Net Metering – Renewable Power Starts Small

In the interest of encouraging small-scale renewable energy production, the concept of net metering was developed.  Net metering enables customers to use their own electricity generation to offset their consumption over a billing period by allowing their electric meters to turn backwards when they generate electricity in excess of 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 or paying the individual in supplier credits that can only be used to purchase future grid power.

Net metering can help the energy providers by utilizing the power produced by individuals’ renewable sources to supplement their own output during peak consumption periods, e.g. solar cells become more productive during the longer daylight hours of summer when air-conditioning use is at its highest, thus helping to alleviate the peak power load on the grid.   In addition, it has been shown that customers with net metering systems tend to be much more aware of their energy consumption, so they usually consume less energy than the average retail customer.

Over thirty states have already recognized the environmental benefits of net metering and have passed legislation allowing the interconnection of small-scale renewable energy systems to the state’s power grid.  Austin’s electricity supplier, Austin Energy, pays rebates to homeowners who install and operate photovoltaic arrays.  Excess power is fed back into the grid and the individual receives credit on their electricity bill for all excess power withdrawn.  But a problem with credit emerges when a member of the grid produces so much power that they deliver more power than they purchase, receiving only worthless electricity bill credits in return.  Texas has yet to pass a law forcing suppliers to pay power producers in cash rather than credits, thus stifling the renewable power investment of residences and small-scale businesses and discouraging complete electrical independence.

All in all, net metering is a low-cost and easily administered method of encouraging customer investment in renewable energy technologies.  But proper economical incentives are needed before this system of small-scale power producers pays off.


Solar Rebate Program FAQ,

Net Metering – Introduction,

Incentives/Policies for Renewables & Efficiency,



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3 responses to “Net Metering – Renewable Power Starts Small

  1. tommurphy87

    Net metering has been shown to create strong incentives for small-scale renewable energy production. The clearest example of this can be found in New Jersey, the state with the least restrictive net metering policies (1,6). New Jersey produces the second most solar-derived electricity annually (2), despite ranking 39th in available sunlight (3). While it may be inefficient for New Jersey to be spending money and effort on solar power as opposed to renewable energy sources which are more locally abundant, the proliferation of solar power in New Jersey speaks to the power of net metering as an incentive for renewable power installation.

    By abating barriers to enter the small-scale renewable power generation market, net metering effectively encourages residences and large and small businesses to reduce their energy bill by selling energy back to the supplier. Since capital costs of small-scale wind, solar, and waste power generators are low compared to those for fossil fuels, net metering could be a boon for renewables.

    Furthermore, when combined with net metering, real-time electricity pricing would provide an even greater incentive for small-scale solar power. Real-time pricing would be coupled with daily electricity demand, which peaks around 5:00 pm (4). Solar intensity is highest in the early afternoon, corresponding to the time of day when electricity demand is near its peak. Pricing that is consistent with instantaneous demand would increase the potential revenue of small-scale solar providers. This would displace natural gas, which is often used to accommodate peak demand (4) and emits greenhouse gases. The downside of real-time pricing is that it is disadvantageous for wind power by the same argument; electricity would be cheaper when the wind is blowing (in the late night and early morning) (4).

    Another hurdle for net metering is that even the most progressive net metering legislation does not allow customer-generators to receive cash for their electricity. Even New Jersey only offers energy credits (5). Allowing customer-generators to receive cash would encourage scale-up to the level at which a customer-generator generates more power than it can consume.

    Net metering offers appropriate incentives for small-scale renewable power producers to enter the market, thus providing an economic opportunity for individuals and a step toward curbing greenhouse gas emissions.




    4. Dr. Michael Webber. Energy Technology and Policy. Lecture 7, 9 February 2010. “Generation Dispatch in ERCOT (August 4, 2008)”. Slide 36 of 55.



  2. stevenjs

    I agree that net metering serves to encourage small scale local electricity generation. Also, Time of Use (or real-time) pricing appears to be a fair way to accurately assess the price of energy in real time- as determined by actual demand. Due to the timing of electricity demand it would encourage increased solar power generation, while lowering the price of wind generated power. However, net metering combined with real-time pricing may also be able to alter the current variance in within-day electricity demand and generation. I think it would be interesting to assess the demand-side implications of Time of Use pricing. Would there be a significant shift towards doing certain energy consuming tasks (laundry ,dishwashing with a machine) at night when the price was lower? Perhaps more of these machines would be set to timers. In California, this combination of net metering with TOU pricing has shifted the demand schedule of small-scale solar generators by making it cost effective to invest in AC units that use night time electricity to chill water to be used for cooling the next day [1]. Perhaps these regulatory and pricing policies will lead to other innovative ideas that encourage small scale energy production while helping to stabilize demand in the energy market.

    In addition, when people are encouraged to produce their own electricity and be conscious of their demand times, they are effectively bypassing many of the problems involved in both large scale transmission and storage. [2] [3]

    However, there is also the possibility that real time pricing, by reducing load variance, may actually increase the overall emissions of air pollutants in regions of the country that depend on non-fossil fuel sources of power (hydro or nuclear) for peak load times [4]. In areas that depend on hydro power for peak generation, a reduction in within-day variance may lead to a greater amount of energy supplied by the base generation fuel- coal. So, by not having to ramp up the cleaner sources of fuel that are often used for peak generation because of their lower marginal costs, a larger percentage of electricity may actually be produced by fossil fuel sources. A report by the National Bureau of Economic Research models ERCOT with an overall increase in emissions with a reduction of within-day variance [4].
    So, while the apparent benefits seem to make logical sense, once again, this energy related issue may be significantly more complicated than it first appears.


  3. lts79

    Solar generation is still using training wheels. Net metering is an example of it. However, as a more educated market is developed, educated in solar generation and its opportunities, utilities need to adapt and take advantage of it by providing more competitive support and more competitive incentives.
    If we define the metric used to evaluate incentives for solar energy production as that which leads towards a market that will not need incentives to move forward, that is, a self-sustaining market, then the question would be what leads towards a self-sustaining market?
    We don’t know yet. However, let’s attempt searching for the answer by diving into two existing incentive systems.
    To the previous post and comments, I want to add that net metering is a demand reduction policy. From the utilities standpoint, the true benefit comes in the form of reduced energy demand. In practice, the energy generated by, for example, a household is used by that same household at a very high efficiency rate since transmission losses are avoided. This alleviates the pressure faced by the utility to meet demand, especially during peak hours, which is then translated into grid development cost savings. From the household standpoint, the investment in solar generation is also a source of cost savings, primarily an investment on efficiency. The household is left with the uncertainty of length of time before high initial cost of the PV system is recovered.
    On the other hand, a practice that is not widely used in the US, the feed-in-tariff, is a supply generation policy. From the utilities standpoint, the true benefit comes in the form an incentive system structured to support the growth and long term generation of renewable energy. This system, although still fails to directly deal with the intensive upfront costs of a PV system, “features long-term certainty payments” for energy production/supply that will eventually cover the cost of the PV system.[1] From the household standpoint, buying a PV system starts to look more like an investment worth embarking in.
    Is shifting the mentality of potential generators from demand reduction to supply generation the way to go? If that is the case, incentives need to look closer to feed-in-tariff and less like net metering. As an investor, I would argue that I prefer dollars in my pocket than reduced electricity bills.


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