Optimal Solar Investment and Operation under Asymmetric Net Metering

TL;DR

This paper analyzes how asymmetric net metering tariffs influence prosumer investment and operation decisions, revealing a PV effect where pricing changes affect net demand and consumption through investment adjustments.

Contribution

It introduces a model that endogenizes PV investment under asymmetric NEM tariffs, highlighting how pricing reforms impact investment and prosumer behavior.

Findings

Optimal PV investment depends on prices and PV costs.

Asymmetric tariffs create a PV effect influencing net demand.

Higher import prices have limited impact on prosumer payments.

Abstract

We examine the joint investment and operational decisions of a prosumer, a customer who both consumes and generates electricity, under net energy metering (NEM) tariffs. Traditional NEM schemes provide temporally flat compensation at the retail price for net energy exports over a billing period. However, ongoing reforms in several U.S. states are introducing time-varying prices and asymmetric import/export compensation to better align incentives with grid costs. While prior studies treat PV capacity as exogenous and focus primarily on consumption behavior, this work endogenizes PV investment and derives the marginal value of solar capacity for a flexible prosumer under asymmetric NEM tariffs. We characterize optimal investment and show how optimal investment changes with prices and PV costs. Through this analysis, we identify a PV effect: changes in NEM pricing in one period can influence net demand and consumption in generating periods with unchanged prices through adjustments in optimal PV investment. The PV effect weakens the ability of higher import prices to increase prosumer payments, with direct implications for NEM reform. We validate our theoretical results in a case study using simulated household and tariff data derived from historical conditions in Massachusetts.