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Net Metering

July 27, 2010

Net metering is a way to get your neighbor to help pay for your electricity.

Net metering is advocated by environmental groups to force electric utilities to pay homeowners for the electricity they produce but can’t use when they install home solar or wind systems.

It’s accomplished by allowing the electric meter to run backwards.

Paying homeowners for the excess electricity produced by solar or wind systems installed on their homes helps defray the high cost of these systems.

It costs electric utilities around 6 cents per kilowatt hour (kWh) to generate electricity, including depreciation, operating and fuel costs but not transmission and distribution costs.

On average, electric utilities charge homeowners around 11 cents per kWh.

Net metering requires utilities to pay homeowners the same rate they would charge homeowners for electricity, or 11 cents per kWh. Letting the meter run backwards lets the utility pay the homeowner.

In other words, utilities are buying very expensive electricity which they could produce at a much lower cost.

It’s a given that utilities will either have to absorb the extra cost or raise their rates to cover the extra costs.

While there are only a very few homeowners with solar and wind systems on their homes using net metering the utilities can absorb the extra cost.

As the number of such installations increases, utilities will eventually have to raise their rates. Higher rates will mean that homeowners who don’t have solar or wind systems will be paying their neighbors who do have such systems and who have sold their expensive electricity back to the utility.

Such an arrangement is unsustainable –imagine the outcome if every home used net metering.

To promote the use of solar, Germany used feed-in tariffs rather than net metering. Feed-in tariffs required utilities to pay homeowners’ around 55 cents per kWh for the electricity sold to the utility. The principle was the same, but the payments were several times larger.

Feed-in tariffs is why Germany was the leader in solar roof top systems.

Now, Germany has abandoned feed-in tariffs because they were unsustainable.

Forcing utilities to pay very high prices for electricity they don’t need isn’t helping the economy, which is the lesson learned by Germany.

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