Builders and contractors interested in technologies that allow homeowners to produce their own energy are becoming very familiar with a seemingly minor regulatory topic: net metering.
In essence, net metering is a billing arrangement that allows a homeowner’s electric meter to spin backward when excess power is generated using technologies such as solar photovoltaic (PV) panels or combined heat and power (CHP) energy systems. For each kilowatt-hour (kWh) of excess electricity a home sends to the electric grid, the homeowner receives a credit to offset the power he or she purchases at a later time.
It seems intuitive, but a complex web of state laws and regulations means that net metering is treated differently in every state. Freeingthegrid.org has a map that cleanly illustrates the varying policies, assigning a grade that indicates how available net metering is and how protected customers are from fees and charges. The map shows that policies vary widely, says Jason Keyes, a partner at the law firm Keyes, Fox & Wiedman LLP, who works with the Interstate Renewable Energy Council on regulatory matters related to net metering and distributed generation.
“Forty-three states have net metering, but about a third of those have net metering that’s got so many problems with it that nobody’s doing it in those states,” Keyes says. “Even in the states that have good grades and have active programs now, a bunch of states have caps on their programs.” Those caps made sense when technologies like PV were in their infancy, he explains, but in the next few years, some states will hit those caps, meaning new customers won’t be able to get into the net metering program.
Another factor that varies from state to state is the eligibility of different types of technology. While most states allow net metering for renewable energy sources such as solar and wind, other highly efficient power generation technologies may not be eligble. CHP systems use a propane or natural gas engine to produce electricity and use the recovered waste heat from the engine to meet a home’s space-heating and water-heating needs. Such systems are eligible for net metering in 13 states, says Chris Dockery, sales application engineer for CHP system manufacturer Yanmar America.
So why is it important whether your project’s CHP system is eligible for net metering? While CHP systems can provide massive energy bill savings on any project, the availability of net metering can drastically enhance the return on investment, Dockery says.
Where net metering doesn’t cover CHP systems, a federal law called PURPA generally allows utility customers to install CHP to offset their own load and sell any excess generation back to the utility. Offsetting load is a good deal — it provides utility bill savings at the customer’s retail rate per kWh, which is more than 10 cents in much of the country. However, under PURPA, the excess generation that flows back to the utility only gets credited at the utility’s cost of production rather than the full retail rate. “Say when the utility produces power, their cost is four cents [per kWh],” Dockery explains. “For any excess that you generate and send back to the utility, that’s what they have to pay you.”
The CHP Opportunity Calculator
Calculating the payback period for investments in CHP can be a complicated task, with the availability of net metering joining other variables such as fuel costs, incentives, and existing heating systems that affect energy savings and cash flow.
To simplify the process, we’ve assembled a CHP Opportunity Calculator that helps you identify the economic viability of CHP in your projects. Just enter the parameters and costs for your specific project, and the downloadable spreadsheet will determine your total project cost, annual energy and cost savings, and even CO2 emissions reductions. Download the calculator here.
Whither net metering?
The growth of distributed power generation, and solar power in particular, is forcing states and utilities to reckon with the questions surrounding net metering policies, Keyes says. “Now it’s big enough that the question has turned to, is this worthwhile? Or is this a great deal for the people that are net metering, and that means it’s costing other customers money?”
Utilities often point out that if everyone used net metering and zeroed out their bills, no one would be paying for the electric grid, but the grid would still be needed. Keyes says research has shown that in many cases, the benefits of net metering outweigh the costs and will continue to do so while customer-sited generation like PV and CHP remains a small fraction of all generation. At present, distributed generation is less than 1 percent of all generation. There’s lots of room to grow, Keyes says.
CHP systems are eligible for net metering in 13 states.
Owners of CHP or PV systems can argue that they help reduce costs for everybody by allowing utilities to avoid building new power plants, transmission lines, and substations. Of course, politics come into play, too. “If a state considers job creation, environmental benefits, and health benefits, net metering looks even better,” Keyes says. “Those aren’t things that save the utility any money, but they’re good for society, and they are the primary reasons why net metering laws went into effect in the first place.”
Supporters of CHP were also gratified by an executive order signed by President Obama that set a national goal of 40 GW of new CHP by the end of 2020. “Now that we have the president on our side, it’s trying to get the states and everyone else on the same page,” Dockery says. The Environmental Protection Agency’s Combined Heat and Power Partnership highlights a variety of policies and incentives that can make a CHP project more financially viable.
The Propane Education & Research Council has also put its support behind CHP technology with the Propane Heat and Power Incentive Program. The program provides financial incentives of up to $10,000 toward the purchase and use of CHP systems to participants who agree to share their data and experiences. To get more details and apply online, visit the incentive program page.