Net metering essentially allows homeowners and commercial entities to barter electricity with their host distribution utilities.  At night, when virtually all of us are drawing power from the utility grid, your meter spins forward, adding to your monthly utility bill.  When the sun is shining and the solar panel on your rooftop generates electricity, with net metering, it actually spins backwards, removing demand for power from the grid.

Utilities complain that this policy is unfair to customers who do not generate their own power.  In California, the nation’s most successful solar market, the state’s three investor-owned utilities – Pacific Gas and Electric (PG&E), Southern California Edison (SCE), and San Diego Gas and Electric (SDG&E) – have calculated that the amount of solar photovoltaic (PV) coming online by the end of 2015 will add up to approximately $1.3 billion in increased electricity costs for ratepayers who lack solar.  In the utilities’ view, net metering customers are not being charged a fee to help maintain the grid that serves everyone.

Proponents of solar energy see net metering as a phenomenal success story.  According to a report developed by Crossborder Energy consultants and released earlier this month, net metering actually provides more than $92 million in benefits to ratepayers of PG&E, SCE, and SDG&E.  Interestingly enough, this new report claims that the majority of the benefits of solar PV flow to customers that do not have solar on their rooftops – since they reap the benefits of reduced demand on utility grids, lowering overall system costs.  Only PG&E residents incur greater costs than benefits, according to the Crossborder Energy study.

Net Metering (NEM) Costs (Red) & Benefits (Green) per CA Utility

(Source: Crossborder Energy)

Bringing this issue to a boil is a California state law that places a cap on net metering.  Thanks to a ruling by the California Public Utilities Commission (CPUC), the cap is now higher than originally thought: 5,700 megawatts (MW) of solar PV. But the CPUC ruling would also end the net metering program as of January 1, 2015.  The amount of net-metered solar PV feeding into California’s grid is currently just under 2,000 MW, and PG&E expects that the number of solar PV customers using net metering within its service territory will reach its cap this year ­ mobilizing solar advocates to increase the cap even higher.

To put this issue in context, consider the fact that California’s fiscal incentives for consumers to install solar PV are dwindling to near zero under the so-called California Solar Initiative (CSI) program.  Solar PV costs are declining to near the utilities’ retail price for electricity, but in order for consumers to fully maximize the value of their solar systems, net metering is now more important than ever before.

The solar industry is not fully united on the topic of net metering.  Some, such as Craig Lewis, executive director of the CLEAN coalition, claim there is a better way.  He likes the feed-in tariff (FIT) model that has flourished in some European countries, such as Germany.  The FIT pays consumers for the power they generate as it flows onto the wholesale power grid, just like any other power source.  “I think both the utilities and net metering advocates are right,” Lewis told me recently, acknowledging that calculating the cost shifts and benefits associated with net metering is incredibly complicated.  “If taken to the extreme, net metering could lead to a downward death spiral for utilities,” he warned.

Here’s the kicker: California utilities are allowed to charge ratepayers up to $0.28 per kilowatt-hour (kWh) for solar PV systems they own and build, while new projects developed under the FIT model by non-utilities are charging as low as $0.12/kWh.