The Homeowner’s Search and the Regulator’s Problem
When a rooftop system sends a surplus kilowatt-hour to the grid, how much should the customer be paid for it? The homeowner version of that question usually means: how much will my solar installation reduce my bill? A regulator or utility analyst has to answer a different question: how does the chosen compensation rate change what the customer does and what the rest of the rate base pays? This article is written for the analyst. Rooftop solar sits within the broader category of distributed energy resources, but its compensation question turns on a specific tariff choice that the search query rarely surfaces.
Three Structures, Three Ways of Valuing an Export
Under net energy metering, an exported kilowatt-hour is credited at the retail rate the customer pays for consumption, including generation, distribution, and transmission components. The credit offsets consumption charges on the customer’s bill. At the end of a 12-month billing period, any surplus is trued up at a rate based on recent market prices, which for California’s programme works out to roughly $0.02 to $0.03 per kilowatt-hour. This structure gives the export the same value as the power the customer would otherwise buy.
Net billing values the exported kilowatt-hour differently from consumption. Export compensation is set at a rate reflecting the generation’s value to the grid, usually below the retail rate but able to exceed it on late summer evenings. The customer continues to be billed for consumption at retail. The California Public Utilities Commission adopted this Net Billing tariff on 15 December 2022 as the successor to its previous net metering programme. It applies to customers submitting an interconnection application on or after 15 April 2023.
Buy-all-sell-all goes further and settles generation and consumption as two separate transactions. The customer pays the retail tariff for every kilowatt-hour consumed, exactly as a non-solar customer would. The utility purchases every exported kilowatt-hour at a separately set export rate. This keeps the two flows distinct in the billing system and leaves consumption pricing untouched.
The Levers a Tariff Designer Actually Controls
Replacing one structure with another does not change one rate. It changes several parameters at once. The regulator controls at least five levers, and each lever moves customer behaviour and cost recovery in a different direction. The most important lever is the export rate itself, along with the basis used to set it. A retail-rate export credit ties the value of export to the price the customer pays to buy power. An avoided-cost or wholesale-derived export rate breaks that link and values exports below the cost of consumption in most hours.
The true-up period determines how long a customer’s export credits can accumulate against consumption charges before the balance is settled. A shorter period limits the customer’s ability to use summer exports to offset winter consumption. At the end of the period, the treatment of unused credits matters almost as much. California’s programme settles a surplus balance at roughly $0.02 to $0.03 per kilowatt-hour, much lower than the retail credit used during the period.
Capacity and system-size limits set the maximum amount of export that qualifies for compensation. A customer who installs more solar than their consumption can reliably use may export a larger share, which raises the question of whether the tariff should pay for that export at all. The regulator also chooses whether compensation is denominated in kilowatt-hours or in money.
A kilowatt-hour credit carries its value forward at the rate in effect when it is used, while a monetary credit stores the value at the time it was earned. The final lever is whether the export rate is flat or follows the time of export. A time-varying export rate signals the hours when electricity is more valuable.
California’s net billing tariff requires customer-generators to take service on a specific time-of-use rate with lower off-peak prices and higher on-peak prices than other time-of-use rates. That requirement connects the export rate to the hours when the grid is most constrained. By the end of 2024, nearly 70 percent of net billing customers had paired batteries with their solar.
Three Distinctions That Separate the Designs
The first distinction concerns what a retail-rate credit does. A net metering customer receives a credit at the retail tariff that includes the volumetric network charge. The credit reduces the customer’s bill, but it does not reduce the utility’s cost by the same amount. The network cost embedded in that credit is still incurred by someone, and if the solar customer no longer pays it, other customers bear it.
The second distinction concerns what buy-all-sell-all preserves. Under buy-all-sell-all the customer keeps paying retail for all consumption, which preserves retail billing as a mechanism. Whether that mechanism recovers the customer’s proper share of fixed cost depends on the tariff’s own fixed and volumetric structure. A tariff with a large fixed charge recovers more from the solar customer regardless of export compensation. A tariff built mainly from volumetric charges recovers less.
The third distinction concerns what a lower export rate changes. A lower export rate raises the value of self-consumption and therefore of storage. It does not by itself make a battery economic. Battery cost, round-trip losses and the timing of prices still decide that. The same lower rate does not move the design question to system size. A customer may still choose a larger system if the objective is more daytime self-consumption rather than export revenue. Paired batteries can later be aggregated into virtual power plants, though that depends on separate market participation rules.
What the Choice Trades Off
The choice between these designs turns on which parameter carries the weight of cost recovery. A retail-rate net metering design keeps the customer’s bill more exposed to the retail tariff, including its network component, and therefore recovers more fixed cost through the solar customer’s bill in the hours when the bill is positive. A net billing design lowers the export rate, which recovers less network cost from exported energy but pushes the customer toward self-consumption and behind-the-meter storage. Buy-all-sell-all sits at the far end: the customer pays retail for all consumption, so the bill’s fixed-charge performance depends entirely on the tariff’s own design.
A regulator weighing these structures is comparing two quantities. One is how much fixed cost stays recoverable through the solar customer’s bill under each design. The other is how hard each design pushes the customer toward self-consumption. The balance between them depends on the tariff structure in a given jurisdiction. A jurisdiction with fixed charges will tolerate a lower export rate differently than one whose bills are mostly volumetric. The decision is therefore a parameter choice rather than an outcome. The same calibration recurs for other distributed energy resources as regulators face parallel questions about storage and demand response.
References
- California Public Utilities Commission — Net Billing Tariff. Documented adoption of D.22-12-056 on 15 December 2022 and applicability from 15 April 2023.
- California Public Utilities Commission — Net Energy Metering and Net Billing. Export credit treatment, true-up rate of roughly $0.02 to $0.03 per kilowatt-hour, required time-of-use rate, and battery pairing share.
