Distributional effects of the Dutch net-metering scheme for residential solar panels

The adoption of solar panels by households is pivotal in the transition to an energy system based on renewable sources. A common policy to incentivize this is net metering, under which the electricity costs for households with solar panels are based on the difference between the electricity consumed and that generated by them. Although effective, this policy may have unintended distributional effects for households differing in location, housing type, and solar panel ownership. This paper quantifies these effects for the net-metering scheme in place in The Netherlands since 2004. Using our simulation model and data from 2021, we find that net metering increases the electricity bills of households without solar panels by 14% on average, while it reduces those of households with solar panels by 74% on average, leading the latter to save almost three times as much as needed to break even with their investment in solar panels. We also observe heterogeneous effects across the Dutch provinces and different housing types. Moreover, we show that the distributional effects of net metering can be mitigated through fiscal policy measures. Furthermore, we show that replacing net metering with a net billing scheme that compensates returned generation at around 25% of the average wholesale price of electricity results in a more equitable distribution of effects while maintaining the attractiveness of investing in residential solar. Overall, we provide novel results that contribute to the socially relevant and timely debate on policy designs to foster an equal and just energy transition.