Net Metering, or Net Energy Metering (NEM) is a program that allows you to send extra solar energy that your solar panels generate back into the electric grid. In return, you earn credit that you can use to offset the cost of electricity you pull from the grid in the future.
If you're thinking about going solar and not sure how net metering might impact your savings, or if you want to learn more about net metering, then this article is for you. We’ll review what net metering is, how net metering works, and whether net metering is a program worth participating in.
What Is Net Metering?
Net metering is a mechanism that credits solar homeowners for the extra electricity their solar power system generates and adds to the electric grid.
This net solar metering credit can then be used to offset the cost of electricity that the homeowner pulls from the grid when their home's electricity needs exceed what the solar power system is generating.
Different states have different guidelines regarding solar energy net metering. In some states, utilities offer home solar net metering programs voluntarily, while in other states net metering programs are the result of regulatory decisions. These variations mean that the mechanism for compensating solar power system owners varies widely across the country, so it’s important to make sure you understand your state's net metering rates, laws, and regulations when you’re thinking about adding extra electricity to the grid.
How is net metering measured?
With net energy metering, you are billed for the "net" energy used. Net energy is the difference between the total energy produced by a solar power system, and the total energy consumed by the home. Your electricity meter keeps track of the excess power fed to the grid, and power that’s drawn from the grid when your home needs more electricity, and comparing these amounts gives you the net energy usage.
Compared to a regular, non-solar meter that only measures the energy you are pulling from the grid, the net meter for a net-metering-enabled solar home works in both directions. Most meters have digital screens now, so the net meter doesn’t actually “spin” backward, but there’s typically an arrow that points one direction when feeding extra electricity to the grid, and another direction when drawing electricity from the grid. Your utility company relies on this measurement to determine how much solar power net metering credit to give you. (Always ensure your net meter is functioning properly to make sure you get compensated fairly.)
Because net solar metering only credits you for energy fed into the grid, you won't receive a cash payment from your utility for the extra electricity — regardless of how much you generate. Instead, you will build up credit for every watt you send to the grid, and use those credits to offset your costs when you draw watts from the grid. This lowers the overall cost of your electricity bill.
With a large enough solar power system, you can produce enough energy to match your total electricity usage for the entire year, allowing you to offset almost all of your typical utility cost. However, most utilities have restrictions on how much electricity you can generate and feed into the grid, called a maximum offset, so connect with a solar expert to find out what the solar energy metering policies are in your area.
How Does Net Metering Work?
Most homes use more electricity in the morning and in the evening as people get ready for the day or get home from work and school, but solar-powered homes produce more electricity in the afternoon, which happens to be when homes are consuming less electricity.
Net energy metering ensures that during the middle of the day — when more power is generated, and less is used — the extra electricity is sent to the grid, and you earn net metering credit from the utility for that energy. For example, if you produce 10 kWh of extra electricity, you will have 10 kWh worth of net metering credit which you can use to offset your usage later.
When you are at home at night, electricity usage is at its peak, but your solar panels aren't producing power in the dark. When this happens, you can use the credits you have built up over time to offset your energy use. With seasonality of sunlight, you can generate enough net solar metering credits during the summer months to offset your future electricity bills during winter months when there’s less daylight available.
Is net metering like going off the grid?
No, net metering isn't the same as going off the grid, but it does change your relationship with your utility. With an off-grid solar energy system, you are not connected to a utility’s grid, so you are completely reliant on the sun to power your home. In order to power your home when your solar panels aren’t producing electricity, like at nighttime, you need to have a way to store excess electricity generated during the daylight hours, like a solar battery storage system. You won't have access to extra electricity from the grid if you need it — you will only have access to what is generated by your system and stored in batteries.
If you opt for an off-grid solar power system and don't have a backup generator, you will only have electricity when:
- The sun is shining and your solar panels are producing electricity.
- You have stored electricity from your solar panels in batteries.
