by Roberto Verzola
[Roberto Verzola is the author of Crossing Over: The Energy Transition to Renewable Electricity, a book published by the Friedrich Ebert Stiftung which was launched on March 23, 2015. The online version of the book as well as the article this post comes from can be downloaded freely. The author may be contacted at email@example.com. All references are indicated in the e-book.]
Net metering is one of the most effective methods of encouraging the rapid deployment of distributed renewable energy (RE) generation. Net metering is even better than feed-in-tariffs (FIT), the current darling of the RE industry, if the FIT rate is lower than the retail price of electricity.
How It All Began
The world’s first net-metered connections occurred in 1979, in the U.S. state of Massachusetts, when 28-year old architect and solar pioneer Steven Strong put solar photovoltaic (PV) panels in his two building projects, a 270-unit apartment complex called Granite Place with a 5-kWp system added on, and a Department of Energy–funded solar house called the Carlisle House with a PV system integral to its design. The story of Strong’s innovation is told by Bob Johnstone is his book Switching to Solar:
“The Carlisle House as it was called featured passive solar heating . . . plus 126 solar electric panels capable of generating a whopping 7.3 kilowatts mounted on its southern-facing roof. More accurately, the PV panels were the roof. . . .
“The Carlisle House was designed to draw utility power from the grid when necessary. Conversely, when the solar cells were turning out more power than the house could use, the excess power would be fed back to the utility. A small meter mounted on the wall of the dining room told the story in kilowatts. When the utility power was drawn it ran forward. But when the PV was pumping out excess power, it ran backward. . . .”
The curious thing about Strong’s innovation is that “he had forgotten to inform Boston Edison, the local utility, of his plan to feed excess wattage into its distribution network.” The electric utility was unaware that net metering was already happening. The potential was there all along. Strong was just the first to discover and use it. Johnstone continues Strong’s story:
“Strong mentioned his concern to the building’s co-owner, a developer of Irish descent named Peter O’Connell. The latter did not hesitate. He asked Strong whether the solar system was ready to turn on. On being informed that it was, O’Connell simply threw the switch. Nothing went bang, everything worked as planned.
“In June 1979 . . . O’Connell invited Carter to attend the grand opening of Granite Place that September. Once the president had accepted, the developer invited various local dignitaries including the governor, the state energy secretary, and senior executives from Boston Edison. But Carter had to cancel at the last minute, sending Denis Hayes as replacement. In his speech, the director of the Solar Energy Research Institute conferred his blessing on the utility for allowing power from the building’s PV panels to be fed into its grid. The state energy secretary said essentially the same thing. When the utility executives’ turn to speak came, they had little choice but to praise the project, too. Interconnection was, for the moment at least, no longer an issue.
“. . . power companies were delighted to bask in the positive publicity that flowed from being seen supportive of renewable energy. This was especially welcome at a time when so much bad publicity was associated with the shutting down of malfunctioning nuclear plants like Boston Edison’s Pilgrim power station on Cape Cod Bay. In 1983, the utility commissioned Strong to build a solar-powered energy-efficient house in Brookline, Massachusetts. Impact 2000, as the house was dubbed, subsequently became the subject of a series on public television, a wonderful PR coup for the power company.”
That was how the discovery called net metering got to an auspicious start. Soon, solar and wind pioneers throughout the U.S. were connecting their setup to the grid too. Strong eventually won a number of awards for his solar work. The U.S. Department of Housing and Urban Development granted him a $156,000 award for Granite Place; Time Magazine named him environmental “Hero of the Planet” in 1999; the American Solar Energy Society gave Strong the society’s highest honor—the Charles Greeley Abbot Award—for “achievement in the advancement of solar energy applications” in 2001.
Net Metering Means Parity Pricing
Net metering was a very simple yet powerful idea: a single meter that ran forward when power flowed from the grid into the house, and backward when power flowed the other way. By default, the price of incoming power was the same as the price of outgoing power. This was called parity pricing.
Let us see what happens under the net metering scheme. Let us start with a pro-RE consumer who has not installed solar panels on his rooftop yet. Assume that he and a neighbor each consume 200 kWh, for a total of 400 kWh of electricity per month. Assume further that 300 kWh of this is produced by a base-load generating company (genco) and 100 kWh by a peaking genco. These 400 kWh are distributed by a transmission company (transco) and a distribution utility (DU).
Suppose the pro-RE customer then installs enough solar panels to generate 50 kWh in a month, all of it for self-consumption; there is no surplus to export. Now, he needs only 150 kWh from the grid. The peaking genco now needs to produce only 50 kWh, reducing the total output of the two gencos to 350 kWh per month. This also reduces to 350 kWh the total electricity carried by the transco and the DU. The peaking genco and the transco/DU have lost some market due to self-generation by one of their customers. But this is no different from the market they lose when a customer decides to save on electricity by turning their air-conditioning units off more often. (See Figure 2.)
On the gain side, the genco that reduces output now emits less greenhouse gases and local pollution, which is beneficial to society as a whole. In addition, the reduced output from the peaking genco, whose price is invariably higher than average, also brings down the average generation cost of grid electricity, a benefit enjoyed by all DU ratepayers in the form of a lower retail price for electricity.
