Decoding the Net Metering Mechanism for Renewable Energy

    The article gives an overview of the net metering mechanism for renewable energy sources for power generation systems.

    Page No 24 Review Of Net Metering Mechanism For Renewable Energy

    – The following article s authored by Dr L Ashok Kumar, Professor, Department of Electrical & Electronics Engineering, PSG College of Technology, Coimbatore

    A feed-in tariff (FiT) scheme provides a guaranteed premium price to the green electricity producer and puts an obligation on the grid operators to purchase the generated electricity output. The price is typically guaranteed for a long period in order to encourage investments in new renewable energy sources for power generation (RES-E) plants.

    The Net metering concept

    Net metering is an electricity policy which allows utility customers to offset some or all of their electricity use with self-produced electricity from RES-E systems. Net metering works by utilising a meter that is able to spin and record energy-flow in both directions. The meter spins forward when a customer is drawing power from the utility grid (i.e.using more energy than they are producing) and it spins backwards when energy is sent back to the grid (i.e. using less energy than they are producing). At the end of a given month, the customer is billed only for the net electricity used. Net metering works only for grid-connected systems and what makes it so beneficial, besides offsetting a home’s energy consumption with a RES-E system is that excess energy sent to the utility can be sold back at retail price. If more energy is produced than consumed, the producers receive the benefit for this positive balance, such as renewable energy credits (REC) which is then credited to the customer’s account towards the next billing cycle. If at the end of the year a surplus remains, then the customer depending on the utility policy may (a) pay for the total REC collected at avoidance cost rate or retail cost rate; (b) the total REC collected can be transferred and could be used as a compensation for a possible negative balance in the following years; (c) the total REC collected are granted back to the utility.

    Benefits and Misconceptions

    There are benefits that accrue to the utility, the customer, and the community from net metering. For the utility, a well-designed net metering policy provides a simple, low-cost, and easily administered way to deal with PV residential systems. Utilities obtain electricity and capacity from small, distributed PV installations. This is electricity that they don’t have to generate themselves or purchase from the market. For PV systems, this generation takes place every day of the year with a very high correlation with utility peak loads. Utilities call this a high load-carrying capability since sunshine is relatively easy to predict. Thus, utilities obtain the benefit of additional capacity in their service territory paid for by their customers. PV residential systems can also strengthen the distribution grid, especially, in rural areas. This is because voltage tends to drop at the end of long distribution lines when loads are high, and if it drops below a threshold level, the breakers will trip and a temporary blackout occurs. Grid-connected PV systems tied to the distribution grid strengthen voltage and improve overall service. And this grid support can defer maintenance and upgrades in the power distribution system, which is a tangible benefit to utilities. Customers benefit from net metering of PV residential systems because they obtain a long-term guarantee of low utility bills. Communities benefit from the investment in local generation. This investment not only increases local property values but increases local business opportunities as well. It is the difference between paying rent and paying a mortgage.

    There are also some misconceptions about net metering, such as that net-metering hurts the utility bottom-line by reducing revenues. This argument is similar to the one against energy efficiency where customers reduce their purchases of electricity and it hurts utility revenues. This would be true if all households bought a PV system and put it on their roofs. The current market is small and does not affect even a fraction of a percentage point on the bottom-line of any utility that reports these figures publicly. Nevertheless, a net metering policy should receive a regular review to monitor the progress of the technology and development of the market. If PVs, and especially, energy efficiency, which has a much larger potential for impacting rates than PVs, gets to the point where it actually reduces utility revenues, then rates should be restructured to guarantee that service.

    Another misconception is that net metering represents a subsidy from one group of customers to another. This argument has to do with the methodology that utilities use to charge customers. The argument is that utilities charge all customers in the same class of a single rate, which represents an average cost of doing business plus profit. Thus, a household that uses a lot of electricity during the day when the cost of obtaining electricity is higher pays the same as the household that uses electricity at night during off-peak hours. One could argue that one type of consumer subsidizes another based on patterns of consumption, etc. Utilities and their customers have supported this averaging formula for years. For example, building a new home represents a cost for a utility because it must invest in new generating capacity in order to supply this electricity. Therefore, customers subsidise solar systems through net metering no more than they subsidize the construction of new homes. Both represent expanding business opportunities, and electric utilities have figured out a way to accommodate this economic growth through existing rate structures for more than a century.

    A final misconception is that net metering represents a burden on small utilities. The opposite is actually true because large organisations are better equipped to handle more complicated arrangements. Net metering is as simple as it gets to administer because it requires no special equipment, no new rates to establish and no new procedures. All that is required is that the utility adds a line in the ledger for each net metering customer to carry forward credits until the end of the year. Compare this with the alternative of FiT supporting scheme, which requires the installation of another meter. Then the utility must make special trips to read this meter and re-adjust its accounting procedures to keep track of another meter for a single account. A survey found that the cost of reading the extra meters for residential PV systems alone outweighed the cost of net metering.

    Net metering schemes around the world

    In this section, the current existing electricity net metering schemes that are in operation in different countries around the world are presented.

    In Europe, only Belgium, Cyprus, Denmark, Italy and the Netherlands are using net metering. In particular, in Belgium, in the Brussels region, small RES-E auto producers with a capacity up to 5kW are eligible for net metering. In order to benefit from net metering, the installation shall be equipped with two different meters, a bi-directional and a green meter, which would measure the electricity produced by the RES-E auto producer.

