On Net Energy Metering X: Optimal Prosumer Decisions, Social Welfare, and Cross-Subsidies

Abstract

We introduce NEM X, an inclusive retail tariff model that captures features of existing net energy metering (NEM) policies. It is shown that the optimal prosumer decision under NEM X obeys by a two-threshold policy. The threshold policy yields three household consumption modes: (a) the net-consuming mode where the prosumer consumes more than its behind-the-meter distributed energy resource (DER) production when the DER production is below a predetermined lower threshold, (b) the net-producing mode where the prosumer consumes less than its DER production when the DER production is above a predetermined upper threshold, and (c) the net-zero energy mode where the prosumer’s consumption matches its DER generation when its DER production is between the lower and upper thresholds. Both the thresholds are obtained in closed-form and computed apriori. Next, we analyze the regulator’s rate-setting process that determines NEM X parameters such as retail/sell rates, fixed charges, and price differentials in time-of-use tariffs’ on and off-peak periods. A stochastic Ramsey pricing program that maximizes social welfare subject to the revenue break-even constraint for the regulated utility is formulated. Performance of several NEM X policies is evaluated using real and synthetic data to illuminate impacts of NEM policy designs on social welfare, cross-subsidies of prosumers by consumers, and payback time of DER investments that affect long-run DER adoptions.