Now suppose the pro-RE customer increases his RE output further to 100 kWh. However, he could only use 50 kWh. So the other 50 kWh, his surplus, automatically goes out to the grid.
A similar situation happens if you use a water pump to introduce an extra 50 gallons into your piping system. Assuming all your pipes are already full of water, all your taps are closed, and there is no check valve to prevent water from flowing out, your 50-gallon surplus will go out through your water meter seeking a path of least resistance―an open tap. As the surplus goes out into the distribution pipes outside, the meter rotates backward reversing your water consumption by 50 gallons. Those 50 gallons will eventually register on the meters of the nearest neighbors with open taps. Did the meter reversal cause any loss to the water utility? No, because an equivalent forward movement occurred in the meter of your neighbor with the open tap. The liability extinguished when your water meter reversed was simply transferred to your neighbor.
Similarly, the exported solar surplus is consumed by the nearest neighbor with some appliances turned on and this registers on the neighbor’s meter. (In reality, the surplus might be split among several neighbors. For simpler exposition, we are assuming one neighbor only.) Although he imported 150 kWh from the grid, his meter has reversed by the amount of his export. Thus, his meter reading―his net energy consumption― is now only 100 kWh. His neighbor still consumed 200 kWh for the month, but 50 kWh of this is now clean, renewable electricity.
Because any exported surplus registers on the neighbor’s meter, this fully extinguishes his liability for an amount equivalent to his export, and transfers the liability to the neighbor. In effect, the RE exporter received 50 kWh of non-renewable electricity from the utility and replaced it with 50 kWh of renewable electricity, which the utility delivered to his neighbor. The reversal of the electric meter reflects this transfer of liability perfectly, making net metering the simplest way to account for everything. This is a very important point missed by most who argue against net metering: any reverse movement in the exporting meter registers as a forward movement in the neighbor’s meter. Thus the DU does not lose anything in the process. The liability is simply transferred from the RE exporter to his neighbor. (See Figure 3.)
Another useful analogy for those who have a hard time understanding the net metering pricing issue is to consider a similar situation with LPG tanks. Suppose you order three LPG tanks from a distant supplier that charges a high delivery fee per tank (due to the distance). When the tanks arrive though, you have just started operating a backyard biogas digester. Thus you now only need two instead of three tanks. So you make arrangements with your next-door neighbor, for him to get the third tank instead. He will of course pay for both the tank and the delivery charge. Thus, you simply transferred liability for the third tank to your neighbor, and the supplier did not lose anything in the transaction.
Under net metering, there was no need to install any new utility equipment or to adopt any change in its billing and accounting procedures. The scheme was simplicity itself, making it accessible to even low-income consumers who could only afford very small-scale PV systems. All they need are solar panels and a special “grid-tie” inverter that can sync with the grid. No batteries needed.
Furthermore, the government did not have to provide any subsidy for the net metering scheme at all. It just needed to make sure that the gencos, transcos and DUs affected did not put up artificial barriers to make it difficult for pro-RE consumers to send their surplus out to the grid and use the scheme.
Net metering encourages pro-RE electricity consumers to spend their own money to set up PV systems even without government subsidy. In turn, these solar PV owners bring the following benefits to other electricity consumers and to society as a whole:
1) they help phase out fossil fuel-based generating plants that cause local air and water pollution, emit climate-changing greenhouse gases, and displace local communities;
2) they replace electricity generated from expensive peaking plants with cheaper electricity, and therefore help bring down the average cost of electricity;
3) by consuming electricity at source, they reduce system losses which can help bring down further the average cost of electricity in utilities that pass on system losses to their ratepayers;
4) they generate electricity without putting any additional load on existing high-voltage transmission and distribution lines or requiring the construction of new ones;
5) they help improve the country’s energy security by relying on locally available sunlight instead of imported fuels;
That is a lot of benefit, considering the relatively small effort required from government in mandating its implementation. Net metering does not need any government subsidy. But it needs the government to keep utilities off the backs of rooftop solar owners and small wind turbine owners.
The idea spread gradually in the 1980s. In 1981, the Arizona Corporation Commission approved net metering below 100 kW, the first among U.S. public utility commissions (PUC) to do so. The next year, the Massachusetts PUC followed suit. In 1983, Minnesota became the first U.S. state to enact a net metering law. More state PUCs and legislatures followed suit: the Indiana and Rhode Island PUCs in 1985, the Idaho and Texas PUCs in 1986, the Maine PUC in 1987, and the New Mexico and Oklahoma commissions in 1988.
By this time, however, utilities had turned hostile. They now saw net metering as a threat to their business model. Closing ranks, they would henceforth lobby strongly against the scheme and find various ways to undermine it even if it was adopted as policy. The battle lines were being drawn.
About the Author: Roberto Verzola has a degree in electrical engineering and has worked in the information technology sector since the late 1980s. But he has also been a social activist for most of his adult life, including three years as a political prisoner in the 1970s. Earlier this year, his book “Crossing Over: The Energy Transition to Renewable Electricity” was published by the Philippine office of the Friedrich Ebert Stiftung of Germany. Verzola is president of the newly-created Center for Renewable Electricity Strategies, a non-profit organization focused on helping local governments in the Philippines set up showcase communities which source 100% of their electricity from renewable sources. in a way that is economically viable both for investors and consumers. He may be reached at firstname.lastname@example.org.