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Nothing but Net

Published: October 9th, 2017

By: Brian M. Stephens Anna H. Long Michael D. Minton

The potential for development and widespread use of renewable energy sources has always been plagued by a single question – are they financially feasible?  Solar generated energy is no exception.  At the heart of the financial viability question for solar energy is a concept called “net metering”.  Loosening restrictions related to net metering, some say, is the best way to foster widespread solar power energy generation and usage.  But, to understand why that may be the case, it is imperative to first answer the question: what is net metering?

The phrase “net metering” can be defined in (i) a political/environmental policy context or (ii) a technical/applied engineering context.  In the political context, the phrase “net metering” is most often used generically to refer to the policy of allowing individuals who produce their own energy from a renewable resource to realize a direct benefit for that production from the utility company which would otherwise be providing such energy.  In the technical context, conversely, “net metering” is used to generally describe the recording and reimbursement mechanisms by which the individual who produces energy is reimbursed from the utility company which would otherwise be providing the energy.[1]  Historically, any individual could produce and use his own energy – including his own electricity.  The net metering concept, thus, does not describe the simple ability to produce and consume one’s own energy.  Rather, the net metering concept, in both the political and the technical context, describes the means by which a person can: (i) produce his own energy and (ii) more importantly, get compensated for the production of that energy from the applicable public utility.

Over time, different methods have evolved to compensate an individual energy producer for contributing his power to the grid.  One such method was the, so-called, feed-in tariff method.  In general, the basic concept of this method permitted an individual power producer to be compensated for the power he contributed to the grid[2] through a long-term contract which set out a schedule for the rate of compensation.[3]  That compensation did not directly offset against the producer’s normal electric bill – that is, the normal electric bill did not show the amount of power contributed back to the grid as directly offsetting the amount of power consumed.  Rather, participating utility companies recorded the amount of normal power consumption separate from the amount of power production.  The producer contributing power to the grid under a feed-in tariff arrangement received a bill for his normal electric consumption.  But, he also received separate a payment based on his contract for the amount he contributed.  The details of the feed-in tariff contracts varied widely from state to state and, within states, from utility company to utility company.  While, in essence, the feed-in tariff program ultimately had a ‘net-effect’ on the particular customer’s total electrical costs, that offsetting impact remained somewhat disconnected from the customer’s total electrical costs.  Thus, these feed-in tariff programs should be thought of as something distinct from what has become more commonly known as a classic net metering program, despite the willingness of some to lump feed-in tariff programs under the net metering umbrella.  Although met with some excitement initially given their popularity internationally,[4] and despite efforts to implement such programs in Florida,[5] feed-in tariff programs never took great hold in Florida or the U.S. generally.[6]  More direct methods of offsetting costs have taken better hold in the U.S. including Florida in particular.

Florida Power & Light Company (“FPL”), a company which services more than 4.9 million consumers in Florida,[7] offers its customers, what is, a perfect example of a classic net metering program.[8]  According to FPL’s website, FPL’s net metering program allows its customers to interconnect certain pre-approved renewable energy generation systems to the electrical grid and provide electricity directly to their residence or business facility.  Under FPL’s Net Metering Agreement, a customer’s excess energy amount is deducted directly from that customer’s bill – that is, the amount of power produced directly offsets the amount of power consumed and, thereby, results in a direct reduction of the overall electric bill.  To take advantage of FPL’s net metering program, a FPL customer must install an approved energy generation system – like an approved roof panel system.  That customer must then complete and submit FPL’s Net Metering Application and Net Metering Agreement as well as acquire a building permit to install FPL’s special billing meter on its property.  With all of that information, FPL will install the new meter. And, the customer can start realizing the benefits of its system in the following month.[9]  Tampa Electric Company and Duke Energy offer similar net metering programs to their customers in Florida.[10]

In the end, classic net metering programs have made solar energy production and consumption more attractive to power users – enhancing the financial outlook for the use of this alternative energy resource for the future.  As net metering programs have become more widely used, however, questions have begun to arise regarding the fairness of the rate of compensation.  Utility companies argue that, when the billing is directly offset by power production, these individual producers are being compensated at, what are essentially, retail rates for their power contributions – without incurring the costs of the infrastructure needed to use, transmit, and store such power.  We have been advised that customers are generally compensated for any credit balance at least annually but at a rate that is less than the retail rate which will vary depending on the utility. You should consult with the applicable utility to confirm how this credit would be addressed.  Good arguments are being made on both sides as to how best refine net metering programs to ensure fair treatment of the utility company (which provides power along with the infrastructure supporting that power) and fair treatment of the consumer-producer (who is creating and contributing power) in the future – a topic reserved for future installments of this blog series.

[1] Solar Energy Industries Association

[2] US Energy Information Administration

[3] Id.

[4] Id.

[5] Gainesville Regional Utilities

[6] Herman K. Trabish, “RIP FITs: As US feed-in tariffs fade, adopting elements could spur solar growth”, July 18, 2016

[7] Company Profile 2017

[8] Frequently Asked Questions 2017 – “How much do I get for the energy my system produces?”

[9] Company Profile 2017

[10] My Florida Public Service Commission