolios and business operations. Prior to joining SEPA, John spent 11 years with Arizona Public Service. During this time, John focused on utility regulation, power procurement, demand response and smart grid program development and long-term resource planning issues. John has both a Bachelor of Science in Finance and an MBA from Arizona State University.