Grid-Connected Distributed Generation: Compensation Mechanism Basics
A well-designed compensation mechanism can help minimize the negative impacts and maximize the value of distributed generation (DG) to all stakeholder groups, including distribution utilities, the system owner, and other ratepayers. This paper, published by the National Renewable Energy Laboratory, details the three possible arrangements for metering and billing of DG: net energy metering, “buy all, sell all” arrangements, and net billing. Different compensation mechanisms have been tested in different country contexts, revealing useful lessons for utilities, regulators, and policymakers. Because the distinctions and design elements of different metering and billing arrangements can be easily misunderstood, the paper aims to clarify the options available to stakeholders interested in using compensation mechanisms to facilitate DG deployment around the world.