Solar - Net Metering & Feed-in Tariff

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What is net metering?

Grid-connected systems generally use a billing process called “net metering” or “net billing.” In this process, any energy generated by the solar modules that your home does not use immediately is sent to the utility grid. However, when the solar electric system is producing less power than is needed, you can draw additional power from the grid. If your system is connected to the grid through a single electric meter, your meter can actually run backwards as you contribute excess energy to the utility. The excess electricity is being credited to you at the same retail rate as the electricity you use from the utility. Your utility may require the use of two meters—one that meters your consumption of energy from the grid and the other that meters your contribution to the grid. In this case, your solar-generated excess energy could be credited at the retail rate or possibly at a lower wholesale rate, depending on the utility.

For example, in one utility program, customers are billed monthly for the “net” energy consumed. If the customer’s net consumption is negative in any month (i.e., the PV system produces more energy than the customer uses), the balance is credited to subsequent months. Once a year, on the anniversary of the effective date of the interconnection agreement, the utility pays the customer for any negative balance at its whole-sale or “avoided cost” for energy, which may be quite small, perhaps less than 2 cents per kilowatt-hour. Net metering allows customers to get more value from the energy they generate. It also simplifies both the metering process (by eliminating the need for a second meter) and the accounting process (by eliminating the need for monthly payments from your utility). Be sure to ask your utility about its policy regarding net metering. Under the federal Public Utility Regulatory Policies Act (PURPA), utilities must allow you to interconnect your PV system. They must also buy any excess electricity you generate, beyond what you use in your home or business. If your utility does not offer net metering, it will probably require you to use two meters: one to measure the flow of electricity into the building, the other to measure the flow of electricity out of the building. If net metering is not available, the utility will pay you only a wholesale rate for your excess electricity. This provides a strong incentive to use all the electricity you generate so that it offsets electricity you would otherwise have to purchase at the higher retail rate. This may be a factor in how you optimize the system size, because you may want to limit generating excess electricity. Such a “dual metering” arrangement is the norm for industrial customers who generate their own power.

In many locations, utility companies offer a program called “net metering” that can compensate you for extra power you produce. At night, or anytime you need extra power, you’ll pull it from the grid. With a grid-connected system, you’ll never need to worry if you happen to need more power than your solar system has been sized to provide. You may also choose to supply only part of your average electricity bill with solar, and use the grid for the rest.

Is net metering policy consistent among different utilities?

No. It varies among different utilities.

If your panels are producing more than you need, do you still receive a bill?

If you choose to have a grid-connected solar electric system, and your system produces enough energy in any given month so that you do not have to draw from the grid, you may still receive a small monthly bill. This is because many utilities charge monthly fees for meter reading. Check with your local utility.

What is Feed-in tariff?

Feed-in tariffs are the alternative to net-metering and their time has come. FITs have been likened to PURPA on steroids and they are as American as apple pie. It was a crude feed-in tariff that launched renewable energy in California during the early 1980s. In that program, you could connect your biomass, wind, or solar plant to the grid, get paid a fixed-price for ten years, and then get paid a floating price for another twenty. And it worked—spectacularly. For two decades following that first feed-in tariff, the Golden State generated about 2 percent of its electricity from wind energy alone.

What sets modern feed-in tariffs apart from those developed in California during the early 1980s—and from net-metering?

What sets modern feed-in tariffs apart from those developed in California during the early 1980s—and from net-metering–is that the price paid for electricity from different renewable sources differs as well. In the old California system, a wind farm was paid the same price as a biomass plant or a solar plant, even though they were quite different from one another. The same is true today with net-metering. Each technology that runs the kilowatt-hour meter backwards is effectively paid the same price, the retail price of electricity, regardless of how much the electricity actually cost to produce. In the modern or “advanced” system like that used in Ontario, Canada, wind energy is paid one price and rooftop solar another. Each technology is paid a price that reflects the average cost of generating electricity with that technology.

