The Origins and Meaning of Net Metering
Traditional electricity meters only measure energy (KWH) that is provided to an end user (incoming only). As a result, a person or company that generates electricity on site (a “customer generator”) doesn’t gain much benefit if they produce more power than they consume. However, net metering allows you to measure incoming AND outgoing electricity, so you can “take credit” for electricity that is fed back into the electrical grid. Net metering is defined as metering that measures the difference between the electricity supplied by a power company and the electricity generated by a customer-generator when any portion of the electricity generated by the customer-generator is used to offset part or all of the customer-generator’s requirements for electricity.
Pennsylvania Electric Distribution Companies (EDCs – the “big” power companies in the state) are required by 52 PA Code §75.11 to provide Net Metering to customer generators. Rural Electric Cooperatives are not required to provide net metering, but may permit it and have rules of their own.
Why Does This Matter?
Let’s say, for example, that you have a home that gets its electricity from an EDC, but you also have a photo voltaic (PV) array there (we’ll use this scenario as an example throughout this fact sheet). Since the output of the PV array is variable and the electric load of your home is variable, it is likely that sometime during each 24 hour period the output of the PV array will exceed the electric load of your home. At those times, your PV array will actually supply energy to the EDC. At other times, for example at night, the output of your PV array will be zero so your home’s electric load will be greater than the PV output. At these times, the EDC supplies energy to your home.
The Effect on your bill
The effect of this process and the rules that apply to it enables you to “bank” the excess PV production with the EDC at its full value. That is, you receive full credit for energy you supply to the EDC including generation, transmission and distribution charges. As a result, you end up paying for less electricity.
Since net energy metering requires that the meter measure two quantities: 1) energy delivered by the EDC to the customer and 2) energy delivered by the customer to the EDC, the traditional dial type meter must be upgraded to an electronic meter. The electronic meter measures the two quantities then calculates and displays the ‘net’ or difference. These are the data needed to fulfill the net energy metering requirements.
An electronic meter, like this one, is able to provide net metering for your electricity use.
How Does it Work?
EDCs generally bill their customers on a monthly basis. Depending on the capacity of the PV array compared to the home’s electric load, the PV array may produce more energy than the home uses during some periods of the year. When this happens, the “surplus” net production energy for the month is carried forward to the next billing period.
The following table gives an example of monthly energy use and generation for a home with a PV array. We’ll assume that the “price to compare” cost of electricity is 5.6 ¢/KWH, and the full retail rate is 7.3 ¢/KWH.
In the example above, the PV system produces more energy than the home uses on an annual basis. However, without net metering, the customer would still have to pay for electricity in the 5 months where consumption is more than generation – and would pay zero in the other months. With net metering, the customer ends up not paying for any electrical energy. Here’s how it works: the net energy produced in June through September is credited against the October through February shortfalls. Therefore, the customer avoids paying for any energy at the full retail rate.
The customer’s bill usually shows the energy that is not billed due to net metering effect. At the end of each year, the EDC must compensate the customer-generator for any (annual) excess energy generated by the customer-generator over the amount of energy delivered by the EDC during the same year. The value of this compensation is based on the EDC’s “price to compare” (most electricity bills list this value). In summary then, this customer-generator avoids paying for his/her entire home electricity consumption, and even gets a check at the end of the year.
Renewable Energy Credits (RECS)
In addition to paying for less electricity, certain generating devices may entitle the customer-generator to earn RECS. A REC is created when one megawatt-hour (MWH) of electricity is generated using renewable resources. EDCs are required to have a certain portion of the electricity they sell provided by renewable resources. If an EDC doesn’t have the required amount, they may purchase RECS to make up the shortfall. A REC has a monetary value established through an auction process and can vary. RECs have recently traded at about $30 each. In our example, the customer-generator produced 23,751 KWH or 23 MWH (23 RECs) worth nearly $700. Penn State Extension coordinates a Renewable Energy Generators Cooperative that helps smaller customer- generators take advantage of the REC market.
The basics of net metering are relatively simple, but the rules, regulations, and procedures for net metering can sometimes be confusing. Each EDC must submit their net metering plan (tariff) to the PA Public Utility Commission (PUC). Annual reports are also required by the PUC. Since PA has several EDCs within its boundaries, details regarding net metering methods and price to compare will vary from company to company. However, all EDCs must comply with the PA Code referenced above.
In summary then, our example customer-generator avoided paying for the electricity he/she used (20,550 KWH @ 7.3¢ or $1,500), got paid for net energy (3,201 KWH @ 5.6¢ or $180) and earned 23 RECs (23 @ $30 or $690), a total of $2,370. This is much better than the $584 that he/she would have paid if we did not have net metering or RECs, and goes a long way towards making renewable energy generation economical.
For More Information
To learn more, visit Penn State Extension’s Renewable and Alternative Energy website – click on “Energy Use and Efficiency”.
Prepared by Gary Musgrave, Penn State Extension, Westmoreland County. Reviewed by Daniel Ciolkosz and Edward Johnstonbaugh, Penn State Extension
TitleThe Origins and Meaning of Net Metering
SeriesRenewable and Alternative Energy Fact Sheet
This publication is available in alternative media on request.