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OWOE - Solar Power - What is net metering?
  Figure 1 - Illustration of net metering (by Andy Warner)
Figure 1 - Illustration of net metering (by Andy Warner)
Figure 2 - Net Metering by State (Solar Power World)
Figure 3 - Example California Electricity Export and Import Rates (CA PUC)
What is net metering?
Topic updated: 2023-08-18

Net metering is a policy designed to encourage individual consumers to invest in renewable energy. The US Energy Policy Act of 2005 required state electricity regulators to "consider" (but not necessarily implement) rules that mandate public electric utilities make available net metering to their customers, upon request.The only special requirement is an electric meter that will run backwards if more electricity is generated than used at any given time. This results in the customer only paying for the "net" energy used, or the difference between grid electricity used less electricity returned to the grid. Over a billing cycle, if a customer returns more electricity than he uses, he receives a credit. (See Figure 1.) As of April 2022, a large majority of states and territories have passed net metering laws. A handful of states that have some form of compensation for distributed generation but it is not explicitly labeled as net metering. Just three states (Alabama, South Dakota, Tennessee) offer no form of net metering or compensation. (See Figure 2.) Net metering policies vary widely by state in terms of who can connect, what are acceptable system capacities, how long credits last, how much the credits are worth, etc.

While net metering appears to be a very straightforward way to handle excess electrical capacity, some utilities feel that it doesn't fairly account for the cost of the electrical infrastructure that they must maintain. In general, the consumer gets electricity credit at retail price. Without some form of tariff on the home owner with an individual system, it is argued that other utility customers pay a higher share of the cost of conventional power generation and transmission facilities. Counter-arguments claim that such individual systems reduce the need for the utility to invest in new power plants, which helps all consumers in the long run.

Two high profile confrontations between solar advocates and utility companies highlight the challenges that exist in coming to grips with how to fairly value excess solar generated electricity. In Nevada, under pressure from NV Energy, the Public Utility Commission (PUC) voted in December 2015 to dramatically reduce the net metering payments that the electric utilities must pay to homeowners whose rooftop solar panels feed electricity into the grid and to allow the utilities to increase the fees they charge for homeowners to connect to the grid. The changes essentially wiped out any benefit to the rooftop solar system owner, and was made retroactive to existing systems. After intense public pressure, the legislature passed a new law in 2017, Assembly Bill 405, that restored favorable rates to solar customers. Although the rate that utilities have to pay for generation returned to the grid will decrease over time, overall, the bill was considered a major win for solar.

In 2016 the California PUC revised the state's net metering policy with the new "Net-Metering 2.0". The change was triggered by the three investor owned utilities hitting their 5% cap on "behind-the-meter" generation. This new policy included a one-time fee for new solar customers to connect to the grid, a fee of 2 to 3 cents per kilowatt-hour for so-called non-bypassable charges, and a requirement for customers to be enrolled in time-of-use (TOU) rates, which means that their electricity can be priced differently depending upon when it is used or returned to the grid. Existing owners were exempted from all the changes for 20 years from when they installed their solar systems and connected to the grid. Utility companies expressed disappointment over the proposal, while some solar advocates praised the proposal for maintaining the fundamentals of net metering and continuing to encourage growth in solar systems.

As rooftop solar systems in California continued to be installed, helping create the situation where the grid had too much power during daylight hours and exacerbating the duck curve problems (see OWOE: What is the duck curve?), utilities ramped up pressure to revise the net metering system again. In April 2023, a new net metering plan called NEM 3.0 took effect. It reduced the amount that utilities had to pay for excess rooftop solar power sent to the grid by as much as 75%, depending on month and time of day (see Figure 3), reducing the value of such systems. However, one of the new plan's goals is to encourage customers to pair rooftop solar with battery storage. This allows the home owner to save electricity when it is produced and not needed by the gird and use it, or export it to the grid, in the evening hours when TOU rates are very high, thus significantly increasing the value of the system. Similar to the previous change, existing NEM 2.0 owners are exempted from all the changes for 20 years from when they installed their solar systems and connected to the grid.

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