Background

Recently, new concerns have been raised about the dangerous environmental and human health impacts of fossil fuel-fired power plants. At the same time, there is growing uneasiness about the stability of our current energy supply. Current conditions make it clear that we must accelerate our transition to a cleaner and more sustainable energy future.

With this in mind, there have been many state-based initiatives to try to move our energy sector away from harmful fossil fuels and toward a more stable and environmentally-sensitive system. Such initiatives include Renewable Portfolio Standards (RPS), tax incentives for renewable energy, and programs to make it easier for customers to install their own green electricity generators. The latter initiative is commonly known as net metering.

Net metering is a simple and effective way to increase investment in renewable energy technologies without placing an excessive burden on electric service providers. While the federal government has considered national-level authorization of net metering, Congress has so far failed to pass any such provisions into law. In the absence of federal leadership on this issue, states have once again taken the lead in advancing a progressive and environmentally-friendly energy policy. Presently, there are 36 states that provide their electricity customers with a net metering option from either all or selected utility providers.

These programs allow individual homeowners to receive credits for the electricity that their renewable energy generators produce during the day, while many of them are at work and therefore using little electricity. These credits help to offset the evening electricity consumption of these same homeowners (particularly those with solar systems), while reducing the overall burden on electric utilities during peak daytime hours by feeding power into the grid when it is needed most. In this way, net metering programs provide benefits not only to individual homeowners who maintain renewable energy generators, but also to the electricity system as a whole.

Despite some differences, each state initiative has the same core components. These include designations of eligible customer classes (e.g., residential, commercial, industrial), limits on the size of the generating system, and instructions on how excess energy generated by the customer will be credited or compensated, if at all. Most states also limit the generating systems by the source of energy, not just the size of the system. Iowa, New Hampshire, Texas, and California, for instance, limit the eligible generating systems to renewable sources only (e.g., wind, solar, geothermal). This critical provision ensures that diesel generators or other environmentally-harmful energy systems are not inadvertently encouraged through these net metering laws and that only those systems intended to be encouraged, the cleanest and greenest renewable energy systems, qualify under state law. Another critical feature of net metering bills is a streamlining of the interconnection requirements establishing equipment standards and limiting charges and fees that utilities can levy.

State programs can differ with respect to billing, however. Some states allow credits for excess energy consumed or produced to roll over to the next month. This continues monthly until the end of the year when the net energy purchased is calculated and the customer must pay the utility for the amount that they have consumed. If, however, the customer produced more energy than they consumed, some states require the utility to compensate the customer for any excess energy that was sent to the grid. Many states require utilities to pay the equivalent of the wholesale cost of the excess electricity generated by a net metering customer.

Annual billing allows for the seasonal variations in output that are typical of wind, solar, or micro-hydro generators. Absent annual billing methods that roll over monthly energy use, customers would have to pay utilities for the energy used during more energy-intensive months and would not be compensated for months when their electricity production is in excess of their use. With the annual billing method, seasonal differences in energy use and production are accounted for and an excess production in one month can cancel out a month of decreased production and increased consumption of electricity. Hence, customers who have installed renewable generators are able to take full advantage of their investment in renewable energy with annual billing.

Net metering is a promising program that can help decrease our reliance on fossil fuels, clean our air of dirty fossil fuel emissions, and contribute to the growth of new manufacturing and service economies in states. However, wide discrepancies in the structure and implementation of these laws limit the environmental and human health benefits associated with net metering. The sample legislation provided in this policy issues package incorporates many of the best elements from the most progressive state laws, and seeks to maximize the environmental and economic benefits of a net metering program.