Net Metering

Description

Net metering is a popular and administratively simple policy option for U.S. states. Net metering allows electric customers who generate their own electricity using solar or other forms of renewable energy to bank excess electricity on the grid, usually in the form of kilowatt-hour (kWh) credits. These credits are used to offset electricity consumed by the customer at a different time during the same billing period (i.e., when the customer’s system is not generating enough electricity to meet the customer’s needs). In effect, the customer uses excess generation credits to offset electricity that the customer otherwise would have to purchase at the utility’s retail rate. Traditionally, net metering has been accomplished through the use of a single, conventional, bi-directional meter.

Policy experience with net metering lies squarely in the domain of states. Most states’ net metering policies were established through legislation. State laws commonly require the state public utilities commission to adopt administrative rules to implement net metering.

While some states’ net metering policies apply to customers of all types of utilities (e.g., investor-owned utilities, municipal utilities and electric cooperatives), others apply only to customers of investor-owned utilities. State policies vary widely by several other key criteria, including individual system capacity limit, aggregate system capacity limit, eligible customer types, eligible system types, treatment of net excess generation (at the end of a billing period), and ownership of renewable energy credits (RECs) associated with customer generation. The "Freeing the Grid" project provides a detailed breakdown of the individual components of each state's policy and an overall letter grade describing the overall quality of each, based on current best practices.

Status & Trends

More than 40 U.S. states plus the District of Columbia and four U.S. territories have established net-metering policies, and many have subsequently expanded their policies to accommodate expanding solar markets. Around 20 states (plus the District of Columbia and Puerto Rico) allow net metering for certain systems one megawatt (MW) or greater in capacity. At the

upper end of the spectrum, Massachusetts allows net metering for certain systems up to 10 MW, and New Mexico allows net metering for certain systems up to 80 MW. In several states, including Arizona, New Jersey and Ohio, there is no stated capacity limit. In many cases, states limit systems to a certain percentage (e.g., 125%) of the customer’s load so that customers do not intentionally oversize their systems. Furthermore, some states have established individual system capacity limits that vary by utility type, system type or customer type.

Some states, such as California and Utah, have increased the aggregate capacity limit for net metering due to the rapidly growing popularity of grid-tied solar. Others, such as Pennsylvania, have either clarified or enhanced provisions governing the treatment of net excess generation at the end of a billing period. Many states now allow customers to carry net excess generation credits forward to the following billing period at the full retail value of a kWh, either indefinitely or during a 12-month period.

Notably, all state net-metering policies include solar as an eligible technology. In recent years, states have commonly extended net metering to other kinds of renewable energy systems as well. Almost all states that have addressed REC ownership for net-metered systems, including Arkansas, Colorado and Florida, have concluded that RECs belong to customers (as opposed to utilities). The issue of REC ownership is increasingly important as utilities seek to meet renewable portfolio standard (RPS) obligations. In some locations, RECs may be sold as a valuable commodity.

Several states, including Nevada and New Mexico, allow net metering for electric customers on a time-of-use (TOU) tariff. However, while this option could be economically beneficial for owners of solar energy systems in many situations, it has proven difficult to design TOU tariffs that actively promote solar generation. In some cases, the demand charges built into a TOU tariff are excessively high.

More recently, a handful of states have expanded net metering by allowing meter aggregation for multiple systems at different facilities on the same piece of property owned by the same customer. A small number of states (including California) allow “virtual” meter aggregation, where certain customers may net meter multiple systems at different facilities on different properties owned by the same customer. In addition, “community net metering” and “neighborhood net metering,” which allow for the joint benefits of a solar project by multiple users, is in effect or under development in a small number of states, including Massachusetts.

The Interstate Renewable Energy Council, Inc. (IREC) has established the following best practices for net metering policies:

All utilities (including municipal utilities and electric cooperatives) should be subject to the state policy.
All customer classes should be eligible.
The individual system capacity should not exceed the customer’s service entrance capacity. Otherwise, there should be no individual system capacity limit.
There should be no aggregate system capacity limit.
Any customer net excess generation at the end of a billing period should be credited to the customer’s next bill as a kWh credit (i.e., at the utility’s full retail rate) indefinitely, until the customer leaves the utility’s system.
Utilities should not be permitted to impose an application fee for net metering.
Utilities should not be permitted to impose any charges or fees for net metering that would not apply if the customer were not engaged in net metering.
Utilities should not be permitted to force customers to switch to a different tariff. Customers should have the option to switch to a different tariff, including a time-of-use tariffs, if they choose to do so. If a customer is on the time-of-use tariff, they should be credited for the appropriate time-of-use period in the billing period.
Customers should have ownership of any renewable-energy credits (RECs) associated with the customer’s electricity generation.
Customers should be permitted to offset load measured by multiple meters on the same property using a centrally-located system.
The state public utilities commission should adopt comprehensive interconnection standards for customer-sited systems.

Examples

Colorado’s net metering policy, established in 2004 and subsequently amended, is widely considered to be one of the best in the United States.[1] Colorado allows net metering for systems sized up to 120% of the customers average annual consumption for all customers of investor-owned utilities. For customers of municipal utilities and electric co-ops, the limit is 10 kilowatts (kW) for residential systems and 25 kW for non-residential systems. There is no stated limit on the aggregate net metering capacity in Colorado. Any net excess electricity generated by a customer during a billing period is carried forward to the customer’s next bill as a full kWh credit (i.e., at the utility’s retail rate). At the end of a 12-month period, the utility purchases any remaining excess electricity from the customer at a rate lower than the retail rate. Alternately, customers may opt to roll-over the net excess generation credits indefinitely. Customers own the RECs associated with the electricity they generate.
New Jersey’s net metering policy, established in 1999 and significantly expanded in 2004 and 2012, is also regarded as one of the best in the country.[1] New Jersey has no individual system capacity limit. There is no firm limit on the aggregate net metering capacity in New Jersey. (The state Board of Public Utilities is authorized to limit the aggregate capacity to 2.5% of a utility’s peak demand). Any net excess electricity generated by a customer during a billing period is carried forward to the customer’s next bill as a full kWh credit (i.e., at the utility’s retail rate). At the end of a 12-month period, the utility purchases any remaining excess electricity from the customer at the utility’s avoided-cost rate. Customers own the RECs associated with the electricity they generate. Legislation passed in 2012 requires utilities to allow public entities to engage in net metering aggregation of solar facilities.

Resources

DSIRE: Summary of Net Metering Policies in the U.S. DSIRE, 2012.

Model Net Metering Rules. Interstate Renewable Energy Council, Inc. (IREC), October 2009.

Freeing the Grid. 2013.

The Intersection of Net Metering and Retail Choice: An Overview of Policy, Practice & Issues. Justin Barnes and Laurel Varnado. Interstate Renewable Energy Council, Inc. (IREC), December 2010.

The Impact of Rate Design and Net Metering on the Bill Savings from Distributed PV for Residential Customers in California. Naïm Darghouth, Galen Barbose and Ryan Wiser. Lawrence Berkeley National Laboratory (LBNL), April 2010.

Footnotes

[1] Freeing the Grid 2011, Network for New Energy Choices, et al., October 2011.

Disclaimer: The information presented on the DSIRE web site provides an unofficial overview of financial incentives and other policies. It does not constitute professional tax advice or other professional financial guidance, and it should not be used as the only source of information when making purchasing decisions, investment decisions or tax decisions, or when executing other binding agreements. Please refer to the individual contact provided below each summary to verify that a specific financial incentive or other policy applies to your project.

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