In recent decades, renewable energy technologies have provided increasing quantities of electricity to the nation's transmission grid. Some of these technologies function almost exclusively as large, centralized powerplants, such as dish Stirling solar thermal facilities and geothermal plants. Other renewable technologies, like wind turbines and photovoltaic panels, are more flexible; they can be grouped into large multi-unit facilities, or distributed to supply electricity to individual households or businesses. While energy entrepreneurs will continue to develop large renewable energy projects, several analysts expect America's energy system to feature increasing quantities of distributed renewable resources.

In the following REPP Issue Brief, attorney and consultant Tom Starrs discusses net metering, a policy tool that encourages the installation of distributed renewables. (Although many of the examples in this paper refer to photovoltaics, net metering can benefit many other distributed resources as well, including small wind and water turbines.) Net metering alters the rates consumers pay for electricity. Generally, if homeowners install their own renewable energy generator to supply part of their power, they continue to purchase backup power from their local utility at the customary retail rate. Should the generator produce more power than a homeowner needs, the power company buys the surplus at wholesale rates, which are considerably lower. Net metering refers to an agreement that the power company will buy and sell power to these customers at identical rates-that is, consumers pay only for the "net" electricity used. Generally, net metering improves the economics of the transaction slightly in the customer's favor.

In turn, the economics become less favorable for utilities, many of which therefore oppose net metering legislation. Starrs proposes a useful compromise: policymakers should set a cap on the amount of net metering capacity that a given utility must contract for. In this way, net metering can supply a modest incentive to early adopters of renewable technology, while limiting the potential loss by the utility to a tiny fraction of total revenues.

In addition to the boost that net metering provides for companies that manufacture photovoltaic panels and small wind and water turbines, it is important for the incremental push it gives the energy system toward a distributed future. To the person who uses them, distributed energy resources are a much more meaningful part of daily life than distant, easy-to-ignore powerplants represented by a monthly bill. When consumers take greater control over their energy decisions and use, they are likely to make more thoughtful energy choices. Net metering is a small but important step in encouraging the emergence of a distributed, clean and responsible energy sector.

REPP thanks Tom Starrs for this useful summary and its Editor, Susan Conbere, for her indefatigable efforts at producing the final paper.

Adam Serchuk, April 15, 1997

Abstract Article