There is considerable confusion between the terms "net metering" and "feed-in tariff". In general there are three types of compensation for local, distributed generation:
- Feed-in Tariff (FIT) which is generally above retail, and reduces to retail as the percentage of adopters increases.
- Net metering - which is always at retail, and which is not technically compensation, although it may become compensation if there is excess generation and payments are allowed by the utility.
- Power purchase agreement - compensation which is generally below retail, also known as a "Standard Offer Program", and can be above retail, particularly in the case of solar, which tends to be generated close to peak demand.
Net metering is a service to an electric consumer under which electric energy generated by that electric consumer from an eligible on-site generating facility and delivered to the local distribution facilities may be used to offset electric energy provided by the electric utility to the electric consumer during the applicable billing period.
Net metering is a policy designed to foster private investment in renewable energy. In the United States, as part of the Energy Policy Act of 2005, all public electric utilities are required to make available upon request net metering to their customers.
Feed-in tariffs (FITs) are a policy mechanism used to encourage deployment of renewable electricity technologies. A FIT program typically guarantees that customers who own a FIT-eligible renewable electricity generation facility, such as a roof-top solar photovoltaic system, will receive a set price from their utility for all of the electricity they generate and provide to the grid.
A power purchase agreement (PPA) is a contract between two parties, one who generates electricity for the purpose (the seller) and one who is looking to purchase electricity (the buyer). The PPA defines all of the commercial terms for the sale of electricity between the two parties, including when the project will begin commercial operation, schedule for delivery of electricity, penalties for under delivery, payment terms, and termination. (Wiki)