Net Metering

Although generally associated with renewable technologies, net metering is also applicable to small combined heat and power (CHP) systems. Like interconnection standards, there are many examples from which states may draw when designing net metering rules. However, not all rules are created equal.

According to the Interstate Renewable Energy Council's most recent (May 2010) review of state net metering policies, 43 states and the District of Columbia have net metering rules in place, but less than one-third of those give eligibility to small CHP systems. Those states include: Arizona, Florida, Maine, Maryland, Massachusetts, Minnesota, New Mexico, New York, North Carolina, North Dakota, Oklahoma, Pennsylvania, Utah, Vermont, Washington, Wisconsin, and the District of Columbia.

Net metering allows owners of small distributed generation systems to get credit for excess electricity that they produce on-site. Under net metering rules, the customer installs a bi-directional meter that spins backwards when electricity is being sent back to the grid, offsetting the electricity purchased at another time.

Two aspects of net metering rules particularly affect the economics of distributed generation systems: the means of compensating system owners for net excess generation (NEG), and the rules for carrying over excess generation credits from one month to the next.

Electricity produced in excess of on-site needs over a billing period is called net excess generation (NEG).  Many net metering policies allow unused credits from excess generation to be carried over to the following billing period for up to 12 months, at which point any remaining kWh credits become property of the utility.  However, a few leading states and the District of Columbia allow NEG to be carried over indefinitely, avoiding the risk to system owners of not being compensated for electricity they produce.

Distributed generation system owners are often compensated for excess generation either at the utility's avoided cost, or, less often, at higher retail rates.  The latter is preferable, as it equally values the kilowatt-hours bought from the grid and the kilowatt-hours that distributed generation system owners sell back to it.  Compensation at retail rates also decreases payback times for installed systems.

The levying of fees on net-metered systems, along with rules that set overly strict limits on individual system and aggregate capacity size, also serve as barriers to deployment of CHP and other DG systems.  Net metering fees, like demand charges, add to the economic burden of CHP system owners, and are often unjustified.  Limits on individual and aggregate system capacities can prevent system owners from installing the most efficient or cost-effective systems, and sometimes even prevent them from meeting on-site load requirements.  Any size limits should be based only on objective engineering standards and facility load requirements.

Best practices for net-metering include:

• Eligibility for all distributed generation technologies, including CHP
• Eligibility for all customer classes
• System size limits that exceeds 2 MW
• No limit on aggregate capacity of net-metered systems as a percentage of utility peak demand
• Indefinite net excess generation carryover at the utility's retail rate
• Prohibition of special fees for net metering
• Third-party ownership and meter aggregation

The Interstate Renewable Energy Council has produced a list of each state's net metering standards. Also see the Network for New Energy Choice's 2009 version of "Freeing the Grid" for a state-by-state scorecard on interconnection and net metering standards.