Arkansas Ends 1:1 Solar Net Metering: Here's What to Expect

or years, Arkansas has been making a quiet but steady transition to solar power, with both sunlit rooftops and large-scale solar farms on the rise. Solar power has offered an escape route from soaring electricity prices and the state's strong dependence on fossil fuels. Blessed with a sunny climate, Arkansas has been consistently moving up in the nation’s solar adoption rankings. Yet, with the new law in force, it seems that momentum might be losing some steam.

As of October 2024, Arkansas's solar net metering program is changing in a big way, a shift that could significantly impact the state’s solar journey in the coming years. From now on, new solar users won’t be getting 1:1 compensation for sending their generated power to the grid. Instead, their extra electricity is going to be credited at a much lower wholesale rate. This keeps the debate alive on whether it’s a much-needed policy correction or a backward step in renewable energy efforts that more and more U.S. states are making.

A Growing Solar Movement at a Crossroads

Arkansas isn’t exactly a poster child for progressive energy policies. According to the US Energy Information Administration (EIA), its power still largely comes from natural gas, coal, and nuclear, with natural gas holding the top spot at 39% of electricity generation in 2023. But despite this dominance, solar has been slowly but surely increasing its footprint, growing from almost non-existent to contributing around 2.9% of the state’s electricity last year, SEIA data shows.

Source: The Solar Energy Industries Association (SEIA)

For such a sunny state, these figures might not impress at first glance, but the progress has been very real. Rooftop solar installations hit record levels in Arkansas during 2022, largely thanks to the net metering policy that let homeowners offset their electricity bills at retail prices. As part of the 2001 Arkansas Renewable Energy Development Act, this program was created to boost solar usage by making it economically practical for Arkansans to generate electricity themselves.

The idea behind the policy was simple: when homeowners produced more electricity than they used, they could sell the surplus to the utility for credits equal to what they paid for energy from the grid. It was a win-win: homeowners saw their bills drop, while Arkansas made headway toward a more sustainable energy system.

The End of 1:1 Net Metering

All of that is changed with the introduction of Act 278, passed in 2023. The law marked a significant shift in Arkansas's solar energy policy, one that utility companies had been advocating for years. Under the new framework, which came into effect on October 1, 2024, new solar installations are no longer compensated at the full retail rate. Instead, excess electricity sent back to the grid will be paid out at the lower wholesale rate.

The retail rate for solar power is currently about 10-11 cents per kWh,  but going forward, new customers will receive only 4-6 cents per kWh. However, if you already own solar panels, this change won’t affect you: those who signed net metering agreements before the cutoff date will keep the old 1:1 system until 2040.

Why Change Now?

The shift is happening for a number of reasons. Arkansas lawmakers, utility companies, and some energy experts say the previous system gave solar users an unfair advantage over others. Arkansas legislators, utilities, and even some energy experts argue that the old system gave solar users an unfair edge over other ratepayers. Utilities, which are legally responsible for the grid, argued that solar customers weren’t paying enough to maintain the network, shifting costs onto non-solar users. According to them, the new policy fixes this imbalance by compensating solar panel owners at the wholesale rate, which matches the avoided costs utilities face when they don’t have to produce or buy power.

Another key change from the Act is that utility companies can now aggregate meters, letting larger entities like solar farms unify their billing process. This was an important compromise to make the policy more appealing to large-scale solar users.

Who Will Feel the Impact?

The switch to a wholesale compensation rate will create lasting changes in Arkansas, starting with homeowners and small businesses interested in solar energy. The math behind going solar has become less favorable, so fewer people may choose to install panels, and those who do may face a longer wait to recoup their initial costs. This may cause a short-term slowdown in the residential solar market as people rethink if the installation costs today are worth the future savings.

But it's not only future solar customers at risk. The wider solar industry in Arkansas, currently employing almost 4,000 people, might also face challenges. Solar installers, developers, and manufacturers—who have experienced steady growth in recent years—may soon see a decline in demand for new systems. Moreover, the financial ripple could stretch across related industries, from electricians to solar equipment providers.

Lastly, but just as critically, a decline in solar adoption could significantly affect the environment. Like many of its neighboring southern states, Arkansas is especially at risk from the effects of climate change. Slowing renewable energy progress might cause the state to lean more on fossil fuels, missing a key chance to transition to a cleaner and more resilient energy system.

Silver Linings and Adaptations

While solar advocates are understandably upset about the net metering rate cut, there are still some bright spots to consider. For one, this policy could open the door to more innovation. As the payout for sending surplus energy to the grid decreases, homeowners and businesses might be more drawn to solar storage systems. These battery setups allow them to save their extra power and use it later rather than returning it.

Additionally, the changes won’t affect utility-scale solar projects. Arkansas plans to add over 1,100 megawatts of solar energy in the coming years through key projects such as Big Cypress Solar Farm and Searcy Solar Farm. These large ventures could help offset a slowdown in residential solar, keeping Arkansas on course to increase its renewable energy share.

As solar technology becomes more advanced and prices decline, solar energy may once more become an economically attractive option. Over the past decade, the state has seen solar installation costs drop by 43%, and there are good reasons to believe the trend will carry on.

Solar Policy Shifts Across the United States: 2024-2025 Trends

In 2024-2025, the United States is witnessing a significant transformation in solar energy policies, with Arkansas's net metering changes reflecting a broader national trend. Several states are reevaluating their net metering programs, seeking to balance grid sustainability with renewable energy growth.

California's NEM 3.0 policy, implemented in 2023, has already shown impacts on the solar industry, serving as a cautionary tale for other states. Despite these challenges, federal incentives from the Inflation Reduction Act continue to drive solar adoption across the country.

The solar industry is adapting by focusing on energy storage solutions and innovative pricing models to maintain growth in this evolving landscape. As debates intensify, policymakers, utilities, and solar advocates are working to find compromises that support both grid reliability and clean energy goals.

What’s Next for Solar in Arkansas?

Arkansas’s decision to cut the 1:1 net metering rate is an important moment in the state’s energy policy. While this change is sure to slow the expansion of rooftop solar, it also opens up crucial discussions on how to ensure that pro-solar energy policies benefit everyone, even those without solar panels.

The decision underscores how tricky shifting to cleaner energy can be, where economic, environmental, and equity factors all demand careful attention. Whether this new adjustment strikes the right balance and boosts Arkansas's solar industry or turns out to be a hurdle remains to be seen.

Sources:

https://www.eia.gov/state/print.php?sid=AR

https://seia.org/state-solar-policy/arkansas-solar/