By David R. Scott and Stephen C. Hadden

What is net metering and why is it still such a controversial subject? The definition in Wikipedia sums it up nicely: “Net metering is an electricity policy for consumers who own, generally small, renewable energy facilities, such as wind or solar power, or use vehicle-to-grid systems. Net, in this context, is used in the sense of meaning ‘what remains after deductions’ – in this case, the deduction of any energy outflows from metered energy inflows. Under net metering, a system owner receives full retail credit for at least a portion of the electricity they generate. The ideal has the customer electricity meter spinning backwards, effectively banking excess electricity production for future credit.”

This method of metering is clever, because the utility doesn’t have to do anything different for billing or metering – but it has serious limitations.

By giving the owner of small generation full credit for the energy produced, net metering regulations encourage installing solar generators, wind turbines and other renewable energy and green power sources. But this simple metering policy has been surrounded by controversy since its introduction (see

Arguments for net metering

  • Net metering is a financial incentive for customers who install renewable energy systems.
  • Programmes are limited to small systems and have little or no negative financial impact on utilities, assuming these systems are not a major part of the customer base.
  • Customers see lower bills with net metering. Generally, net metering customers do not produce more electricity than they consume during billing periods. Thus, the customer pays a reduced bill and receives no direct payment from the utility.
  • Net metering participants are more aware of energy consumption, and tend to consume less energy.

Arguments against net metering

  • Net metering has the potential to be a bad deal for utilities and non-generating ratepayers because of revenue loss. Migration away from utility generated power can leave certain disadvantaged customers holding the bag as their 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 (a federally chartered organisation). Net metering could be considered a payment above avoided cost if power produced by the customer offsets retail power bought from the utility.

Now that we understand the fundamentals, let’s look at the unsettled history of net metering. We see the history falling into three distinct periods.

The early days of net metering are reminiscent of the stories about the American Wild West of the 1700s. In the mid- 1990s, net metering began to emerge in the western US. A few states and a few utilities welcomed the stranger, while others tried to run it out of town. Even the unions, with good reason, questioned the method of interconnection for this form of distributed generation. The concern was over safety. Generating energy back into the distribution system during storm restoration could make downed lines come alive while utility crews are working on them.

The roots of net metering arguably may have started with the PURPA – a 1978 US federal law that was intended to encourage more energy efficient and environmentally friendly commercial energy production. Although net metering was not mentioned in PURPA and was not intended for residential generation, the law did promote independent power producers (today called distributed generation) and renewable resources. By encouraging non-utility generation, PURPA inadvertently fostered small renewable resource residential generation. This created the need for simple metering and billing practices to credit residential customers for the energy they produce.

California – one of those wild western states – is where net metering first took hold. In those early days, utilities had different interpretations of how to implement net metering, some allowing the meter to turn backwards and others needing two meters (one for kWh delivered to the customer and one for kWh received from the customer). With two meters, the net energy flow is calculated in the utility back office or within the billing system. Also, with two meters, this was a way for the utility to record the kWh credited for rate case purposes or for tracking purposes.

In 1996, Wyoming declared a requirement to value customer-generated energy based on the time it is received by the utility. This created time-of-day (TOD) net metering. Due to the limitations of most meters at that time, this form of net metering needed two TOD meters (again, one for delivered and one for received kWh). Some utilities installed an expensive “smart” (for those days) solid state meter.

Initially, the net of delivered and received energy was reflected in each month’s bill. However, as larger generators became available, it was more common for received kWh to exceed delivered kWh. Thus, net metering for some states is calculated monthly with any excess customer-generated kWh carried over from month to month and trued up on the bill yearly. By the end of this pioneer period, a few thousand net metering installations were installed nationally.

The solid state period is marked by the emergence of the low cost solid state residential meter. This opened all sorts of possibilities for net metering. No longer limited by the turning disk, modern solid state meters could measure delivered energy only, delivered and received in two separate registers (obviating the need for two meters), delivered minus received (equalling a simple net register), and delivered plus received. Why delivered plus received? Well, read on.

This period also saw automated meter reading (AMR) emerge and the first generation of advanced AMR employing fixed networks. This introduced some interesting challenges for net metering. Some of the early AMR modules, when retrofitted on turning disk meters, could not tell the difference between forward and reverse disk rotation, that is, delivered and received energy. So the idea of delivered plus received was introduced. The utility saw this as a great revenue protection tool to prevent the most common method of energy theft. But no trade secrets will be revealed here. Ask your metering or revenue protection folks why this is important.

By the end of 2005, 188 utilities in 32 states offered net metering programmes allowing customers to generate electricity and supply it to the utility grid. Also, over 21,000 net metering installations were installed throughout the US.

EPACT 2005 PERIOD – 2005 TO 2008
The federal Energy Policy Act of 2005 (EPAct 2005) requires all public electric utilities to offer net metering on request to their customers. Utilities have three years to implement this requirement. EPAct 2005 also amended PURPA to include net metering. At the date of this article, 39 states now offer net metering programmes.

This is also the period that advanced metering infrastructure (AMI) emerged on the scene. EPAct 2005 also encouraged advanced metering to support time based rates and called for its consideration by state regulators and utilities. Periodic reports are required by the DOE to measure the progress. The first report was in 2006. In this period most utilities were seen to be acquiring AMI specifying net metering features for their meter automation. In fact, most AMI systems available today include net metering features in their standard feature sets.

This is also the period of growing awareness of the environmental impact of CO2 emissions from fossil fuel generators, as well as rapidly rising energy costs. Because of these previously unforeseen reasons, renewable resources and the needed net metering have surged. Many states are now allowing net metering for commercial and industrial customers – some up to 2 MW of generation. This is no longer the little generation segment first imagined by the pioneers of net metering.

So where does this lead us in the future? Let us peek into the possibilities.

The rapid emergence of the GridWise, IntelliGrid and Smart Grid initiatives – intelligent infrastructure of every kind – sees a growing role for distributed generation. Specifically, the plug-in hybrid electric vehicle (PHEV) with the ability to also supply energy back into the grid at high use times will require very sophisticated net metering. Here the idea imagines that wherever I plug in my PHEV to recharge – at my house, your house, my work, a public parking lot – I get the bill or credit. This takes the original idea of the meter running backwards into the age of George Jetson.

Also, no matter which political party is in the Oval office in the US in 2008, the new administration likely will raise the concern and carry out actions on greenhouse emissions to the next level. With it, net metering will grow to the next level. Consider the possibility of introducing carbon credits into the net metering equation. This may also require submetering the renewable resource generator. Therefore, we are seeing more and more modern AMI systems also requiring the ability to submeter loads downstream of the customer’s meter. Just imagine the possibilities!

With all the technology changes, environmental issues, high energy prices, PHEVs, and political trends, net metering is on the verge of its greatest adventures. Stay tuned.