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Net Metering & Compensation

Generally, if a customer produces more electricity than it uses, a utility will compensate or credit the customer for their excess generation depending on the option the customer elects to receive in the contract they signed with the utility. Utilities keep the rates updated in a rate book.

The amount a customer is paid for the electricity they do not use is found in their utility’s tariff (often called the compensation rate). The compensation rate depends on several factors:

  1. The size of the customer’s system;
  2. The specific costs and retail rates of their utility (updated annually); and,
  3. Whether the customer is served by a cooperative, municipal, or public utility.

Customers with qualifying systems under 1 MW (or 100 kW for cooperative/municipal utility members) will be asked to make the following choices in their contract depending on what their DER system qualifies for:

1. Election of a Compensation Rate

  1. Average Utility Energy Rate for customers with systems less than 40 kW AC
  2. Simultaneous Purchase and Sale Rate for customers with systems 1 MW AC (or 40 kW AC for cooperative/municipal utility members) or less, in which the customer receives, or
  3. Time of Day for customers with system 1 MW AC or less (or greater than 40 kW, but less than 100 kW AC for cooperative and municipal utility members), in which the customer is compensated a set rate based on the time of day their energy is produced and delivered to the electric grid.

2. Payment by check or a monetary bill credit. Additionally, some customers may be eligible to bank kWh credits on their bill to offset future electricity consumption.

  1. The Uniform Statewide Contract allows the customer to choose if they wish to receive payment via a check or a monetary bill credit.
  2. For customers with systems of at least 40 kW AC but less than 1 MW if interconnected to a public utility, whether they want a kilowatt-hour (kWh) credit on their bill that exceeds their monthly use to be banked for use later in the year. The size of eligible systems and how the excess kilowatt-hour credits at the end of the year are treated differs for public utility customers (paid at the avoided cost rate) and cooperative and municipal utility customers (canceled with no additional compensation.)

For QF systems sized from 1 MW up to 20 MW, compensation is a negotiable rate based on the utility’s avoided cost.

Minnesota utilities offer different compensation rates for customers with QF distributed generation:

Average Retail Utility Energy Rate

Customers with QF systems less than 40 kW AC can elect to receive the Average Retail Utility Energy Rate for net energy sold to the utility at the end of the billing period, typically at a date set every month. This is sometimes referred to as net metering. Because utility billing systems have many different billing cycles, your specific monthly billing cycle may not align with the calendar month. A utility may choose to install a bidirectional meter or install two meters and net the kWh on the bill; however, both methods allow the customer to offset on a monthly billing cycle basis their electricity consumption with the electricity they self-generate. The utility compensates the customer for net energy generated beyond the total amount of energy used over the monthly billing cycle at the “Average Retail Utility Energy Rate.”

Utilities annually update their Average Retail Utility Energy Rate. This rate is determined for each customer class by taking the utility’s total annual revenue, subtracting the total annual fixed charges, and dividing the result by the total annual kWh sales.

Average Retail Utility Energy Rate

This calculation can be found in a utility’s annual tariff update or rate book, as described above.

(Public Utilities: Minn. Rules 7835.4013 )

A utility may offer an incentive program for the installation and production of solar energy. Participation in this program may be limited to systems of a certain size or have other restrictions, such as that the amount of the expected production from the solar facility does not exceed 120% of the annual on-site energy consumption combined with the size of any subscription the customer might have to a Community Solar Garden.

Simultaneous Purchase and Sale Billing Rates (either flat rate or Time-of-Day Rates)

Customers with QF systems under a certain size (40 kW AC for cooperative or municipal utility member; 1 MW AC for a public utility customer) who do not qualify for or do not elect the Average Retail Utility Energy Rate may be able to choose the Simultaneous Purchase and Sale Billing Rate and have this based on either a flat rate or on a Time-of-Day rate. Restrictions may apply, such as the expected production from the solar facility may not exceed 120% of the annual on-site energy consumption combined with the size of any subscription the customer might have to a Community Solar Garden.

Depending on the utility, these rates may be calculated based on one of the following methodologies:

A. Compensation is based on the excess electricity after a monthly netting of the customer’s energy use. This is referred to as net metering.

B. Compensation is based on all electricity sent to the utility after customer self-use in the instant. This is sometimes referred to as net billing; or,

The following diagrams may be helpful in illustrating the differences between net metering and net billing.

Net Energy Metering

Source: National Renewable Energy Laboratory

Net Billing

Source: National Renewable Energy Laboratory

The Simultaneous Purchase and Sale Billing Rates include an option for the customer to be compensated for the capacity the customer offers the utility if the DER meets the definition of Firm Power. Firm power means the DER delivers energy to the utility with at least a 65% on-peak capacity factor in the billing period. The capacity factor is based on the DER’s maximum on-peak metered capacity delivered to the utility during the billing period. The customer will continue to purchase electricity from the utility at their normal retail rate.

Utilities base the Simultaneous Purchase and Sale Billing Rate (both flat rate and Time-of-Day rate) on the appropriate system average incremental energy costs shown in Schedule A of the utility’s most recent annual tariff filing (Docket No. Year “XX” – Number “09”.) The capacity rate is the utility’s net annual avoided capacity cost per kWh averaged over all hours as shown in Schedule B of the utility’s most recent annual filing. (For this rule on public utilities, see Minn. Rules 7835.4014.)

