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Net Metering: What's All the Fuss About?

Apr 06, 2016

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The term is being thrown around a lot lately so let’s clarify. For those of us interested in the future of renewables in our communities, net metering is kind of a big deal. 

Net (energy) metering, simply stated, is allowing those who generate their own electricity via renewable sources (solar, wind, hydro, biomass) to send excess energy they don’t use back into the grid for a credit on their bill.  In Ontario, if you participate in net metering and produce more electricity than you use, you can carry credits for your energy bill forward for up to 11 months. Generally, those who participate in net metering must own a system that has the capacity to produce less than 500 kilowatts of energy.  And of course, net metering policies are different throughout the globe.

One of the issues for debate: If you are participating in the program and feed more energy from your renewable energy system into the power grid than you use, should you be paid for it? And should it be the same rate that you, as a retailer, would pay for it? What about the rate afforded to other large energy generators? In some places like Nevada, net-metered customers used to be compensated at retail rates for solar power provided to the grid. In California, it was recently voted that retail rates would continue to be offered to those sending electricity back to the system from their rooftop solar installations.

In Ontario, as the price of solar systems has decreased over the past several years, more property owners have installed them and are benefitting from the rates offered by the microFIT program. Those participating in microFIT were able to finance the construction of systems based on competitive rates to sell energy back to the grid under 20-year contracts. But these rates have since decreased, making microFIT systems financially more challenging to justify.

Hot Ontario summer afternoons when air conditioners are running at full tilt are when additional solar power is super beneficial to the grid, alleviating potential power outages and omitting the need for gas peaker plants to kick in. We as electrical consumers don’t see it, but the prices paid to purchase electricity on the wholesale market at such times skyrocket, so that solar electricity becomes a bargain. The Germans have measured this effect and found that the savings from solar were substantial. So how can we continue along this path of producing small-scale solar and other forms of renewable energy, which we know cuts transmission costs and keeps profits local?

Tom Konrad, editor at AltEnergyStocks.com offers a thoughtful look at the benefits and flaws of net metering in his article “Net Metering is the Solar Industry’s Junk Food”. For warmer regions where solar is plentiful, net metering really has to be creatively applied, lest it be dissolved altogether as was the case in Nevada, which is highlighted in the article. His solution, a “value-of-solar” tariff is worth considering.

Utilities often indicate that they themselves lose out with net metering because customers who benefit by providing excess energy back to the grid are not paying their fair share of system maintenance costs and such. A study of this issue took place in New Mexico in 2012, showing that net metering was actually beneficial to utilities. The issue is tackled further in this article written by Richard Martin of MIT Technology Review.

A key dichotomy emerges as utilities are striving to make profits, a goal which conflicts with doing what is good for the environment.

As the price of solar continues to decline, consumers will find it more affordable to generate their own power than to buy it from the utility. The fixed costs the utilities bear must then be spread across the remaining customers, thereby increasing their costs. As a result, more customers find it less expensive to generate their own power and this circle continues in a cascading effect that doesn’t have a happy ending for utilities. Utilities worldwide are now are wrestling with how to adjust their business models to cope with the new reality. They no longer have a monopoly on generating electricity, and their competition is actually their own customers.

It will be interesting to see what happens as battery storage technology improves and becomes more affordable. Will small-scale energy producers and homeowners simply be able to make and save all the power they need? Will we see more truly community-owned power, where we produce, share, manage and distribute amongst ourselves? And how will energy distributers like Hydro One respond to this?

Costa Rica, well known for powering itself with renewables, is about to leap into its own net-metering initiative. Watching how things play out on a micro-level like this, even in a vastly different climate, might provide some good lessons for us struggling with the issue in North America.