The popular press likes to say that when customers put solar panels on their rooftops their meters “run backward.”
It’s a nice image. But it’s misleading.
No meter runs backward. That’s not how solar energy works. The utility has no idea how much electricity your solar panels are making. It doesn’t care.
The meter may turn more slowly because you’re using less electricity from the grid. But it doesn’t go backward.
In some cases it will not even turn more slowly. More and more consumers are taking advantage of remote net metering or community solar: Solar electricity produced on a solar farm but not on their rooftops. In those cases they will consume electricity exactly as they always did but receive credit for the remote solar production in other ways.
As a general matter electricity flows down the path of least resistance. If it is produced from solar photovoltaic panels installed on a rooftop it will be consumed first by the machinery, appliances and lighting closest to it. The amount of electricity produced will be displayed on the inverters that are converting the direct current produced by the panels into alternative current for use by the appliances. Neither the utility or anybody else will track the amount of electricity that is consumed locally (although solar installers will always mount a meter that tracks solar production).
If – and only if – the amount of electricity produced by the solar panels is greater than the amount consumed locally, the excess electricity will flow out onto the utility grid. Again, the electricity is following the path of least resistance. There is no demand for the power so it goes out on the wires where there is demand.
The utility will monitor the amount of excess electricity production. Three basic structures have emerged for consumers to take advantage of this excess production:
1. Feed-in-tariffs (FITs). Typical solar regulation in Europe provides for payment to the producer of an amount per kWh. In order to encourage solar development, this payment is often a steep premium to local utility prices. For example, in the UK homeowners are paid some $.23/kWh of solar production, in contrast to utility tariffs of some $.13/kWh. Solar hosts continue to pay their utilities the prescribed tariff for drawing power from the grid. The host takes in the revenue from the FIT, offsetting its utility costs including generation charge, distribution cost and demand charge.
FITs have been less popular in the U.S.: Only Vermont has an FIT for large commercial projects, paying as much as $.24/kWh for solar production.
2. Volumetric Offset. The most popular U.S. structure for benefiting from solar permits hosts to apply their excess production to offset the volumes of their metered consumption. Suppose solar produces an excess of 100 kWh during the afternoon and the host consumes 200 kWh total off the grid. The host will be credited for the 100 kWh excess and billed for 100 kWh. This structure has the benefit of simplicity. The host receives the value of 100% of the utility’s avoided cost which includes generation charge plus distribution costs (but not demand charge).
Volumetric offset is the most beneficial for a utility. Electricity produced during peak hours is the most expensive and most valuable; but by offsetting a consumers’ off-peak demand the utility gets the benefit of the higher priced power during the day while the host only receives the benefit of lower off-peak power.
3. Financial Offset. In some states such as New York and Connecticut, hosts receive a credit from their utilities based on some percentage of the utility tariff such as generation charge and distribution costs. Pursuant to Public Service Commission (PSC) guidelines, New York utilities have published so-called “offset rates” that can be changed from time to time. In Connecticut, special rules announced for virtual net metering facilities provide for a financial credit equal to 100% of the generation charge plus a declining percentage of the distribution costs (from 80% to 40% over four years).
Utilities have objected strenuously to financial offset and in New York have succeeded in lobbying regulators to shift to a volumetric offset approach. Public policy arguments can be made to support both the utility and consumer viewpoints.
While consumer meters may not run backward there is no question that solar electricity can offset the cost of traditional consumption off the grid. How much the consumer benefits financially – or whether the consumer saves any money at all – will be a function of local utility prices and the cost of solar installation, topics which are covered in other articles in Energy 101.