What is Solar Net Metering?

Net Metering or Net Energy Metering (NEM) is a renewable energy generation system that is connected to the main power grid of a utility. A customer uses energy from the system and surplus is fed to grid. Utilities buy the surplus energy from customers at retail rate. Customer’s electricity bill reflects net energy usage after calculating forward and reverse energy from the grid.

The renewable energy component in net metering could consist of a solar power generator. That’s called solar NEM.  Solar energy generation gained popularity after 1999 when breakthrough innovations in photo-voltaic cell efficiency emerged. The state of California alone has over 54,000 solar jobs. Below is a list of top 10 US states of residential solar installations:

  1. California
  2. New York
  3. Arizona
  4. Massachusetts
  5. New Jersey
  6. Hawaii
  7. Maryland
  8. Connecticut
  9. Colorado
  10. Louisiana


Why did States think of ending solar NEM?

To support solar or any kind of NEM, utilities must deploy advanced meters capable of recording forward and reverse energy. The capabilities of advanced meters vary. Some meters can record only quantity whereas some can record usage and timing. The latter is especially useful for TOU (time-of-use) electricity billing. A common way to charge retail electricity is in accordance with peak price and off-peak price depending on usage slot. The NEM also interacts with existing infrastructure of power grid systems. In short, utilities incur cost without earning revenue from NEM activities.

There are various ways of solar financing for residential and commercial customers:

  • Loan – Regular loan or local government low cost loan to support energy efficiency/renewable energy at selected regions.
  • Power Purchase Agreement (PPA) – a third party maintains solar generation. Individual customer buys from third party avoiding capital cost.
  • Solar lease – Companies provide lease, useful to business owner/residential customers who occupy the dwelling for short term

In all of the above cases, net pricing model takes capital cost into account for every stakeholder. To illustrate: a typical installment of 3 kW system angle on a single-family home with a utility bill of $180/month in San Francisco would cost a customer an estimated $19,282 with a payback period of 12 years. How did the customer save? – By not paying to the utility but by paying to a solar ecosystem.

The problem amplified over the past few years when technology innovation, subsidies and growth in solar industry significantly brought down the cost of solar energy (see charts below). Unit price of solar electricity caught as per or started to fall below utilities’ selling price of electricity. Solar users saved. Utility (and as a result non-solar users) encountered the burden. Therefore utilities, policy owners and states face severe challenges with NEM.

So, what next?

The Energy Department said in its SunShot Vision Study: “The amount of solar energy falling on the United States in one hour of noontime summer sun is about equal to the annual U.S. electricity demand”. Doubtlessly, solar energy and promotion are important. Undoubtedly, current solar NEM model is causing an imbalance.

Though Massachusetts, California, Nevada evaluated options to end solar NEM, none of them has done so yet. In contrast, in July 2015, the Senate passed a NEM cap increase (all states have a goal as well as a cap on solar installed capacity). In August, 2015, the Governor of Massachusetts filed a solar bill to provide a pathway forward to solar and lay a statutory ground for future solar rules. In 2014, CPUC (California Public Utility Commission) ordered the state’s Investor-owned utilities (IOU) to allow battery-solar systems to interconnect under net metering without the expensive and time-consuming studies they had been subjecting those systems to. These acts demonstrate a bridge in the form of NEM extension, not in the form of retirement until long term direction takes shape.

In the short term, as many utilities have proposed, solar users or companies can be imposed a grid access fee for NEM to prevent cost shift and bring balance to market structure. In addition, electric bill restructuring is also a viable option, i.e. the utility buys excess solar capacity from customers not at retail rate but at a lower rate. It is notable that California already allows a minimum fixed monthly charge on electricity bill, and Arizona does too at a higher rate.

In the long run, public policies must consider the effects of expansion of renewables coupled with electricity reliability (the electricity storage boom). Empowered by storage, solar is potent to be part of the utility’s strategic plan. In 2013, California AB 327 was targeted to nurture a distribution resource plan (DRP) regime in which big IOUs will integrate distributed energy resources like solar into larger grid scale distribution plans. PG&E’s requested all new net-metered solar systems will provide more detailed generation data associated particularly with solar smart inverters (inverters able to adapt, act and share granular data).

NEM is a ship to embark both utilities and solar companies on a new track. Conjointly with decreasing solar cost, gradual removal of subsidy, incorporation of relevant fee, suitable policy and integration of solar at grid scale a sustainable industry structure will be realized.