3.10 Tariff and Market Issues

3.10.4 Net Metering for DER Systems

Under the Section 1251 of the Energy Policy Act of 2005, net metering is defined as a service to an electric consumer where electric energy generated by a customer DER system is used to off-set the electric energy provided by the utility to the customer at the customer’s rate during the equivalent billing period. For instance, on-peak generation would off-set on-peak load, and vice versa. Smart meters were developed to handle the time-sensitive, two-way flow of power, and monitored the net power flow as well as the generation (and/or load) for each time period (typically each hour or each 15 minutes).

With net metering, utilities purchase power generated by the DER systems at a rate that is expected to reflect the avoided marginal generation costs that the utility would otherwise have to purchase.  Most net metering laws involve annual settlement of credits and debits, with only a small monthly connection fee.

In the short term, this appears to benefit both the DER customer and the utility.  However, as more customers acquire DER systems, these avoided marginal generation costs generally turn out not to reflect the true distribution utility cost for serving these customers with DER systems. In fact, those additional costs would have to be shifted to other customers without DER systems if the utility were to be able to continue operating and maintaining the distribution system.  For example, a 2012 report on the cost of net metering in the State of California, commissioned by the California Public Utilities Commission (CPUC), showed that those customers without distributed generation systems will pay $287 in additional costs to use and maintain the grid every year by 2020. The report also showed the net cost will amount to US$1.1 billion by 2020 .

Many utilities and their regulators are trying to find equitable solutions to this net metering problem. It is a thorny problem and no one answer can solve all the issues.