What is Net Metering? Purpose and How it Works

Net Metering – also known as Net Energy Metering (NEM) or Smart Export Guarantee (SEG) is a new electricity billing system that is being rolled out by electricity utility companies in various countries. This system allows customers who generate their own electricity to use that electricity at a different time from when it is generated.


The main reason for introducing Net Metering is to encourage more people to become renewable energy ‘micro-generators’. A micro-generator is anyone who generates their own electricity, up to a certain limit (usually about 50kW, but varies according to country and utility company).

Micro-generation has become increasingly popular over the past decade, with many home owners putting solar panels on their roofs to take advantage of free electricity while the sun shines, or likewise, installing a wind turbine in their backyard.

Most micro-generators will, on occasion, generate electricity at a time when they can’t use it themselves. Under the Net Metering system, the excess electricity they generate is fed into the grid and counted as credit on their electricity bill. This is how Net Metering acts as an incentive to encourage more people to become micro-generators.

To illustrate: Suppose micro-generator had solar panels that, for example, generated 10kWh of excess energy during one particular day. That 10kWh is fed back into the electricity grid via their utility company, and used elsewhere by someone else.

Then, at night, when the solar panels are no longer generating, under Net Metering the micro-generator can draw that 10kWh back from the grid for free.

Some micro-generators generate so much electricity, that they are no longer electricity consumers, but electricity generators.

The practicalities of implementing Net Metering vary from country to country. In the UK, for example, the SEG scheme obliges utility companies with 150,000 or more customers to offer an export tariff that allows micro-generators to sell their excess electricity back to the utility company at a competitive rate, thereby offsetting their final electricity bill.

Concerns about Net Metering

Net Metering has raised some concerns amongst electric utility companies.

If a micro-generator is not currently generating (for example, if the sun isn’t shining, or the wind isn’t blowing) then they draw electricity from the grid just like any regular electricity customer. The power they use still has to be generated somewhere else, and supplied to them as usual.

The fixed costs for installing and maintaining the electricity grid infrastructure is borne by the utility companies. The more micro-generators who hook up to the grid under Net Metering, the more infrastructure the utility companies have to install and maintain to accommodate them.

However, a micro-generator who generates more electricity than they use can end up with a net-zero electricity bill. Such customers are not contributing anything towards the upkeep costs of grid infrastructure, even though they are benefiting from it to transport their excess electricity.

The utility companies compensate for this loss of revenue by increasing their electricity tariff rate, which means customers who are not micro-generators end up bearing an unfair share of the fixed costs for maintaining the electricity grid, effectively subsidizing the micro-generation customers.

This issue has been recognized by many state regulatory commissions, who have mandated a cap on the amount of Net Metering that is permitted, expressed as a percentage of total load for any particular utility company.

However, as more and more people become micro-generators, some utility companies have already hit their Net Metering caps, with others soon to hit them.

With the world facing a global climate crisis, increasing the uptake of renewable micro-generation is not just commendable but essential. But a fair and reasonable Net Metering system still needs to be determined, to ensure the fixed upkeep costs of the national electricity grid infrastructure are shared equitably.

John Martin Gill
Originally trained in electrical and electronic engineering, John is a self-taught renewable energy enthusiast, having installed solar panels himself and built his own battery energy storage system from recycled laptop cells. He is a self-confessed renewable energy nerd who keeps himself up to date on the latest developments in the wider renewable energy arena. His passion is to encourage people to understand and embrace the environmental and technological benefits of solar, wind, tidal, electric vehicles and all other renewable energy technologies.

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