If you decide to stay on-grid (grid-tied) you will always have access to electricity, even if your solar panels aren’t generating power, and the cost of any electricity you pull from the grid can be offset with your net metering credits. The only time you won't be able to access utility electricity is when the grid goes down, and if you decide to include battery backup in your solar power system, you can even have electricity through those times as well.
Net Metering vs Battery Storage
When comparing net energy metering with battery storage, which option makes the most financial sense, and why?
Thankfully, it’s not an either/or scenario, and you can get the benefits of net metering in addition to the benefits of battery storage if net metering is available. That said, different circumstances can make one option more attractive than the other.
For example, if your state is prone to power outages, having a backup battery makes sense, because you can still get credit for extra electricity fed into the grid when your batteries are full, but you’ll have power available if the grid goes down or there are large-scale blackouts or power outages.
Making energy storage part of your solar power system also makes sense if your state has bad net metering policies, or has no solar energy net metering programs available.
Lastly, if you’re interested in using 100% renewable energy, and don’t want to contribute to any coal-powered electricity or other dirty energy sources, it may make sense to invest in enough solar energy storage that you can remove yourself from the grid entirely.
On the other hand, if your state allows net solar panel metering and the policies are favorable, you may be able to significantly cut your electricity bill with net metering, without the added expense of battery storage.
Another option that’s sometimes available is energy storage net energy metering (aka NEM paired storage) which allows you to export all of the energy stored in your battery back into the grid, and receive net energy metering credits, usually at times when rates are favorable. This option is appealing because it allows you to earn more money for the excess energy you create and store, and you can get credit at specific times of day, not just right when the energy is generated.
Why is the value of net metering credits sometimes different from the price I buy energy for?
Utilities generate electricity at a large scale, so they generate power at a much lower rate than what they sell it for. Because of that, utility companies would prefer to credit you for the value that they can generate electricity for themselves, not what you pay for it. Unfortunately, this means that if you add 10 kilowatts of electricity to the grid, you might only get enough credit to offset 5 kilowatts of electricity that you pull from the grid, and then you have to pay the normal rate for the rest.
On the other hand, homeowners would prefer to get true 1:1 net metering, where you get the same credit value for the electricity you put in as what you pull out. That way if you add 1 kilowatt of electricity to the grid, you can use 1 kilowatt later without paying any extra. True 1:1 net metering was initially a more available option, but utilities have fought hard to reduce the rate they have to pay in order to maintain their profit margin, so 1:1 net metering is not available in many locations.
Lastly, since rates can vary with the market value of electricity, the value of your credits can also vary. You may add electricity to the grid when rates are low, and then pull electricity from the grid when rates are high, so the cost of electricity during those times is going to be different, and therefore the value of the credits is going to be different as well.
Does Net Metering Save Money?
Yes, net metering can save you money. When drawing power from the grid, you can use the credits you received when you fed extra power to the grid so that you don’t have to pay for that energy directly, helping to lower your utility bill.
Consider the winter months when electricity bills are high from heating costs and needing to have lights on for longer. If you generated excess power in the summer and sent it to the grid, you won't be worried when winter arrives, because you will have net metering credits built up, and that will unquestionably save you money.
Note: Don't expect net metering to save you money right away after your solar installation. Other factors like changes in weather and how much extra power your solar panels generate may determine how soon you will see noteworthy results from net metering. However, add up the benefit over the course of an entire year, and you’ll see the true value of net metering.
Will I receive a paycheck from net metering?
No, you won't get a paycheck from solar net metering. You will only receive energy credits on your bill or statement that you can apply towards the electricity you need in the future.
The more electricity you send back to the grid, the more net metering credits you will earn, and the more you can save on your utility bill, but earning net metering credit is not the same as receiving a paycheck for your electricity generation.
Benefits Of Net Metering
Net metering can help you save on your utility bill, speed up your solar payback period, let the grid act as your backup battery, and reduce pressure on the grid. Let's take a look at each of those net solar metering benefits in more detail:
Save On Your Utility Bill
If you are always worried about utility bills, net metering can help reduce them. Solar panels can help power your home, but if you aren’t getting net metering credit, and you don’t have a way to store excess electricity, then your solar can only offset the power being used while the panels are generating electricity.