Time of Day rates recognize the value of electricity varies throughout the day depending on supply and demand; however, most customers have not enrolled in time-of-day rates and instead pay a fixed kWh rate regardless of the time-of-day. The Time-of-Day rate usually has a higher dollar rate per kWh consumed or produced from morning to evening and a lower rate for energy consumed or produced in the late evening and overnight. This type of rate requires a meter that is able to measure not only how much energy the customer uses over the billing period (typically a month), but also the time-of-day the energy is consumed or generated. The Time-of-Day rate is divided into on-peak and off-peak system incremental costs shown in the utility’s Schedule A, filed in the annual tariff update. Utilities base the capacity on net annual avoided capacity cost per kWh averaged over the on-peak hours, and only applies to deliveries during on-peak hours for DG systems with firm power. (For this rule on public utilities, see Minn. Rules 7835.4015.)

The Simultaneous Purchase and Sale Billing Rates for compensation for the generation from the QF system are generally significantly less than the Average Retail Utility Energy Rate. However, a customer who is eligible for the Average Retail Utility Energy Rate may still choose the lower Simultaneous Purchase and Sale Billing Rate based on a Time-of-Day rate where, for example, it consumes more electricity than it produces and has an electric vehicle that can be recharged at night under a low retail Time-of-Day rate.

3) Banking kilowatt hour (kWh) Production.

For public utilities, a QF system of at least 40 kW AC, but less than 1 MW AC, may qualify for “banking” of production. [1] For cooperative and municipal utilities, the DER must be less than 40 kW AC. Eligible DER must also be correctly sized (120% rule [MR5]) and not on the Value of Solar tariff rate. Kilowatt hour banking credits can generally be thought of as net metering on a calendar year basis instead of the monthly basis under the Simultaneous Purchase and Sale Billing Rate. A customer choosing the banking option may also choose a Time-of-Day based rate. The tariff of the Utility will provide more details on this option. How the excess kilowatt-hour credits at the end of the year are treated differs for public utility customers (paid at the avoided cost rate) and cooperative and municipal utility customers (canceled with no additional compensation.) (Minn. Stat. 216B.164; Subd. 3a (public utilities) and Subd.3(f) (cooperative and municipal utilities.)

Correctly Sizing the DER System

For customers who want to install a DG system larger than 40 kW or want to receive compensation or an incentive from their utility for the electricity they produce, the eligible size of the DG system may be limited to 120% of the energy consumed on that property or meter. (See meter aggregation for options with multiple properties/meters in Minn. Stat. 216B.164, Subd.4c.)

If a customer who wants to install a DG system also has a community solar garden (CSG) subscription, the CSG subscription is included in the limit of no more than 120% of the average annual consumption. (Minn. Stat. 216B.1641 (b))

Meter Aggregation

Minnesota law allows customers to aggregate the consumption of multiple meters and apply the electricity produced by their DG system to those meters in the order they choose; however, the meters must be on contiguous property owned by the same customer. Some utilities also require the meters to be either all Time-of-Day rates or not Time-of-Day rates. (Minn. Stat. 216B.164; Subd. 4a)

Renewable Energy Credits (RECs) and Solar Renewable Energy Credits (SRECs)

Renewable Energy Credits (RECs) and Solar Renewable Energy Credits (SRECs) represent the “value” of the environmental attributes associated with eligible renewable energy generation. One REC is equal to one Megawatt-hour (1,000 kilowatt hours) of energy production, and can be sold or traded by the owner. A customer needs a production meter to measure the RECs or SRECs produced by the DER system. RECs and SRECs are used by utilities for compliance with renewable energy or solar energy standards, like Minnesota’s Renewable Energy Standard and Solar Energy Standard . In addition, some companies and individuals purchase RECs to support renewable energy or greenhouse gas reduction goals.

In Minnesota, the customer owns the RECs or SRECs generated by their DG system unless they have agreed to sell or assign it to someone else. For example, as a condition of some Minnesota utility’s renewable energy incentive programs, the contract often includes a transfer of the ownership of the RECs or SRECs generated to the utility. Some utilities offer customers the option to sell RECs or SRECs to the utility, or the option to install, at the customer’s expense, a production meter to measure the RECs/SRECs produced for systems under 40kW.

Distributed Generation Customer Charges or Fees

Cooperative and municipal utilities may charge a fee to distributed generation customers to recover the fixed costs not already paid for by the customer through the customer’s existing retail billing arrangement. Customers of cooperative and municipal utilities with such a fee in place can contact their utility to obtain information on how these fees are calculated. (Minn. Stat. 216B.164 Subd. 3(a))

Public utilities are not allowed to charge fixed recovery fees to distributed generation customers (other than the fixed fees it assesses to its retail customers). However, customers may still see a new charge on their bill when they install distributed generation to recover the additional costs required to serve their distributed generation facility. These fees include metering fees, which cover the cost of reprogramming the customer’s existing meter to measure energy exported back to the grid, or the additional cost of a production meter, if required. The Commission reviews and approves the cost calculations the utilities use to determine these charges. The charges are listed in the rate schedule the customer chooses when they install their DG system; however, the charges are subject to change with Commission approval. (Minn. Stat. 216B.164, Subd. 3)

Disclaimer: This webpage is intended as an informational-only, general overview of some key Minnesota statutes, rules and Commission Orders related to customer-sited distributed generation. The information on this page does not represent a Commission interpretation of said statutes, rules and orders.
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