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Net Metering

Net metering programs adopted in many states offer the potential for individuals or businesses to realize financial benefits from installing renewable energy systems. Net metering allows consumers to offset the cost of electricity they buy from a utility by selling renewable electric power generated at their homes or businesses back to the utility. In essence, a customer's electric meter can run both forward and backward in the same metering period, and the customer is charged only for the net amount of power used. By definition, true net metering calls for the utility to purchase power at the retail rate and use one meter. States have adopted a number of variations on this theme.

Net metering works by allowing a homeowner to sell excess electricity to the utility on sunny days when the photovoltaics (PV) system provides more electricity than the household uses. Then the household uses power from the utility during evenings and on cloudy days. Since the consumer sells power and buys power at the same pricing rate, the utility bill is calculated only on the net electricity that the consumer purchases from the utility. The bill may be reconciled monthly or at year's end.

As part of the Energy Policy Act of 2005, all public electric utilities are now required to offer net metering on request to their customers. Utilities have three years to implement this requirement.

Arguments for Net Metering

  • Net metering is a financial incentive for customers who install renewable energy systems.

  • Programs limited to small systems have little or no negative financial impact on utilities, assuming these systems are not a major part of the customer base.

  • Customers tend to see lower bills with net metering, but the payment system does not have to be disrupted. The utility has the advantage of not having to account separately for electricity produced by customer-generators. This accounting may include reading second meters, calculating the payment due, and processing and mailing the payment to customers. Generally, net metering customers do not produce more electricity than they consume during billing periods. Thus, the customer only pays a reduced bill.

  • Net metering participants are more aware of energy consumption, and tend to consume less energy than is generated. Studies, including some sponsored by utilities, have shown direct, measurable benefits for having generation located close to the end user.

Arguments Against Net Metering

  • Net metering has the potential to be a bad deal for utilities. If market penetration of solar and other renewable energy-powered buildings becomes substantial, utilities are likely to become concerned with revenue losses. The utility might seek higher rates from its remaining customers to recover fixed costs. Migration away from utility-generated power can leave certain disadvantaged customers holding the bag as rates continue to rise.

  • Net metering may involve legal problems under the Public Utility Reform Policy Act (PURPA) of 1978, according to an analysis by the Renewable Energy Policy Project. Although the legality of net metering has never been questioned, some analysts suggest that net metering violates recent interpretations of PURPA that prohibit states from requiring utilities to pay above avoided cost for power purposes. Net metering could be considered a payment above avoided cost if power produced by the customer is used to offset retail power bought from the utility.

For more information on states with net metering, visit the Database of State Incentives for Renewable Energy (DSIRE).