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Net Metering
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Net Metering

If a utility customer owns an electricity generating system, such as a wind turbine, solar electric (photovoltaic) system, hydropower system, fuel cell, gasoline or diesel engine genset, or combined heat and power system, and wishes to connect the system to the electricity distribution system, interconnection requirements may need to be considered.

The only time interconnection requirements do not have to be considered is if the generator will either:

  1. Only provide electrical service to loads which have been disconnected from the electric power grid, or
  2. Only serve isolated loads where there is a choice of power supply (either the electric company or your emergency generator)

This is called an "off grid" system. Systems which connect to the utility grid are called "on grid" or "interconnected" systems.

From State of Hawaii Web Site/Strategic Industries Division

Electricity customers seeking to install renewable energy generators, like solar panels or small wind or hydro turbines, at their own buildings often face a daunting array of barriers. Some utilities have imposed expensive requirements for interconnecting with the utility grid, required separate meters for measuring the output of the renewables, and have paid little to buy back any surplus electricity generated in surplus of the customer's needs.

Under these conditions, installed systems would likely be sized not to exceed building electricity use, even when the sun or wind is at its peak. Thus, a building would be unable to use the renewable system for more than a small fraction of its overall electricity use, since there will be many hours when the sun won't be shining or the wind blowing. Fixed interconnection and metering costs would make such small systems expensive and less cost-effective.

One simple policy to overcome these barriers and encourage direct use of renewables is called "net metering" or "net billing." This policy allows customers who produce more electricity than they are using at a given moment to feed the surplus directly into the grid and run their single electricity meter backward. The customer is billed only for the net electricity consumed. In effect, the customer is trading surplus electricity to the utility at the same rate the customer buys electricity from the utility. In some cases, net billing is calculated over an entire year. Customers that produce more power than they consume over the billing period must usually sell the surplus power back to the utility at the wholesale market price.

With net billing, it makes sense to size the renewable system closer to the average use of the building. The overhead expenses of installing, reading, and billing for a separate meter are avoided. The renewable investment becomes much more cost-effective.

Net metering can mean some revenue loss for the utility. Individual renewables systems are still expensive enough, however, that they are not likely to be used by many customers and are unlikely to have much overall effect on utility revenues. An analysis of net metering in California found that the savings to the utility from avoiding the extra meter reading and billing would be about the same as the revenues lost from net metering.[1 ] Net billing can provide additional benefits to utilities, by encouraging distributed generation. (See section on Fair transmission and distribution rules.)

Concerns about revenue losses to utilities could be addressed by placing a cap on the number of eligible customers. In California, a limit of 0.1 percent of the peak electricity demand of each utility was deemed eligible for net metering. While this limit is small, it still allows for considerable expansion of the number of customer -owned renewable facilities. California, Maryland, Vermont, New Hampshire, Washington and New York adopted net metering during 1996-1998. Maine, Massachusetts, and Rhode Island reaffirmed their net-metering policies under restructuring regulations. Despite a challenge from its utilities, Maine broadened its net metering policy, moving to yearly averaging for net billing.[2] As of 1998, at least 21 states have allowed net metering by law or regulation. In two other states, utilities have voluntarily implemented net metering programs.[3]

Many states adopted net metering as part of implementing federal PURPA standards. With repeal of PURPA under consideration at the federal level, inclusion of net metering under state legislation, enacted with or independent of restructuring, could put net metering on a more stable footing.

In October 1998, however, the Mid-American Energy Company, in Iowa, challenged that state's new net metering statute at the Federal Energy Regulatory Commission. The utility argued that net metering constitutes a forced purchase of electricity at a set price, a practice FERC has previously prohibited.[4] Environmental and renewable energy advocacy groups have intervened to defend net metering as sound policy falling squarely within state, rather than federal jurisdiction.


    Howard Wenger, California Net Metering Program Impact: Net Present Value Economic Analysis, (unpublished paper), January 8, 1995. Available from the Renewable Energy Policy Project, www.repp.org.

    Public Utilities Commission Rulemaking Docket No. 97-794, March 10, 1998. Online at solstice.crest.org/renewables/wlord.

    For more information, see Yih-huei Wan and H. James Green, NREL , Current Experience With Net Metering Programs, WINDPOWER '98, Bakersfield, CA, April 27 - May 1, online at www.eren.doe.gov/greenpower/
    , and Thomas J. Starrs, Net Metering: New Opportunities for Home Power, Issues Brief, Renewable Energy Policy Project, September 1996 online at www.repp.org/index_ar.html. States with net metering policies are included in the DSIRE database at www.dsire.org.

    MidAmerican Energy Company, Federal Energy Regulatory Commission Docket No. EL99-3-000. Filings available online at rimsweb1.ferc.fed.us/rims

From Union of Concerned Scientists

Net metering programs serve as an important incentive for consumer investment in renewable energy generation . Net metering enables customers to use their own generation to offset their consumption over a billing period by allowing their electric meters to turn backwards when they generate electricity in excess of the their demand. This offset means that customers receive retail prices for the excess electricity they generate. Without net metering, a second meter is usually installed to measure the electricity that flows back to the provider, with the provider purchasing the power at a rate much lower than the retail rate.

Net metering is a low-cost, easily administered method of encouraging customer investment in renewable energy technologies. It increases the value of the electricity produced by renewable generation and allows customers to "bank" their energy and use it a different time than it is produced giving customers more flexibility and allowing them to maximize the value of their production. Providers may also benefit from net metering because when customers are producing electricity during peak periods, the system load factor is improved.

Currently, net metering is offered in more than 35 states (see the map below). For a more detailed description of state net metering policies and links to the authorizing legislation, see the DSIRE database, which is a project of the Interstate Renewable Energy Council funded by the U.S. DOE and managed by the North Carolina Solar Center.

Click on image for a larger view
Net Metering By State

Relevant Literature

Some of the the following documents are available as Adobe Acrobat PDFs. Download Acrobat Reader.

Cook, C. and J. Cross. (1999). A Case Study: The Economic Cost of Net-Metering in Maryland: Who Bears the Economic Burden? Prepared by Maryland Energy Adminstration, Annapolis, MD.

Forsyth, T.L., M. Pedden, and T. Gagliano. (2002). The Effects of Net Metering on the Use of Small-Scale Wind Systems in the United States, National Renewable Energy Laboratory, NREL/TP-500-32471, November. (PDF: 1.3 MB)

Hesse, P. (2000). Connecting a Small-Scale Renewable Energy System to an Electric Transmission System, Golden, CO: Energy Efficiency and Renewable Energy Clearinghouse. April.

Starrs, T. (1996). Net Metering: New Opportunities for Home Power. Washington D.C.: Renewable Energy Policy Project.

Wan, Y. (1996). Net Metering Programs, NREL/SP-460-21651, Topical Issues Brief. Golden, CO: National Renewable Energy Laboratory. December.

Wan, Y. and Green, H.J. (1998). Current Experience with Net Metering Programs, Presented at WINDPOWER '98, Bakersfield, CA. April 27-May 1, 1998.

From U.S. Department of Energy/The Green Power Network


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