Net metering has served as an important incentive for consumer investment in solar. However, until recently, to capture net metering credits, there needed to be a one-to-one relationship between the solar generation system's meter and the meter associated with the offsetting electricity load. Moreover, the two needed to be co-located and tied to the same electric service account. These restrictions are beginning to subside with the advent of virtual net metering (VNM). VNM is an electric tariff that allows for the net-metering credits from a single solar generating system to be distributed among multiple electric service accounts.

Net metering has been around since the 1980s. Now, 43 states as well as the District of Columbia allow net metering. However, VNM is a relatively new concept. Massachusetts, for example, has implemented a "neighborhood net metering" program, which allows groups of at least 10 "neighbors" to spread the net metering credits from a single PV system across the electric accounts of the participating neighbors. Rhode Island offers VNM for certain customer classes such as local and state governments. Neither, however, has implemented VNM across all customer classes. California has taken a similar approach, piloting the concept with a select group of customers, namely the multifamily low-income segment.

California began its experiment with VNM as part of the California Solar Initiative (CSI). In 2005 and 2006, the California Public Utilities Commission (CPUC) and the California Energy Commission (CEC) established the $2.17 billion CSI program. As part of the program, the CPUC required that at least 10 percent of all CSI funds be reserved for low income residential housing. The CPUC decided to split the low income solar incentives budget equally between single family and multifamily homes.

The Multifamily Affordable Solar Housing (MASH) program provided the CPUC with the opportunity to pilot the concept of VNM. In Decision 08-10-036, the CPUC acknowledged the economic and technical challenges to installing a solar energy system in a multifamily affordable housing complex and said VNM can overcome the challenge of allocating benefits from a single solar energy system to housing whose units are individually metered. The Commission said VNM allows bill credits for the output of a single solar installation to be shared with tenants in multifamily housing, without physical master metering or site-specific infrastructure upgrades.

In the same decision, the CPUC instructed the state's investor-owned utilities to file VNM tariff proposals. The primary difference between these tariffs and the typical single-meter net metering tariffs is the allocation of benefits across VNM participants. The utilities' VNM tariffs would need to allow the building owner or manager to divide the solar energy credits between the common area and the tenant area. This allocation percentage would remain fixed for at least five years. In addition, the VNM tariffs would need to allow for the allocation of net energy metering benefits from a single PV system to all meters on a multi-tenant property, based on the size of each tenant's unit.

If VNM sounds like a benefit for utility customers interested in solar and you wonder why all states have not adopted VNM policies, it would be helpful to identify its potential costs. In California, the CPUC noted that there likely would be costs "for each utility to modify its billing system to accommodate VNM." The CPUC added that additional work would be required by utilities particularly in allocating credits to individual tenant bills.

Other questions include, what happens when a tenant moves out? What happens if VNM were expanded to commercial rate classes and a shopping mall tenant expanded its space? For the low-income multifamily program, the CPUC allowed utilities to recover from the CSI general administrative budget "reasonable" costs associated with VNM implementation. If VNM were expanded in California, however, the costs needed to administer VNM and their recovery are not clear.

Besides the complexity of net-metering credit allocation, utilities have cited the issue of "free wheeling" on their distribution networks. California utilities expressed concern over customers paying nothing to use the distribution system to transport, or wheel, power from the location where the energy is produced to where the energy is consumed. "Free wheeling" is not an issue in the MASH program as a solar system must be located on the same property as the offsetting load to be eligible for VNM. Consequently, net metering credits received by MASH participants are valued at the full bundled retail rate.

In Massachusetts' "neighborhood net metering" program, however, participants could potentially be across town from the solar system and net metering credits do not include the distribution component of the applicable retail rate.

While VNM is currently limited in California to MASH participants, the CPUC is considering expanding it to multi-tenant properties beyond the MASH program. As the CPUC and other regulators evaluate VNM's relative benefits, as well as other forms of community renewables such as meter aggregation, joint billing and shared ownership, they will need to weigh the relative costs. As with the proliferation of non-utility solar PPAs, virtual net metering will likely evolve the roles customers and utilities play in procuring and managing energy.