Net energy metering (NEM) is largely being used in Washington for behind the meter or customer-sited solar energy generation, but it can compensate various types of distributed, energy generation. According to the National Renewable Energy Laboratory (NREL), net energy metering can be defined as “a metering and billing arrangement designed to compensate distributed energy generation system owners for any generation that's exported to the grid.”

When solar energy is produced by solar panels, some or all of it is consumed on site. Unless the solar project is quite small compared to the amount of electricity consumed on site, some power will be exported to the grid and other customers, and the solar-equipped customer gets credit for the excess production. On a cloudy, rainy day, when panels aren't producing enough energy, the utility grid will feed your home energy and count that energy against the credits you've banked overtime.

This article summarizes the presentations made by Washington Department of Commerce's Nora Hawkins, and Shane Frye, with SnoPUD, both Solar Washington Board Members, at a May 10 Solar Washington Webinar. The full webinar, titled Net Energy Metering in Washington, is available online.

Net Energy Metering Policy

Passed in 1998, ESHB 2773 stated that it is in the public interest to: (1) Encourage private investment in renewable energy resources; (2) Stimulate the economic growth of this state; and (3) Enhance the continued diversification of the energy resources used in this state.

The law was significantly revised in 2019 to raise utility NEM thresholds and allow for utility-specific NEM replacement rates.
Net energy metering is provided for in statute under RCW 80.60. Pursuant to RCW 80.60.020, an electric utility shall make full retail rate NEM (as defined in RCW 80.60.030) available to eligible customer-generators on a first-come, first-served basis until the earlier of either: (i) June 30, 2029; or (ii) the first date upon which the cumulative generating capacity of net metering systems equals four percent of the utility's peak demand during 1996.” Utilities are not required to (but may) provide NEM compensation to projects with capacity greater than 100 kW.

When a utility reaches either the 4% threshold or the 2029 date, it may propose a new tariff to its regulatory authority. The utility also may continue under the status quo of full retail rate, net energy metering compensation. The Utilities and Transportation Commission (UTC), in the case of an investor-owned utility (IOU), and a governing body, in the case of a consumer-owned utility, will review the proposed tariff.

RCW 80.60.030 provides for full retail rate compensation on a per kilowatt hour basis. In other words, what is generated is netted against what is consumed on a 1:1 basis. Credits can be rolled over month to month until they are trued up annually in March. When asked about it, Nora Hawkins thought that date was chosen because most of the solar generation in Washington occurs in the summer months, so there was a desire to make sure customers could use any credits throughout the winter, when their solar system is producing at a reduced level.

Each utility must notify the Washington State University Energy Program twice a year on the status of reaching its 4% threshold,. This information is publicly available on the WSU website.

Connecting to net-metering

Most utilities in Washington have capacity remaining before they reach the 4% threshold. Nora Hawkins tells us that among those who have reached their 4% threshold, Benton Rural Electric Association has decided at this point to continue to provide full retail rate energy metering. In contrast, Kittitas County PUD, which is at 282% of that threshold, decided to use a different compensation rate for exported energy.

Shane Frye, an employee of Snohomish County PUD (SnoPUD), gave us a specific look at that utility. They have grown from 41% of the 4% threshold in 2021 and are now at 51%. In 2020, SnoPUD had 230 solar installs for the entire year. Since then, it's increased, based in part on incentives. When the ITC went back up to 30% in 2022, installations jumped to 805. And for the first quarter of 2023 alone, there were 237. Right now, there are about 3800 net metered solar installs in Snohomish County.

To apply for net-metering, an installer, typically, or a do-it-yourselfer, submits the Solar Interconnection Application and the customer signs the Net Metering Agreement. Both documents can be found on the SnoPUD website. The PUD reviews the application and submits “Approval to Construct” to the installer and eventually, the installer provides the “Notice of Completion” that includes: a picture of meter, a copy of the L & I inspection, and payment of application fee. The PUD meterman inspects and installs net meters. Once the meter has been installed, the customer gets set up in the system to start net metering.

