Feed-in Tariffs or Net Metering? What’s the Difference?

Sep142009

The feed-in tariff (FiT) and net metering are both methods by which a utility company compensates a homeowner or other producer for the energy fed back into the grid. Simply put, net metering requires one meter, FiT requires two.

In net metering the meter simply “runs backwards” when a homeowner’s solar panels are producing more electricity than the property is using, sending the excess energy back through transmission lines to other energy consumers. In contrast, implementing FiT requires two meters, one to measure consumption, the other to measure generation, which generally commands a higher price than the grid energy.

Net metering is simpler to implement: in most cases the existing meter can be used, but the price the utility pays for power is inherently the same as it sells it for. A wealth of additional local rules exist: utilities may cap the amount they will credit the homeowner, sometimes at zero. This is undesirable because it encourages homeowners to only install small solar generation systems to avoid producing more electricity than the property will use and thus “giving away” electricity. It also discourages energy efficiency.

Implementing a FiT is somewhat more complex, because a second meter and additional wiring is required. However, this second meter allows different pricing for consumption and generation. The price the utility pays for the excess electricity varies from place to place, but a typical scheme follows a 20-year schedule that pays a pre-defined price that gradually reduces year-on-year, offering the homeowner an attractive rate of return without significantly raising the overall cost of electricity.

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