If you have solar panels installed on your roof, you likely aren't using up all of the energy that they're generating each month. All that excess is sent to the grid, joining your utility's supply of electricity. If you received nothing in return for this extra energy, it would be harder to justify the cost of solar panels, but thankfully there are ways to make use of, and even earn money from, that excess power. While home battery storage can help you save the energy you don't immediately use, there's a simpler (and cheaper) option available to solve this imbalance; net metering through your utility provider.
With Net metering, utility companies compensate you for the extra electricity that you produce with your solar panels, making sure you get something in return for the power you produce but don't use. While net metering is the most common and well-known compensation scheme, there are a few others as well -- such as the net billing policy.
Feeding your extra solar power into the grid may not amount to a major payday each month, but if you educate yourself in advance, it might pay for your investment in going solar over the long term. We'll explain everything you need to know about net metering policies down below so you can better understand how they help you save more and recouple the cost of your solar panels faster.
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What is net metering?
Net metering is essentially a billing system to ensure you get credit for the power you produce that flows onto the grid for the utility and others to take advantage of. Your electricity meter spins to measure the amount of electricity you pull from the grid. With net metering, it spins the other way when you send solar energy back to the grid, reducing your overall bill.
"Typically, your meter can go both ways and at the end of the month you just pay for what you pull from the grid," explained Gilbert Michaud, assistant professor of Environmental Policy at Loyola University Chicago.
This allows your home to use electricity from your solar panels during the day and electricity from the grid at night or when your solar panels won't cover your needs.
How does net metering work?
There is some special equipment required to tie your solar system into the larger grid. It requires permission from your utility, too. When your system is installed on your home, your solar company should take care of all paperwork and permitting through local regulators and the utility.
According to Michaud, getting set up for net metering could require having a new meter installed at your home, or it could mean only a simple technical tweak to your existing equipment. He believes in most instances smart metering technology is likely already installed.
If net metering is available in your area, it should happen automatically and your utility should credit you for the kilowatt hours your solar system is sending back to the grid. Under true net metering, you're credited at the same rate that you pay to purchase power from the utility: If you used one kilowatt hour and sent one back to the grid, you wouldn't pay. This is changing in some jurisdictions.
Watch this: How to Approach Home Batteries if the New 30% Tax Credit Has Your Attention
What does net metering do to my electricity bill?
How exactly net metering affects your bill can vary quite a bit depending on the laws in your state or local jurisdiction and the policies of the utility involved. Like net metering rates, these rules and regulations have also been changing lately.
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Broadly speaking, however, net metering will lower electricity bills for most people. If your utility is friendly to residential solar, you may even receive credits for the excess electrons you send to the grid.
Since net metering is administered by your utility, any credits should be detailed on the same bill you got before you added solar panels, though you should confirm with your utility.
Types of net metering
While net metering acts as a bit of a catchall term, there are variations that are more accurately named something else. Here are a couple you might run into in the wild.
Net metering
Net metering is the most common arrangement, and works by selling any surplus power generated by your solar panels to the utility operator in exchange for credits, which offset any electricity you may need to use from the grid. The credit is applied at the retail rate, which means the rate that you pay for electricity. Only one meter is required to track this, though your meter may need to be upgraded when you go solar.
Net billing
Net billing is a way for utilities to capture a bit of the value of the energy you produce. Often this happens by paying you a lower, wholesale rate for energy you produce and release onto the grid, while charging you a higher, retail rate for energy you pull from the grid.
Some states, including California, have made the switch to net billing models in place of net metering. Under California's updated net billing policy, energy generated is first used to serve the onsite load and offset household energy costs, then the customer can receive compensation in the form of a utility bill credit for excess energy exported to the electric grid at a rate reflecting the value of this excess electricity to the grid.
This move did spark some debate as the amount credited to the customer for the energy generated is typically lower than the normal retail rate (except during peak times such as summer evenings). At the end of the day, the new net billing was expected to cut compensation by 75% for electricity sent to the grid but increase the adoption of batteries, which were projected to recoup their installation costs faster than solar alone. Utah and Arizona also offer net billing options for residents with solar panels.
Buy all/sell all
This less common arrangement means your solar array is being metered separately from your home usage. Your solar production goes directly onto the grid for which you're compensated, usually with billing credits.
Meanwhile the energy your home uses is being purchased from a utility just like any other customer. This requires two separate meters, and you will pay the difference -- if any -- between what you buy and sell.
How can I save the most with net metering?
Every circ*mstance is different, and there's a number of strategies you can employ to maximize the savings you get from your solar system, like adding batteries or an EV charger. True electron counters might time their personal energy usage to when their solar system is at peak production to avoid paying for energy from the grid. With a battery and time of use rates, you could draw energy from the grid when it's cheapest and send energy to the grid when it's most expensive, maximizing your savings.
Basically, the more you familiarize yourself with the details of your utility's rate policies and the workings of your own system, the more you'll be able to save and the quicker you'll pay off your solar investment.
Is net metering going away?
It's critical to keep an eye on the changes happening around net metering policies, according to Michaud.
"Utilities are not huge fans of net metering in many areas," he explained.
As a result, some jurisdictions will not allow you to size your system to be larger than what you need for your typical energy consumption. This prevents homeowners from installing extra solar panels to rack up those billing credits.
Some states are moving away from paying the same rate for generating and using electricity to more complex formulas to determine more accurate compensation rates.
Michaud adds that utilities are also instituting fees for people with solar net metering, "which changes the economics and payback period for people investing in solar systems."
Bottom line: Familiarize yourself with how your state, local government and utility treats net metering and any potential changes on the horizon before investing in a system of your own.
FAQs
Will I get a check each month with net metering?
It's rare to actually get a cash payment for producing power for the grid. Most utilities credit your account instead. Some may allow you to carry over credits year after year until they are finally used.
Do net metering credits expire?
It depends on the rules and utility policies where you are. Many credits roll over monthly and yearly, but may expire eventually.
What is virtual net metering?
Virtual or community net metering allows people to remotely net meter or subscribe to an off-site array that isn't physically located on their property. Virtual net metering is what makes community solar possible.
What is NEM 3.0?
NEM 3.0 is the new California policy governing net metering in the state that significantly reduces the rate paid to solar residential energy producers. It went into effect in April of 2023.
Does net metering only apply to solar?
Yes, wind power in some agricultural applications can be tied into net metering, but Michaud estimates 95 percent of net metering is tied to solar.
Read more
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