Solar Net Metering Policies in Kentucky

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Kentucky’s residential solar industry has benefited greatly from legislation created in 2008 to expand the state’s net metering laws. This requires all utilities in Kentucky (with the exception of TVA utilities) to provide homeowners’ who have solar power with credit on their monthly utility bill if their panels are producing more power than their home consumes during that month.

Net metering exists in almost all states and is a very popular incentive for residential solar power. In fact, net metering is essential for residential solar to make financial sense in many areas since the majority of homes with solar panels are still tied to the utility grid and are not storing the energy their panels produce.

Why is net metering important?

Note: In the 2019 legislative session, Kentucky passed a bill (S.B. 100) that makes several changes to net metering.  The bill goes into effect on January 1, 2020. It will increase the maximum system size to 45 kW and will require the state Public Service Commission to set crediting structures for each utility based on dollar value rather than kWh netting. Utilities will be entitled to implement rates to cover all costs necessary to serve eligible customers, including but not limited to fixed or demand-based costs. Customers taking service under existing net metering rules (including customers that begin service before the new crediting rules for each utility are developed) will be grandfathered in for 25 years.

(Source: DSIRE)

Currently, Kentucky’s net metering law states that utilities must offer a net metering incentive to customers who have a residential solar installation up to 30 kW in size. This essentially includes all homes with solar, since the national average system size is about 5 kW. The utility must supply the customer with a bi-directional meter, which will track the energy consumed by the home (energy coming in from the grid) and the energy produced by the home (excess energy being contributed to the grid). In Kentucky, the credits for excess energy produced by solar panels can be carried over from each bill indefinitely, however they cannot be transferred to another customer/residence. Any excess energy is credited to the customer at the current retail rate, averaging 9 to 11 cents/kWh. Additionally, the customer retains ownership of any Renewable Energy Credits (RECs) associated with the system.

There is one restriction on the current net metering laws for Kentucky. It states that “If the cumulative generating capacity of net-metered systems reaches 1.0% of a utility’s single-hour peak load during the previous year, the PSC [Public Service Commission] may limit the utility’s obligation to offer net metering.” This loophole was intentionally created to allow utilities to stop offering net metering when electricity generated by solar power reaches 1% of the annual peak demand. Although this policy may seem counter-intuitive, Kentucky is currently only producing 0.05% of their electricity from solar power, so it’s unlikely this restriction will come into play anytime soon. It is also important to note that a residential solar system cannot be sized to be significantly larger than the home’s average energy demand. This means that you can’t install a huge solar panel array (that exceeds your needs) just so you can produce a lot of extra electricity and get credits from the utility company.

Proposal to end net metering in Kentucky

Last year, Kentucky’s legislature defeated a bill that would have imposed additional costs on homeowners with solar panels, in an effort to “relieve non-solar customers from a ‘cost shift’ they say is the result of solar users not paying for grid upkeep.”

In reality, residential solar installations are a benefit to the utility and non-solar customers. By supplying the grid with excess electricity from home solar systems, these homeowners are providing a necessary resource to their neighbors and the utility, while maintaining the integrity of the system and ensuring it’s always in working order. This takes some of the pressure off of the utility because they are reaping the reward of electricity being fed into the grid, but it’s not being produced at one of their plants.

The utility does not need to maintain the equipment, fix anything if it breaks or pay employees to do either of those tasks – there are no overhead expenses. Essentially, the utility is saving money by allowing homeowners to supply the grid with excess electricity, which in turn should result in lower electricity prices for all utility customers.

This argument that customers with solar power are not paying their fair share to maintain the grid has been frequently used by utilities that want to change the net metering laws. However, there is no evidence that this additional cost to non-solar customers exists. According to a national study conducted by the Lawrence Berkeley National Lab, as long as residential solar power generation accounts for less than 10% of the total energy produced by a utility, there is no “cost shift” that will affect non-solar customers.

While this bill was defeated last year, there is a new and controversial net metering bill, which has recently been sent to the House of Representatives for debate. Arguably even more significant and frightening to the future of solar in Kentucky, House Bill (HB) 227 would end net metering for customers with new solar installations beginning July 15th.  

Additionally, the bill seeks to slash net metering compensation rates for current customers, reducing the value of net metering credits to just 3 cents/kWh (from their current 9 to 11 cents/kWh).

HB 227 goes on to state that it will prevent current customers with solar (who will be grandfathered into net metering until July 15, 2043) from transferring that net metering mechanism to a buyer if they decide to sell their home.

This means that once a house with solar is sold; the new owner will not have the right to any net metering credits on the system. Again, supporters of this new bill are using the argument that it’s necessary to make up for the “cost-shift” to non-solar customers.

What this means for solar in Kentucky

If this new net metering bill were to pass, it would significantly alter the future of solar power in Kentucky. Although current solar panel owners would be allowed to continue receiving credits for excess energy generation, it will be at a much lower rate.

Currently, homes with solar panels can be sold at a premium compared to the same house without solar, however, this new legislation will likely impact that as well.

Over the last several years, Kentucky’s solar market has grown, thanks in large part to the implementation of net metering standards. In the event that HB 227 is passed, net metering will be drastically diminished and ultimately eliminated. The market will be heavily impacted, including the loss of many local businesses and jobs. Making such a significant policy change to an emerging and growing industry should not be taken lightly. While it is unclear whether HB 227 will pass in Kentucky’s legislature, it’s important for residents to be aware of the potential changes and how they may affect all utility customers.

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