Net Metering for Home Solar

May 19, 2021

What is net metering?

Net metering is one of the quick ways to refer to net energy metering (or NEM). It is a utility rate structure-- which basically just means that it's a billing agreement between a utility company and a customer of the company. 

This billing mechanism is available to most residential and business customers in most US states. If a home or company's solar panel systems are generating extra electricity, the owners can participate in a net metering program to get paid for sending that electricity back to the grid. 

  • Net metering is a solar incentive

  • It allows users to store their panels' excess energy in the electric grid

  • Users receive credits in exchange for the energy sent to the grid

How is net metering measured?

Net metering is measured using special fractions and values. Because the components in solar energy systems can only measure certain values, net metering is measured in kilowatt-hours (kWh).

Net metering measures the kilowatt-hours (kWh) that flow from solar panels to a home and the power grid.

How does net metering work?

Home solar net metering is simple!

The right size solar energy system will allow homeowners to produce enough electricity to match their home's use for a year; but, with that said, there are always dips and rises in electricity production and use.

The amount of energy that solar panels produce changes throughout the year. So does the amount of electricity that a user actually uses in their home. Net metering allows users to receive credits when their panels produce more energy than they need. Then, those credits can be used later to take energy from the grid. 

  • Net metering even accounts for dips and rises in daily electricity use.

  • Most solar panels are at peak energy production in the afternoon; most homes use the most energy in the mornings and the evenings.

Is net metering like going off the grid?

Solar energy metering isn't the same as going off the grid. In fact, net metering creates a whole new relationship between a user and the grid-- and users will need the grid if they want to be able to store and use their excess power. 

  • Taking a home off-grid through an energy storage system will eliminate the option to net meter.

  • Staying connected to the grid allows users to smoothly account for hour-by-hour variations.

Net metering vs battery storage

Solar batteries are batteries that homeowners can attach to their solar panels. The batteries absorb excess energy created by the panels and store the energy for later use. It's easy to draw from this energy when the sun isn't shining--and users never need to draw power from the grid!

Smart Window Shades

Installing any window shades helps to reduce energy costs through improved insulation and light control. Smart window shades take these benefits a step further, allowing you to open and close blinds remotely. Plus, setting options allow you to set automatic opening and closing times. This can save on energy and improve security, making it look like you're home when you're not, especially when combined with an automatic smart light system.

Net metering is often seen as the more cost-effective way to store and use energy, though. The best solution for any individual's circumstances depends on several factors. Most solar batteries (or at least the ones big enough to be useful) are fairly expensive. Not everyone can afford the upfront cost.

  • Full-retail rate net metering is much more financially beneficial than a battery
  • Avoided cost net metering may be a little less valuable; a battery could be a viable option

Why is the value of the credits that users sell energy for often different than the price that they buy energy for?

This will be addressed again later, but the answer comes down to simple math:

  • Utility providers need to buy electricity from wholesale providers
  • Then, utility providers sell the electricity at retail price
  • Utility customers pay retail price for their electricity; the utility company makes money

Most net metering payments value electricity closer to wholesale prices. If users received retail cost in return for all of your energy, it wouldn't be sustainable. The utility company would lose money. 

Does net metering save money?

Yes! If a solar power system generates more electricity than homeowners can use during the course of a month, they'll receive a credit on your utility bill. Many homeowners save thousands (if not tens of thousands) of dollars on electricity costs long-term. 

The benefits of net metering are plentiful. Four, in particular, stand out above the rest. Net metering benefits everyone by:

  • Allowing homeowners to save on utility bills
  • Allowing homeowners to speed up payback periods
  • Acting as a backup battery for homeowners
  • Reducing pressure on the grid and benefiting other utility customers

Save on utility bills.

Net metering is an easy and effective way to lower utility bills. In some cases, the proper solar panel system can negate all of a household's energy costs. 

Remember: most electricity bills include charges for certain fixed costs (like fees). Net metering does not eliminate these. 

Speed up your payback period.

Some areas offer full retail net metering. These places boast shorter payback periods than places that don't offer the same. Since solar homeowners save more on their electricity bills, they recoup their investment costs faster. 

Payback periods do vary based on certain factors, including:

  • System size
  • Electricity usage
  • Electricity pricing
  • Installation costs
  • Available tax rebates and credits

Grid acts like a backup battery.

If a home or business owner takes advantage of solar panel metering, they can view the grid as their own personal backup battery in case things go south. They can store the economic value of their excess power in the grid as long as they need to-- and they can immediately use that power once it's necessary, too. 

The alternative to net metering is using a solar battery. These batteries allow users to store and use the excess power their solar system generates-- but they're expensive and can prove difficult to use. Net metering is easier, more effective, and much cheaper. 

Reduces pressure on the grid.

Net metering doesn't just benefit the people who participate-- it can also help reduce pressure on the grid. Solar homeowners don't use power from the grid-- they create and use their own electricity-- so they don't directly pull power from the grid.

Utilities and the rest of their customers benefit from net metering for this reason. Solar systems that send excess energy into the grid then have that energy used by non-solar utility customers. It allows more people to use solar-generated energy without more people installing all-out solar panel systems. 

  • Relieving stress on the electric grid is important
  • Certain high-risk areas face elevated danger of insufficient power, but net metering can help

Other types of Net Metering

There are certain places where net metering does not take its standard form. A few unique types of net metering may be implemented for a variety of reasons. 

Avoided-Cost Rate

An avoided cost refers to the costs that a utility avoids paying when it doesn't need to produce power. 

  • Think of avoided cost as the cost a utility provider avoids paying a wholesale energy supplier for electricity

Avoided cost is generally much less than the retail price the utility would charge for the same amount of power usage. This is because if homeowners got paid retail rates for excess energy, other utility users would be paying those costs.

Gross Metering

Gross metering works a little differently than standard net metering. With gross metering, homeowners must purchase all of their electricity from their utility. Then, they can sell their solar production for a lower rate.

  • Net metering only connects to the grid in order to sell surplus electricity
  • Gross metering involves a direct connection to the grid; the solar panel system's entire output is transferred to the energy retailer

Do people receive a paycheck from net metering?

There is no paycheck for net metering. A utility provider will not send net metering customers a monthly check when they produce more energy than you need.

Instead, net metering customers will see payments for net metering as credits on their utility bills. Utility providers can offer more information about how this works. 

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