    In Cyprus, the net metering concept was recently investigated and as a result, the net metering scheme will be initially introduced in a pilot phase for residential PV installations at different geographical locations in Cyprus.

    In Denmark, the regulation on net metering for the electricity producers for own needs is based on the act on electricity supply and authorises the exception of certain producers from Public Service Obligation (PSO), which is a surcharge that every consumer is obliged to pay and it depends on each consumer’s individual level of consumption.

    In Italy, RES-E systems up to 20kW or from 20kW up to 200kW, which have been commissioned after 31 December of 2007, can consume as much energy they produce for free.

    In the Netherlands, RES-E systems which are connected to the electricity grid through a small scale connection up to 240A are eligible and would have to pay energy taxes only to the net electricity consumption of their systems. However, the RES-E producers have to pay a grid use charge for injecting electricity to the grid.

    In some Australian states, the FiT is actually net metering, except that it pays monthly for net generation at a higher rate than retail. A FiT requires a separate meter, and pays for all local generation at a preferential rate, while net metering requires only one meter. The financial differences are very substantial.

    Ontario of Canada allows net metering for up to 500kW, however, RECs can only be carried for 12 consecutive months. Should a consumer establish a REC where they generate more than they consume for 8 months and use up the RECs in the 10th month, then the 12-month period begins again from the date that the next credit is shown on an invoice. Any unused RECs remaining at the end of 12 consecutive months of a consumer being in a REC situation are cleared at the end of that billing.

    In Thailand, solar, wind, micro hydroelectricity, biomass or biogas generators up to 1MW per installation that produce less than they consume in a monthly period receive the retail tariff rate for electricity fed onto the grid. For net excess production, producers are compensated at the bulk supply tariff, which is the average cost of generation and transmission in Thailand and it is about 80 per cent of the retail rate.

    In the USA, all public electric utilities are required by legislation to make available upon request net metering service to their customers. Overall, 47 states apply the net metering mechanism for the promotion of RES-E technologies, with the exceptions being Alabama, Mississippi, South Dakota and Tennessee. Most of the states place a capacity limit for the eligible RES-E technologies for net metering, except for the customers of investor-owned utilities (IOU) and the electric cooperatives of the state of Arizona, the state of New Jersey, Ohio and for the customers of Ashland Electric in the state of Oregon. Also, 28 states employ aggregate capacity limit for their net metering mechanism which is expressed as a percentage of the state’s utility’s peak demand. In 30 states any customer’s net excess generation (NEG) is credited to the customer’s next electricity bill for a 12-month billing cycle at the retail rate, whereas in 5 states it is credited at the state’s utility’s avoided-cost rate. Also, in four states the NEG is credited at various other rates, such as (a) the TOU rate (b) a rate predetermined by the utility and (c) as a percentage of either the retail or the avoided cost rate. Furthermore, in 8 states the NEG is credited to the customer’s next electricity bill via a combination between the retail rate and avoided cost rate or, between the retail rate and any one of the other various rates as mentioned above. The actual type of NEG credit is decided by a number of set criteria, such as the type of RES-E technology, the RES-E capacity limit, the type of customer and the type of utility.

    Indian state Net-metering system

    Net metering is a mutual agreement between electrical utility and consumer and this agreement allows the electricity generation from renewable energy source example solar PV system the solar PV cell system owner can sell the excess solar energy to the utility company. In Maharashtra state government there is a large potential of renewable energy sources from the generation of electricity this state promotes mainly on renewable energy system like wind, solar methods according to the policy framed by Maharashtra State electricity distribution company limited (MSEDCL) and Maharashtra energy development agency. The paper mainly focuses on two important aspects of the case studies of electricity usage for residential users in the city of  Nagpur in Indi. The survey was on the electricity bill before connecting the net metering and after connecting the net metering system with a grid environment. They were installed the rooftop solar unit for net metering infrastructure with a capacity  of  3 kilowatts and there is the cost of a renewable energy system approximately three lacs.

    This paper is reviewed according to the comparison between the consumption of energy in terms of units and their respective electricity bill. This comparison is taken in two aspects and the first bill details before connecting the net metering system to the smart grid and second aspect are billing table after connecting net metering with the smart grid while connecting this net metering to our smart grid the electrical bill charges almost reduced after connecting net meter. Tamil Nadu State Government also adopting net metering system policy and the main aim of the solar energy policy 2012 was to generate 3-megawatt solar energy by 2015. This vision can be achieved in many ways especially PV system in the residential consumer. This residential consumers also provide the net metering system along with considerable factor framed by Tangedco also this net metres is a bi-directional metre with AMR compatibility for import and export the electrical energy. Tangedco maybe paid the 75 per cent solar tariff if excess energy is generated at the end of the year. The state government of Tamil Nadu provide subsidy for residential PV system for 1-kilowatt panel capacity. The first net meter was installed in Mumbai by Tata Power company followed by a 3-kilowatt solar net metering power plant with backup for residence at Telangana state. The  Karnataka state government also install 10 kilowatts solar PV system for the residential consumer for implementing the net metering plants.


    In this work, an overview of the net metering mechanism for RES-E systems has carried out. In particular, the net metering concept was examined with its benefits and misconceptions. Furthermore, a survey of the current operational net metering schemes in different countries has carried out.

    Page No 27 Dr L Ashok Kumar
    Dr L Ashok Kumar, Professor, Department of Electrical & Electronics Engineering, PSG College of Technology, Coimbatore


    Please enter your comment!
    Please enter your name here