Net metering allows residential customers who generate electricity from small renewable systems such as wind turbines or photovoltaic arrays to sell electricity back to a utility for the same amount that they pay to receive it.  In places where net metering is used, homeowners have more of an incentive to install wind turbines on their property. 

In the absense of net metering, residents who want to receive credit for any excess electricity they generate are typically required to have two separate electricity meters: one to measure the electricity they take off the power grid and one to measure the electricity they send to the power grid. The customer is then alternately billed or paid by the utility based on these separate measurements.  For example, a utility might sell electricity to customers at a rate of 11-12 cents per kilowatt-hour, but only pay customers 3 cents per kilowatt-hour for electricity they produce. The difference between the two amounts is to cover distribution and transmission charges.

Under net metering customers are billed only for their net electricity usage, the amount of electricity they consume minus the amount of electricity they produce as measured through a single electric meter.  The meter winds in one direction for electricity that the customer takes off the grid and in the opposite direction for electricity that the customer exports to the grid. This means that essentially, the same rate is being applied to both types of electricity, customer produced and utility produced. Under net metering, small renewable electricity generation devices such as wind turbines become much more attractive to customers.

For example, suppose a customer with a wind turbine sells 4,000 kilowatt-hours of excess electricity back to the utility in a given year.  Also suppose that this customer purchases 2,000 kilowatt-hours from the utility during this year.  In the absence of net metering, this customer would be paid $120 (3 cents x 4,000 kilowatt-hours) for the electricity they sell back to the utility while they would be billed $240 (12 cents x 2,000 kilowatt-hours) for the electricity they purchased from UPPCO.  Hence, in the absence of net metering, this customer would still be billed $120 ($240 - $120). 

In contrast, if the customer was enrolled in a net metering program, they would retain a "positive" balance on their electricity account with the utility and thus not be billed at all.  In fact, they might even receive a payment from the utility for their extra electricity production, often termed net excess generation. 

Also note that this example does not take into account any electricity from the wind turbine that is used to power lights and appliances in the home or to charge storage batteries.  This portion of the turbine's output represents electricity that the customer does not have to purchase and is an important component of the overall economics.  Furthermore, net metering policies are specific to each state.  Billing procedures and the treatment of net excess generation are just some of the characteristics which might vary from state to state.

The Michigan Public Service Commission reached a consensus agreement with Michigan utilities for a statewide net metering program on March 29, 2005.  Some of the more important details of this agreement are summarized below.

1.) Billing will proceed on a monthly basis.  Customers will receive credit for any net excess generation at the retail rate (the rate normally paid to the utility by the customer) and that credit will be carried over to the next month's bill.  At the end of each year, any credit balances will be set back to zero and the process will start over.  This practice performs two functions: it helps the utilities recoup some of the costs of the program, and it ensures that net metered systems are designed to reduce retail electricity purchases, rather than be profit oriented production facilities.  Utilities retain the option to pay cash for net excess generation but it is unlikely they will do so.

2.) The maximum size of residential wind turbines eligible for net metering will be 30 kW, although utilities have the option of voluntarily increasing this limit to 150 kW.

3.) Wind, solar, geothermal, biomass, hydroelectric, and landfill gas technologies are all eligible for net metering treatment. This might be expanded to include fuel cells and other technologies at the discretion of the utility. The general limitation is that new power sources must be of a renewable nature.

4.) The initial enrollment period for new net metered systems will be 5 years.  Those who enroll during this five year period are guaranteed at least 10 years of net metering on their renewable energy system.

5.) Program size will be limited to either 0.1% of the participating utility’s previous year’s peak demand (in kW) or 100 kW, whichever is greater.  In the case of UPPCO serviced customers, this will limit the program size to roughly 145 kW based on the 2004 peak demand.

6.) Program operating costs, transmission and distribution costs, and above-market costs resulting from the net-metering policy can be recovered by the utility through charges to participating net-metering customers or the entire customer base. Cost recovery actions are subject to approval by the Michigan Public Service Commission.

For a more detailed description of the Michigan net metering policy, refer to the full-text document (Case No. U-14346) available from the Michigan Public Service Commission.

Wind Power in the Western Upper Peninsula