For example, if you needed $200 worth of electricity from the utility, but you had $150 worth of energy credits from feeding excess electricity back into the grid during long, sunny days, then you're only paying $50 for that extra energy that you need, and your total utility bill is going to be much lower.
Speed Up Your Payback Period
Your solar payback period is the amount of time it takes for the savings from solar to offset the cost of installing that solar initially. Once you’ve reached the end of your payback period, you’ve paid off your initial investment, and any electricity generated after that point is essentially “free”.
Because it increases your overall savings, net metering helps speed up your payback period, and full retail net metering helps speed up your payback period even more. As a result, if you live in a state that offers full retail net metering, you will have a much shorter payback period than those that don't. This is simply because those locations allow solar owners to save even more on their electricity bills, enabling them to recoup their investment costs faster.
For example, a solar power system in New Jersey typically has a payback period of 5 to 6 years, thanks in large part to strong net metering policies. On the other hand, a similar solar power system in South Dakota could take up to 12 years to pay off because that state has less valuable forms of net metering in place.
Your solar payback period will depend on several factors in addition to net metering options, such as:
- The price of electricity in your area
- The size of your system
- Tax credits and rebates
- Your electricity usage
- The cost of installation
The Grid Acts Like A Backup Battery
With net metering, your utility company is essentially allowing you to use the grid as a "virtual battery" to "store" excess power for later use. Think of it like a battery that you don't see, that comes to your aid when you need more power.
Without net metering, the only way to get value from any extra electricity your solar panels produce is to add a solar battery to store your own electricity for use at a later time, which requires a larger upfront investment.
Reduces Pressure On The Grid
Residential and commercial solar power is a huge benefit to utilities because it reduces the stress on the electricity grid. Instead of drawing power from the grid, solar homeowners can produce their own electricity, which means the utility doesn’t have to push as much electricity through their distribution network, since there are fewer people using power directly from the grid.
In addition, thanks to net metering, homes with solar can actually provide excess electricity to non-solar homes in their area to meet the energy demands of those homes as well. By shortening the path that electricity needs to take, and generating electricity near the point of consumption, solar power helps lower the demand on the grid, and lessen the strain on distribution and transmission infrastructure.
Other Types of Net Metering
There are many different types of net metering rates, sometimes called alternative compensation rates, that can be used to calculate the value of net metering, including avoided-cost rate, and gross metering.
Avoided-Cost Rate Net Metering
With avoided cost net metering, utility companies give you net metering credit that’s equal to the price they saved by not having to provide you with electricity. The avoided cost is the cost at the margin to meet additional energy and capacity needs, and each state that uses avoided-cost rates uses a different, specific calculation to set those rates that reflects their own market characteristics, and whether it’s a long-run or short-run avoided cost.
This avoided cost rate is often much lower than the retail rate that you pay for electricity, and it’s based on a utility’s own calculation and reporting of their cost, so it’s an opaque system that can be tilted in the utility’s favor.
Gross metering is different from net metering in that you don't consume the power generated by your solar power system directly. Instead, all of the electricity generated by your solar panels gets exported directly to the power grid, and then you pull the electricity you require back from the grid.
Gross metering requires an extra electricity meter (net meter) to measure the outflow of the electricity you are generating, while the regular meter records the electricity you are consuming. You are paid a pre-determined Feed-In Tariff (FIT) rate for the power sent to the grid from your solar power system, and this feed-in tariff rate helps offset the cost of power that you pull back from the grid.
Is Net Metering Available In My Area?
Knowing how much value the net metering policies in your area can add to your overall solar savings helps you make a better decision about whether or not to go solar. Further, the available net metering policies can help you decide what size your system should be, and whether it makes sense to add battery storage, or even whether to go fully off-grid.
If you request a Free Solar Savings Estimate, our solar experts can let you know if net metering is available in your area, and help calculate the potential value of those net metering credits. At Palmetto, we’re experts in net metering, energy storage, and solar power systems, and we’re happy to answer any questions you might have.