How it works

Although customers with their own generators have been able to connect to the grid since 1978's Public Utility Regulatory Policy Act (PURPA), net metering simplifies the power transaction and improves the economics. In a typical net metering arrangement, when a generator produces more than the customer's demand at that moment, the excess power is fed into the grid, and the meter spins backwards. When the generator produces less than the customer is using, the meter spins forward as usual.

At the end of the month, the customer's bill reflects the total net consumption or production for that month. At the end of the year, if the customer has produced more power than he or she consumed, the net excess generation (NEG) is settled, with the utility either paying the customer for the power, or receiving it gratis. For intermittent resources like wind and PV, net metering uses the grid like a battery, "storing" the power on the wires until it is used later.

Net metering provides an economic boost to grid-connected small power systems, which are marginal in most cases. Since self-generating customers are essentially subtracting power from their bill, the power they produce is worth the retail or unit rate. Fixed charges are unchanged.

Under PURPA, utilities are required to pay only the wholesale cost of power, effectively treating even tiny PV systems as independent power producers. This IPP approach requires expensive installation of two separate meters for incoming and outgoing power, which adds both cost and complexity. Net metering does away with that requirement.