Under the SnoPUD process, projects in the range of 25 to 100 kW are sent for review from the system planning protection. That team analyzes questions such as “Will an upgrade to the grid be needed?” and “Can the transformer handle that larger solar system?” If a battery is part of the installation, it must be included in the plans that are submitted. Today, a disconnect switch is required to be included between either the battery installation or the solar install and the meter for the safety of the employees that work on the electrical lines. In case of an outage, those working on the lines can disconnect or turn off the switch, so they know there's not going to be any back feed from the battery or any type of generation on the customer side.

The Battery Question

Typically, if there's a grid outage, the solar panels’ production must be prevented from going back to the grid. This ensures that when the utility repairs the system, they're not going to have electricity going onto the grid. So, depending on how the solar on the roof is installed, it may not be able to provide electricity to the home in an outage. This is why there is a lot of interest in batteries, for resiliency: to have power available in an outage.

Some customers may view batteries as even more beneficial in the future if/when utilities have variable rates based on when electricity is consumed.

If you have battery and solar together and they are properly interconnected, you can essentially island your home from the grid. If the power does go out, solar will continue to charge the battery while you're using the battery to run your critical items in your home.
Now that the 30% investment tax credit can also go towards standalone batteries, we may see additional residential battery installations even without solar onsite. It is likely that battery costs will continue to decline as equipment advances and the market grows. Also, in the cost benefit equation, consider how often the power goes out in your area.

Net Metering and the Value of Solar

“Value of Solar” refers to a form of valuing distributed generation (DG) interactions with and contributions to the electricity grid. When customers generate electricity at their home or business and use those electrons as they are generated, they are reducing the energy they need from the grid.

The question is: when customers generate electricity at their home or business and export it onto the grid, how should that electricity be compensated?

Part of determining electric rates is adding up the cost to generate electricity on demand, around the clock, 24/7. This includes the construction and maintenance of the complete grid infrastructure, such as generating stations, transmission lines, etc.

Some say that, as a result of all of this, the value of that exported energy should be less than the retail rate of electricity, because it replaces wholesale purchases. Purchases that utility companies make on the market with other utility companies or power producers cost significantly less than retail rate and customers with solar still rely on the grid infrastructure to get electricity to their home when their solar panels aren’t producing.

The other side of the argument, and there are certainly variations throughout this spectrum of opinion, is that the value of exported energy should be at least equal to the retail rate electricity because it can be delivered to neighboring customers without the need for a broader system such as transmission lines.

Gaining consensus on the value of a solar methodology and determining compensation rate can be challenging. A 2017 report from Lawrence Berkeley National Laboratory, Putting the Potential Rate Impacts of Distributed Solar into Context, projected that for the vast majority of states and utilities, the effects of distributed solar on retail electricity prices, with a 2017 penetration levels of only 0.4% of total U.S. retail electricity sales, will likely remain negligible for the foreseeable future. Even at projected penetration levels in 2030, distributed solar would likely yield no more than roughly a 0.2 cent/kWh (in 2015$) increase in U.S. average retail electricity price.

This year. the National Academy of Sciences appointed an ad hoc committee of experts to study the issues associated with net metering, including the medium- to long-term impacts of net metering on the electricity grid and consumers. The Committee just released its report, The Role of Net Metering in the Evolving Electricity System. The report identifies equity as a key issue to be addressed by regulators in any future discussions about net metering because “low-income households, populations of color, and renters are more likely to face barriers to DG adoption and therefore are more likely to be non-participants in net metering. As a result, economic transfers and any differential net metering benefits and costs between participating and non-participating customers have equity implications.”  

The report further recommends that regulators develop retail rate structures for both DG and non-DG customers looking at the social marginal cost of producing and delivering electricity and including in that calculation environmental or other externality costs so that net metering can result in economically efficient levels of investment in DG technologies.

While this is a long way from offering a clear path to quantifying, and regulating based on, the value of solar, it points to the complexity of the issue and the need to look at it in a systemic way.