A few days ago a company approached us about installing solar panels on our roof. The idea is the company would supply the panels and we would pay for the electricity they produced. Both the production from the panels and the demand from houshold use are variable, though, and probably don't match up. While one could solve this with batteries, those are inefficient and expensive, so instead you keep your house attached to the electrical grid. When you produce more power than you use you're sending power off to other homes; when you produce less you draw from the grid. In MA and other states with "net metering" you run the meter backwards when you send power to the grid, which means you only pay for the difference between what you generate and what you use. [1]

While at first this seems pretty fair, pay for what you use, it's actually kind of misleading. Power is generally bought at the consumer level with a constant cost per kilowatt hours because that's what's easy to measure, but the actual costs involved vary all over the place. A kWh drawn at a time when there's low demand is relatively cheap, served by base load plants that operating at constant output and maximum efficiency, while a kWh drawn at a time of high demand is more expensive and served by flexible plants that are turned up and down to match demand. The price you pay the power company is based on you having the option to draw an additional kWh any time you want to, even if it's really inconvenient and expensive for them to provide it. This same dynamic makes the energy generated by intermittent sources like residential wind and solar less helpful than it could be. You have the option to push energy into the grid, and you're going to get paid the same whether it's a time when the grid really could use the extra energy or not.

(This is part of why it makes sense for this company to approach us about putting panels on our house instead of them putting panels in a field somewhere. In both cases the local power company pays for the generated electricity, but they'd pay for intermittent solar from a plant at a lowish negotiated rate while with residential solar they're required to pay the same higher rates they charge consumers. This is enough to make up for the inefficiency of small-scale generation and having to drive to people's houses to maintain the systems.)

Being free to use or not use, produce or not produce, makes things easier for the residential consumer, but someone needs to pay for the plants and infrastructure to match supply to demand. With net metering that gets shifted to the people who don't put solar panels on their houses, as a form of green energy subsidy. As more and more people take advantage of net metering, however, I don't see how this can continue. The power company will have to raise rates on the remaining consumers to pay for their infrastructure and at those higher rates even more people will switch to solar. Everyone is still dependent on the grid to balance usage, however, so instead of leading us to a happy green world of distributed generation there are still inefficient gas-fired turbines making up for times when demand exceeds solar supply and someone has to pay for them.

So we decided not to sign up to get solar panels on our house. We would have been entering into a 20-year contract to buy the electricity produced by the panels they would put on our house, and we would only come out ahead if net metering continues in its current form.

(One way constant-rate net metering could be replaced would be with smart meters that enable the utility to charge for power based on its marginal cost.)

[1] With our provider, National Grid, if you produce more than you use you can build up statement credits but you can't actually get cash out.