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Nearly all households pay utility companies monthly for electricity service. As national energy consumption and issues of energy independence are increasingly being discussed, many are considering methods for reducing monthly bills by generating energy themselves. This is typically accomplished by installing a renewable energy generation system, such as a small wind or solar system, but may include a host of other technologies as well.
Interconnecting a renewable energy generator, while remaining connected to the local electrical utility, and receiving incremental credit for energy produced is referred to as net metering. Many states have enacted legislation to encourage net metering. Check the laws and utility programs to understand how net metering is applied in your state.
Net metering involves installing a special electric meter or reprogramming an existing meter so that electrical flow can be measured in both directions. Traditional electric meters only measure electricity flowing from the utility company to the customer. Because net metering customers are generating electricity in addition to using electricity, the meter must be able to measure the flow of electricity both from the consumer and the utility company. Depending on the type of meter currently installed, this may involve the utility company reprogramming the existing meter, or installing a new meter. Some utilities will provide this meter at no cost as part of the interconnection process, while others will pass the cost of this new meter on to the customer. Utilities typically encourage those considering net metering to contact them early in the process to identify meter considerations and to ensure that any wiring is done according to utility company specifications.
A net metering customer’s production and use of electricity will not be equal most of the time. When their production of electricity is less than their use, additional electricity is supplied by the utility company through the electrical grid. Alternatively, when a customer generates more electricity than they are using, excess electricity is transferred to the electrical grid and is used by other customers. At the end of the billing period, the net metering customer’s electrical production is subtracted from their total electrical consumption. The customer is billed only for the net amount (this is why the arrangement is referred to as net metering) of electricity consumed. In some situations a customer may produce more electricity than they use, in which case the excess amount may be carried over to the next billing period or transferred to the utility company at a price (often zero) determined in the net metering contract.
The contract provided by the utility company determines how often the account is “trued-up.” The true-up period is the point in time when the difference between production and consumption of electricity is computed. True-up periods are typically either monthly or annual, depending on the utility. Arrangements with the utility company will also determine the price of any electricity purchased from the utility company and the price at which any excess power will be purchased by the utility company.
Net metering offers several potential benefits. Net metering projects may provide a positive financial return for system owners. In these cases, the value of the reduction in monthly electric bills is larger than the cost of installing and maintaining the system. Some customers value knowing that some of the electricity they are using is provided by a renewable, local, or an alternative generating resource. Other customers value being somewhat self-sufficient in their electrical usage.
Opponents of net metering often cite these issues. First, net metering has potential to reduce revenue for utility companies. Customers who reduce their electrical bills also reduce their payments to the utility companies that help pay for fixed costs. Some utilities, especially smaller utilities with large service areas, express concerns that the loss of revenue from net metered customers does not reduce the cost of operation or service to those customers. To date, this has not been a significant issue due to the limited number of net metering customers. Second, some opponents question the return on investment for net metering systems. Most renewable energy generation systems require many years to provide a positive financial return. While some look at non-monetary values in renewable energy generation, those who look to the current return on investment as a measure of the project’s value may argue that there are other means of making changes to energy use that have faster payback.
A customer should ask themselves several questions when considering a net metering project, such as:
Governments, utility companies and non-profit organizations offer a variety of programs to support alternative energy development. These incentives may include tax credits based on capital costs or electrical production. Other incentives may be in the form of a grant or other direct payment. Free or reduced-cost technical or business planning advice may also be available. The requirements to qualify for these incentives vary depending on the specifics of each program.
The key economic issues for net metering are:
The revenue (reduced electrical charges) generated by a net metering project is determined by the amount of electricity produced and the rate at which it offsets electricity that otherwise would have been purchased at retail price from the utility company. In Montana the statewide average retail price for electricity in 2009 was 8.94 cents per kWh. This was below the national average of 11.55 cents. The financial performance of net metering projects improves as electricity rates increase. Additional revenue may also be available in the form of grants or tax credits. Renewable energy projects may also receive some revenue from the sale of renewable energy or carbon credits.