This approach decouples the price paid for renewable energy from both the wholesale and retail prices of electricity. Feed-in laws essentially bypass all the ideological theory and arcane mumbo-jumbo that obscure electricity rate-setting in the US. For each technology and each application, prices are determined so as to provide a fair and reasonable rate of return. This enables anyone—anyone who wants to invest in building the infrastructure that will power America in the 21st century–to profit from renewable energy.

What is so powerful about Feed-in tariff or net metering that cause Germany to become the number one leader in renewable energy?

It is this simple idea—to pay a fair price for renewable energy—that has enabled German citizens to build and own nearly half of all the wind turbines, solar PV, and biogas plants in the country. Individual German citizens—not their utility companies–have invested more than $100 billion in renewable energy. They have done so because they are paid a fair price for their electricity and because they can install the size, type, and amount of renewables that is the most economic for them and the best fit for their communities.

Was net-metering intended to be a policy for the industrial development of renewable energy?

No. Net-metering served a useful purpose in the dark days of the Reagan-Bush-Clinton era. Net-metering then was a call to arms for hobbyists and guerrilla solar activists out to prove a point–solar works, your meter will run backwards, and the lights will stay on.

But net-metering was never intended to be a policy for the industrial development of renewable energy. It alone can’t do that. Retail electricity prices in North America are simply too low to make rooftop solar PV, for example, profitable without hefty subsidies.

Why run your kilowatt-hour meter backwards at 10 cents per kilowatt-hour when it costs you 20 cents to 30 cents per kilowatt-hour to generate it with solar PV? Without federal or state subsidies, net-metering seldom makes any economic sense, even today (year 2013) with the rapidly falling cost of solar PV.

Net-metering was an appealing policy at one time, because it gave politicians the perfect cover for appearing to take action on the public’s demand for renewable energy, while doing nothing of substance to threaten entrenched electric utilities’ political and economic power.

Thus, politicians would typically set a low limit on the amount of renewables that could be installed in a region under net-metering—often just a few percent. They certainly wouldn’t set the limit at anything like what the Germans (5 percent solar PV) or Italians (7 percent solar PV) have already accomplished.

Moreover, they typically also limit the size of any individual installation, often a paltry 10 kilowatts, and sometimes—when they’re generous–up to 2 megawatts. (We certainly wouldn’t want to rock the utility’s boat, now, would we?)

Worst of all, net-metering limits renewable development to an existing “meter”. This precludes “greenfield” sites that don’t already serve a utility customer, a further restriction on who can use net-metering and how big a renewable project they can build.

With all the restrictions on net-metering, many Americans are prohibited from installing and owning their own solar, wind, or biogas power plants where they want to and of the size that works best for them. Net-metering locks out apartment-dwellers and renters from participating in the renewable energy revolution.

Net-metering is not–nor can it ever be–a comprehensive renewable energy policy. If we take climate change seriously, net-metering simply won’t get us where we want to go: massive amounts of renewables in the ground, and quickly. Net-metering will never give us “plus energy” houses or “plus energy” buildings, because we often literally have to give our surplus electricity to the utility company for free. How fair is that?

What are the limitation of net-metering?

  • You don't actually get paid
  • See above

Should we abandon net-metering?

Yes and no. Net-metering has its limitations, however, we should not abandon it without a strong comprehensive renewable energy policy to replace it. But the time has come from Americans to break free of the straight jacket imposed by net-metering. It is time to liberate Americans from the tyranny of utility-company control of our lives and from the politicians and regulators who serve these companies. It is time to free Americans of all walks of life–from rich to poor, from conservative to liberal, from rural to urban—to produce renewably generated electricity when they want, where they want, and in the amount they want—and to do so for a profit. What could be more American? As the late German politician Hermann Scheer, one of the co-founders of Germany’s modern system of advanced renewable tariffs, frequently said, the time for half-measures–for timid responses–is past. There is no time to lose.

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