How does net metering work?

Print More
Solar panels on a city rooftop

Photo: Sundial Solar

As the cost of renewable energy sources like wind and solar continue to drop, it’s important to examine the policies that have helped shape our current energy landscape.

History of net metering in Minnesota
In 1983, Minnesota became the first state to enact a net metering law based on the retail rate of electricity. This law applies to all electric utilities and has served as a bedrock energy policy for more than three decades. Now, more than 40 other states have followed Minnesota and adopted a net metering law.

How does it work?
With net metering, you receive a fair bill credit for your electricity generation. First and foremost, when a customer’s wind or solar system is generating energy, it is first used on-site.  However, there are times, like the middle of a summer day when a homeowner is at work, when the customer’s system sends the energy onto the grid. The flipside is also true: there are days when the consumer would need more power than is produced by their solar installation. Net metering essentially allows consumers to roll over the value of any unused electricity that they may have generated and use it when they need it ─ like rolling over cellphone minutes from bill to bill.

Encouraging distributed generation
Net metering encourages distributed generation by giving consumers confidence that there are clear rules when investing money to install solar, wind, or other generation on their own property. Such market certainty also encourages solar businesses to set up shop in Minnesota because there are long-standing laws in place.

Distributed generation of electricity can be a valuable asset within the electrical grid. A single power plant going down can pose immense challenges to entire cities and states. But when that same amount of power comes from hundreds or thousands of small local sources, it distributes that risk more evenly throughout the system while drastically reducing the distance your electricity must travel in order to be used. This added stability can provide real cost savings for a utility and all of its customers.

Defining the value of distributed generation
Many of the arguments against net metering tend to rely on basic math and rhetoric that simplifies the electrical grid down to a simple formula of ‘A+B=C’. In reality, the relationship between electrical generation and market costs is much more complex, with dozens of variables. Those pushing to repeal net metering policies never mention all the benefits of solar: it’s pollution free; it’s almost always available on the hottest days when demand for energy is high; it’s a hedge against price volatility of natural gas; it’s generating energy right there on the distribution system and doesn’t need to travel hundreds of miles on power lines. Several studies have considered these factors, and many others, and come to the conclusion that net-metered customers in fact pay more than their fair share.

Future examination
At this point, while solar energy is still in its infancy, it would be premature to reshape a net metering policy that has been found to provide a solid foundation for farmers, homeowners, businesses, and utilities to develop a well-rounded solar industry in Minnesota.

In the last few years the price of solar has been cut by three quarters, but solar is still less than one percent of our energy supply in Minnesota. And if you were to look at the solar installations that are net metered, it’s well below one tenth of one percent of our electric supply.

When net metered customers occupy a practical share of the energy market, say 5 percent, there should be a more careful reexamination of how this distributed generation is impacting our electrical system. Until then, we should be focusing on improvements that ensure net metering provides fair value for both consumers and utilities.

Comments are closed.