What is Solar Compensation Mechanism on an Electricity Tariff Rate?

Ever wonder how excess solar energy is compensated by utilities for customers (also known as prosumers) who don't consume all of the energy they produce from their solar installations?

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This is where compensation mechanisms come to the picture in specifying how an electric utility pays for the energy produced by a customer that is self-consumed and/or exported to the utility grid. The three main types of solar compensation mechanism, differentiated by metering and billing arrangements, are summarized below:

Attribute	Net Energy Metering	Net Billing	Buy All, Sell All
Allows self-consumption	✓	✓	X
Energy netting frequency	Within Billing Period	Instantaneous	-
Quantities Measured & Billed	i) Net consumption ii) Net excess kWh credits to be compensated or banked	i) Instantaneous net consumption ii) Instantaneous net exports	i) Gross consumption over the billing cycle ii) Gross solar production over the billing cycle
Solar value	i) Retail Rate - for self-consumption & exported generation ii) Sell Rate - for expired net excess generation credits	i) Retail Rate - for instantaneous self-consumption ii) Sell Rate - for instantaneous net excess solar exports	i) Sell Rate - for gross solar production
Feed-in-Tariff (FiT) Applicability	X	✓	✓
Intra-Billing Cycle kWh Banking	✓	X	X
Credit Carry-over	Excess kWh-credits or $-credits are commonly allowed to be carried over to future billing cycles & may or may not expire	Credits are not guaranteed but are likely to be carried-over if ever granted, depending on specific crediting terms. For net billing that allows excess solar credits earned can be carried over to offset future bills, we call them "Net Billing with Credit Carryover".	Credits are not guaranteed and follows specific crediting terms, if carry-over is applicable.

Additional types of solar compensation mechanisms are handled in OpenSolar to model schemes specific to certain regions:

Type	Description
Netherlands Net Metering Phase Out in 2031 (Netherlands ONLY)	This Solar Compensation Mechanism is specific to the Net Metering Policies in Netherlands ONLY The Net Metering compensation decreases by 9% year by year until it reaches 0, at which point it switches fully to Net Billing. For a portion of compensation for Net Metering that has been reduced, it is supplemented with Net Billing.
HECO Customer Grid Supply (Hawaii ONLY)	This Solar Compensation Mechanism applies to the Hawaii Electric Company (HECO) renewable programs, which includes: Customer Grid-Supply Plus (CGS Plus) Customer Self-Supply (CSS) Customer Grid-Supply (CGS) Smart Export Smart DER Export Smart DER Non-Export
Virtual Storage	Allow customers with solar systems to send excess energy to the grid, where it is stored virtually for later use Electricity consumption is charged at the utility price while excess energy sent through the grid and later on retrieved is charged at a shipping cost which is way lower than the electricity purchasing price.

Another factor that determines customer solar savings are various charges being applied by utilities:

Charge	Description
PV Charge	Can be a fixed monthly charge per specified time period (i.e. day, month, quarter, year) and can also be dependent on the installed kW solar capacity
Net Surplus Compensation	Credit provided to any net exported energy during True Up Date (i.e. expiration date for excess solar production under Net Energy Metering). OpenSolar uses a default $0.04/kWh for unspecified net surplus compensation.
Export Credits or Feed-In Tariffs	Predetermined sell rate applied to excess generation usually associated with Buy All-Sell All and Net Billing schemes.
Non-bypassable Charges	Portions of the usage charges that can't be offset by solar credits. This type of charge is usually seen on utilities operating in California.

For further details on how to model these solar compensation-related charges as part of your custom tariff, refer to How to Create Custom Tariffs.

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