Net Metering Will Continue to Spur Growth In the US Renewable Energy Market

Net metering (NEM) policies require utilities to compensate customers who generate their own electricity from behind-the-meter sources (such as rooftop PV) for power exported to the grid at the full retail rate. Electricity from the customer flows back to the grid when generation exceeds use, which has the effect of offsetting electricity consumed by the customer at a different time. This exchange typically occurs through a single bidirectional meter at the customer site.

Policy Popularity

As of 2019, 41 states in addition to Washington, DC, American Samoa, the US Virgin Islands, and Puerto Rico, have mandatory NEM policies in place. Some utilities have voluntarily offered NEM arrangements to customers, as well. For example, Idaho and Texas do not have mandatory NEM policies, but some utilities in those states do offer NEM. From the customer perspective, net metering is considered a strong incentive for residential PV as it creates a reliable means for customers to recover costs on their capital investment—particularly during peak hours when retail rates are highest. However, utilities generally take the opposing view and have pushed back against NEM in many states. Since retail rates include capital and maintenance charges, power providers argue that the requirement to reimburse customers at retail prices amounts to a solar subsidy paid by non-solar customers. Like feed-in tariffs and other market mechanisms, objections like the above have led some states to reconsider their NEM policies.

Do Alternatives Work?

In 2018, seven states—Arizona, Georgia, Hawaii, Indiana, Nevada, Maine, and Mississippi—had replaced NEM with alternative policies that aim to more fairly compensate PV owners (e.g., by requiring compensation at wholesale rather than retail rates). However, in 2019, Maine and Nevada restored their NEM policies while Kentucky initiated development of a NEM successor tariff. New Hampshire and Washington moved forward bills that expand NEM by increasing system size limits or aggregate capacity limits. Others, like Hawaii, have essentially eliminated NEM altogether. Solar PV customers in Hawaii can either choose to Smart Export, which requires an energy storage system that customers charge during the day and use for power at night, or opt for “Customer Grid Supply Plus,” where they can export power to the grid throughout the day but receive less-enticing compensation.

The California Public Utilities Commission (CPUC) created a next-generation program known as NEM 2.0, which extends California NEM benefits to time-of-use (TOU) rates, interconnection fees, and non-bypassable charges. Under TOU plans, electricity is charged at different rates based on the time of day. The highest rates are charged at times of peak demand, which are late afternoon and early evening. Meanwhile, the lowest rates are charged at off-peak times, which are late at night and early morning when electricity usage is lowest. Therefore, consumers will receive per-kilowatt-hour credits for their solar electricity that are equal to the value of a kilowatt-hour of utility electricity. However, they will need to sell maximum energy to the grid during peak demand time in order to get the highest net metering credits.

Advances in storage, smart home technologies, and transactive energy will create both opportunities and challenges for utilities and distribution system operators moving forward, and the US will continue to make progress toward a renewable energy future.