The solar industry boasted huge job growth last year, mostly due to the increase in solar installations on homes and businesses. Rooftop solar is growing across the U.S., and so are confrontations between traditional utility providers and the solar industry. The controversy centers on net metering (the technical term that describes how large utility companies compensate solar producers for the electricity they provide to the grid). Most states have policies regulating net metering, but only policies that reflect the economic and technological factors associated with solar energy production will provide smart, long-term solutions.

Net metering is a product of the technological constraints of solar energy. Since large-scale energy storage is not technologically feasible, energy must be produced and consumed at the same time. Homes with solar installations will produce most energy during the day when sunlight is strongest –and when homeowners need it the least. People use the most energy in the evening hours when there is no solar production.

This necessitates a net meter system, where homeowners with solar installations put all the electricity they produce onto the grid and then consume all their electricity from the grid. At the end of the month, they are charged for the net difference of the electricity they consumed – hence the term, net metering. Homes and businesses that use net metering are known as distributed generators, in contrast to centralized, utility scale power generation.

So far, 43 states have implemented policies requiring utility companies to offer net metering to their customers. Most of these states also require utilities to buy this electricity at the same price they charge their customers (retail price). This policy acts as a subsidy, and it effectively facilitates the growth of solar energy by making rooftop installations economically viable. However, forcing utilities to buy solar energy is not a sustainable policy because it ignores the costs associated with producing power and maintaining a functioning grid.

Utility companies face a variety of costs when supplying power to customers. In order to transport electricity, they must pay to build and maintain a functioning grid. They also pay for the fuel used to generate power or purchase electricity from other producers if it’s less costly. Utilities buy and sell energy to each other at a market price that changes throughout the day according to supply and demand. When utilities charge their customers, they bundle the fixed costs of supplying the grid and the variable costs of producing or buying energy into a fixed, retail rate.

Distributed generators produce and sell electricity just like utility companies, only they don’t maintain the electric grid they use to buy and sell electricity. In some states, they also don’t have to sell their electricity at the market rate, since their customer (the utility company) is required by law to buy their power at the higher retail rate.

As distributed generators cut into the revenues of large utility companies, they have fewer resources to manage the electric grid. This forces utility companies to restructure their prices, which most adversely affect low-income Americans who don’t have the means or property to install solar panels of their own. In 2013, the California Utilities Commission predicted that net metering would cost non-solar customers an extra $1.1 billion a year by the year 2020.

Policies are needed that more accurately reflect the different costs of power generation. In order for solar energy to be a practical source of electricity, it needs to be able to compete economically in a free market. This includes competing with market prices for energy as well as contributing to the cost of maintaining the electric grid. Policies that protect distributed generators from market forces encourage the utilization of green technology, but they also endanger the reliability and fairness of our energy grid.

States that require distributed generators to pay the true costs of electricity generation and delivery will encourage further innovation in distributed generation. Such a policy will challenge solar energy to address the inability to store energy or produce solar power during peak demand times of the day. Distributed generation may very well be a step towards a more sustainable future, but it needs to be implemented in a way that is economically viable.