North Carolina clean energy advocates are keeping a watchful eye on a battle over net metering underway in South Carolina.

The Carolinas share a major utility in Duke Energy, the nation’s second largest, which is why observers say the debate in the Palmetto State could foreshadow a fight over rooftop solar coming across the state line.

“If I were a customer in any Duke territory that had net metering, I would be watching South Carolina very closely,” said South Carolina-based Tyson Grinstead, public policy manager for the rooftop solar company Sunrun.

Thirty-seven states including the Carolinas require retail net metering, in which utilities must buy excess electricity from customers’ solar panels at retail rates. Many of these state policies have been in place for decades, but in recent years they’ve become targets for regulated utilities facing flatlining electricity sales.

In South Carolina, a 2014 law requires Duke Energy and South Carolina Electric & Gas to offer retail net metering until rooftop solar is equal to 2 percent of their electricity sales — a cap they’re fast approaching. Solar advocates are pushing the legislature to remove or increase the cap. Duke opposes such a move unless it can pay solar panel owners a lower rate.

Who prevails will depend in part on how much lawmakers decide to value the electrons created by rooftop solar. “It’s still very contentious,” said Bret Sowers, who chairs the South Carolina Solar Business Alliance. “What’s been at debate here is what is the net export electricity worth.”

The costs and benefits of rooftop solar

Most people who go solar want to save money on their utility bills and help the environment, not make a profit from excess energy generation. The average residential rooftop solar system in the country produces just over 7,000 kilowatt hours of electricity per year, about a third less than the annual electricity consumption of the average household.

Yet because solar panels generate more energy than needed at times — like early afternoons, when many homes are empty — solar owners usually send excess electrons to the grid at some point during the day, even if their overall energy production is less than their consumption.

This extra solar energy has multiple benefits, experts say. It’s most abundant in the middle of the day when demand is high, reducing the need for utilities to fire up inefficient gas plants. It reduces environmental compliance costs by displacing dirtier energy sources.

Plus, “there are additional benefits that rooftop solar provides that utility scale [solar] may not necessarily provide,” said Autumn Proudlove, a senior policy researcher at the North Carolina Clean Energy Technology Center.

That’s because rooftop solar is distributed, reducing loss of electrons over long transmission lines from centralized power plants. Distributed solar also makes the grid less susceptible to widespread outages than if it were dependent on only one or two large generation plants.

Despite these benefits, the national trade association of electric utilities warns that the “distribution system must be able to safely manage and control the flow of two-way power. At the same time, electric utilities face integration challenges associated with the fluctuating levels of power created by variable…solar [distributed generation] systems.”

Utilities also contend that net metering causes “cost-shifting” to non-solar customers, since solar customers purchase fewer electrons than other ratepayers, and pay less for maintaining the poles, wires, and other fixed costs of the grid.

But according to a Lawrence Berkeley National Laboratory study, rooftop solar isn’t yet widespread enough to require utilities to make major upgrades to the grid or hike prices for all customers. A significant impact on retail rates could be triggered if rooftop solar made up 10 percent of retail sales, the analysis concluded. The national average is less than half a percent.

Solar ‘subsidy’ showdown in South Carolina

Several utilities commissions have found rooftop panels provide net benefits to the grid. An analysis of more than a dozen recent studies found the average value of solar was over 16 cents per kilowatt hour, compared to the average retail rate of 13 cents. Maine’s public utility commission determined rooftop solar was worth a whopping 33 cents.

Other studies, most conducted by utilities themselves, have pegged the value closer to ‘avoided cost’ — a wholesale rate set by regulators often tied to the expense of running an existing fossil gas plant. Duke and other utilities have seized on these latter analyses to call retail net metering a subsidy.

Ryan Mosier, a Duke spokesman in South Carolina, called a bill that would remove the net metering cap “government mandated solar welfare, plain and simple,” in a tweet this spring. A Duke Energy spokesman in Charlotte, North Carolina, meanwhile, created a 30-second video criticizing the legislation and dubbing it the “solar subsidy bill.”

The claim riled solar advocates, who said that in 2014 it was the utilities who insisted non-solar customers pay a flat $1 fee to pay for net metering programs. The surcharge allows utilities to recoup the expense of paying rooftop solar owners retail rates instead of avoided cost.

“These costs aren’t recoverable in other states, why should they be recoverable on the backs of ratepayers in South Carolina, who are paying the highest electricity bills in the country?” said Sunrun’s Grinstead.

Apparently finding no answer, House lawmakers approved a provision last month to eliminate the surcharge.

“We’ve heard a lot about subsidies,” said Rep. James Smith, a Columbia Democrat, during a floor debate. But his amendment, he said, “makes it abundantly clear that non-solar customers are not going to pay for solar customers.”

The proviso is one of several solar measures now included in South Carolina’s draft annual budget, which must be finalized before July 1. Another would raise the net metering cap to 4 percent. A third requires a long list of stakeholders to examine and recommend new rate structures to promote rooftop solar. Duke opposes them all.

“Lifting the cap is not an issue for us, but it needs to be done as part of a process that truly values solar fairly for all customers,” said company spokesman Mosier. Asked about the process called for in the budget, he said, “we just don’t think this is the appropriate way to do it. Piecemeal through budget provisos is just not smart legislation.”

‘Solar is the first barbarian at the gate’

Duke’s positioning in South Carolina is worrisome but not surprising to advocates in North Carolina, where retail net metering is not capped and the utility has suggested lowering its payments to solar owners before.

“Duke has made no bones about the fact that they want to do away with net metering,” said Peter Ledford, counsel with North Carolina Sustainable Energy Association. “They’ve been quick to call [it] a subsidy, and so far, they’re doing that without any sort of evidence.”

An energy law enacted in North Carolina last summer requires Duke to propose new net metering rates, backed up by an analysis of costs and benefits. Duke spokesman Randy Wheeless said a proposal was possible by the end of the year, but he stressed that his company had no firm timetable. There is no deadline in the law.

Whenever it’s put forward, the new rate schedule will almost certainly include extra fees or lower credits to solar customers — if for no other reason than Duke’s business model relies on selling electrons at a markup.

“A smart businessman would say you can’t buy products at retail, then sell them at retail,” Wheeless said. “That doesn’t make sense.”

Solar advocates say they’re open to a ‘value of solar’ different than the retail price, but it must be part of an overhauled rate design — one that encourages renewables and energy conservation but still allows Duke to recover grid expenses. Otherwise, the company will continue to fight rooftop solar, battery storage, and any other measures that allow customers to buy less electricity.

“Solar is the first barbarian at the gate,” said Thad Culley, regional director for Vote Solar in North Carolina. “There are other barbarians coming.”