Net metering is a compromise accounting method to accurately track electricity sent back to the grid. It allows utility customers who generate electricity on-site, usually from a solar PV rooftop system, to run their meter backward by sending the excess electricity generated back to the grid, or utility company. In turn, the utility company must pay the retail rate for the electricity sent back to the grid. This was done because it is the easiest way for the utilities to accommodate solar with their old meters and antiquated billing systems.
Simple. Right?

Well, not so simple. The complexity of the issues were oversimplified in a June 5 New York Times story by Diane Cardwell, entitled “Solar Payments Set Off a Fairness Debate."

Another article in CleanTechnica on May 21 by John Farrell, entitled “Net Metering: A Cost to Utilities or a Benefit?”, depicts more of the cost/benefit of net metering to the utility. 

The New York Times article suggests that if we continue “net metering,” the power companies will lose so much revenue that they will need to spike rates. The losers: low-income customers who cannot afford to get a solar power system. My violin is out for this B.S. sob story.

On the other hand, the CleanTechnica article suggested that net metering was a benefit to utilities. In fact, the real-life example used in New Mexico revealed that consumer on-site electricity generation helped the utility “avoid energy costs, line losses, capacity upgrades, and transmission costs worth over 15 cents per kilowatt-hour.”  In the end, the utility had a net benefit of 7.8 cents per kilowatt-hour. This probably won’t hold true when solar is 5 percent of the grid.

In looking at the cost/benefit of net metering, it is complicated. But we do need to consider the full array of costs and benefits to the retail customer and the utility.

Net metering was really created as a compromise to utility companies to account for energy sent back to the grid; as I said before, a compromise accounting method. It just assumed that the costs are equal to the benefits. It was never considered a subsidy as the utilities are claiming now.

The reason we have this compromise of net metering is that utilities have antiquated billing systems. In fact much of their bill systems are programmed with Cobol-based software systems and then augmented with hand tabulations. Cobol systems originated in 1960.

No wonder the utility companies and The New York Times depict such a simplistic analysis of the cost/benefit analysis.

If the utility companies want to start charging solar PV real-time pricing, they first have to upgrade their billing systems to handle the data. At that point, we should all be happy to appoint an independent consultant to account for the full benefits and costs of net metering -- offsetting any lost revenues to the overall system costs with cost savings on system upgrades and reduced operation costs -- we can then get a more precise assessment of how this net metering nets out.

The bottom line: once the utilities actually enter the 21st century, I would be happy to move away from net metering. If net metering truly costs the utility companies more, the solar producers (and others) should pick up the tab. If net metering is a bonus to the utility companies, they should pay the renewable energy producers the real value for their solar electricity. Deal?

Life seems so much easier without the facts.


Jigar Shah is the founder of SunEdison and the former CEO of the Carbon War Room.