Net Energy Metering and Residential Solar

Kevin Tran
November 12, 2015

Submitted as coursework for PH240, Stanford University, Fall 2015


Fig. 1: Power vs. Time of Day for a solar system. Excess power generation (red in the top graph) can be effectively shifted to low generations times (blue in the top graph) with net energy metering. (Source: Wikimedia Commons).

In recent years, solar energy has grown astronomically in the United States. From 2013 to 2014, 6,201 MW of solar was installed, a 30% increase over the previous year. Residential solar was the fastest growing solar market with about 1,200 MW installed, a 50% increase over the previous year. [1] The cost of residential solar has in part been reduced by net energy metering, a billing policy that allows solar homeowners to receive credit for excess electricity generated. This policy has recently been the subject of scrutiny as solar customers, solar providers, and utilities debate the fairness and viability of the regulation.

What is Net Energy Metering?

Net energy metering (NEM) is a program implemented by state governments and utilities that allows energy customers to receive financial credit for excess energy generated that is exported back to the utility grid. [2] Though this policy applies to other forms of distributed generation like fuel cells or wind turbines, the residential solar market is the most impacted. With NEM, the costs of the solar panels are significantly defrayed over the lifetime of the system, resulting in energy prices competitive with utility rates.

For example, a customer's solar system peaks in generation at midday and gradually drops off to zero as sunlight fades. Under NEM, a customer can receive monetary credit for the unused energy at morning and afternoon and use that credit towards consumption at night.

Arguments for and Against NEM

On one side of the debate are solar system owners and installers. With NEM in place, the levelized cost of electricity (the cost per unit energy over the lifetime of the system) is reduced to levels equal to or lower than utility prices. [3] Solar installers are benefitted by the increased business from interest in solar systems. Increasing use of renewable energy sources reduces fossil fuel energy generation and the associated greenhouse emissions.

The primary opposition to NEM comes from the electric utilities. For utilities that profit on the volume of energy sold, the ability for customers to earn financial credit from solar energy reduces the revenue for that utility. However, numerous states have "decoupled" utilities meaning the utilities make profit from infrastructure investments instead of from amount of energy sold. Despite this policy, decoupled utilities have other arguments against NEM.

One argument revolves around the cost of the grid to utilities: the operation and maintenance of the grid infrastructure are the primary costs to utilities. These fixed costs are minimally impacted by the amount of energy transported through the grid. With NEM in place, customers who adopt solar would pay significantly reduced bills. The burden of covering the fixed costs would be shifted to non-solar customers, and rates would be increased. Higher utility rates would consequently motivate more customers to adopt solar, leading to a loop of increasing rates that places a heavy burden on customers unable to afford solar. [4] On a related note, though increased residential solar decreases morning and afternoon energy demand when sunlight is available, nighttime demand is unchanged. Utilities under NEM are forced to pay customers for their excess energy but realize limited financial benefit since power still needs to be procured at previous demand levels. [4]


As of today, state governments across the country deliberate and debate the merits of net energy metering. Net energy metering will continue to be a key issue as solar energy and other renewable sources become more established and economically competitive in comparison to traditional sources. Broadly, as new energy technologies are discovered and implemented, how these innovations connect and interact with the current grid infrastructure is of utmost importance.

© Kevin Tran. The author grants permission to copy, distribute and display this work in unaltered form, with attribution to the author, for noncommercial purposes only. All other rights, including commercial rights, are reserved to the author.


[1] "Annual Energy Outlook 2015," U.S. Energy Information Administration, DOE/EIA-0383(2015), April 2015.

[2] "An Act to Amend Section 2827 of the Public Utilities Code, Relating to Energy," California State Assembly, Bill AB-920, 11 Oct 09.

[3] R. T. Beach and P. G. MGuire, "Evaluating the Benefits and Costs of Net Energy Metering in California," Crossborder Energy, January 2013.

[4] World Energy Outlook 2013 (OECD Press, 2013).