During my series outlining some of the goals regarding the development of smart grid technology last month, I think, in retrospect, that may have misrepresented the role net metering plays in today's energy markets. In part two, where I discussed the role that the smart grid will play in opening up renewable markets, I touched on the concept:

Instead of a two-way meter, utility companies have the option of giving the solar panels get a separate meter. At the end of the month, you get a bill for the electricity you purchased, and you get a check for the electricity you made. But guess what? The retail electric providers are under no obligation to purchase this power at fair market price. They can pay you half, or a quarter, or nothing. They can pay you whatever they feel like. In fact, some providers (for example, TXU) are looking to charge customers who have grid-tied systems an extra fee for the trouble!

Here's what I need to clarify. You should not get the same financial benefit for electricity you export as you do for electricity you offset. An explanation of the difference, and the reasons, are after the jump.

Instead of just explaining to you what I mean in the language of electricity, I'm going to use a convoluted metaphor to illustrate my point. In this metaphor, you make tomato sauce for a living. As a tomato sauce maker, you need lots of tomatoes. Every day, a truck comes to your house and brings you tomatoes. In fact, you are using so many tomatoes, and your tomato bills are getting so high, that you think it would be a better idea to just grow some of your own tomatoes.


But then there is a lull in business, and you don't need 10 tomatoes every day. Instead, your tomato usage drops to 5 tomatoes, and some days you only need 3 or 4. You have extra tomatoes. You are no longer offsetting your tomato consumption, you're actually producing tomatoes. So you decide that when the tomato man comes to your house, instead of buying tomatoes from him, you are going to sell him your 1 or 2 extra tomatoes every day. You are now exporting tomatoes.

Replaces the tomatoes with electrons, the tomato patch with a solar panel, and you've got the basic idea. In one case, you are reducing your purchases, but in the other, you've actually gone into the tomato selling business. Well, when you produce more electricity than you use, you've gone into the electricity selling business. And just like any retailer, you need to pay to ship your product.

When you pay $1 for a tomato, that all doesn't go straight to the farmer. So it would make sent that you start selling tomatoes, you don't get a full $1. The guy who's buying your tomato pays $1, but just like when you were buying them, some of that goes to you, and some of that goes to retail and shipping costs.

Well guess what? The same goes for an electron. The $0.10 you pay for a kWh of electricity doesn't go straight to the power plant. Some of it goes to the company that owns and operates the transmission lines. When you offset electricity consumption, you save yourself the whole $0.10. When you start exporting, you save yourself the $0.10 less whatever the transmission costs are.

This has the added important effect of reducing congestion on the grid and incentivizing energy storage (remember that?). When the electricity you export isn't as valuable as the electricity you offset, this will encourage you to carefully size your system so that you never export any electricity. This reduces congestion and strain on the transmission grid. Or, you can increase the value of the excess electricity by purchasing batteries, and storing it on site. In addition to reducing congestion on the grid, power that is produced at peak periods can serve usage at other times. This goes back to the idea of a distribution system working better when it has a reservoir.

The problem that I was trying to highlight in the original piece is that you don't necessary get paid the same amount as a big time power producer. Let's say it costs $0.02 to transmit a kilowatt-hour of electricity. If you are buying electricity at $0.10, when you sell it, you should get $0.08. But instead, you might only get $0.05, or $0.02, or they might just refuse to buy it from you. THAT is the real problem with net metering rules, and the problem the smart grid will help address.

Sorry about the confusion. Aren't you glad we got that cleared up?