Net Metering Basics

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What is net metering?

Until home backup batteries, such as the Tesla Powerwall, become more affordable, most solar system owners will remain tied to the central power grid. The grid acts as a massive battery for solar owners. Excess energy from solar panels goes into the grid. 

Net metering is a billing agreement between solar energy producers and their utility companies that allows many solar owners to get credits for sending their surplus power to the grid. You can use these credits during low solar production seasons. For example, you can use your July credits in January when the days are less sunny and shorter.

Often, utilities grant such credits at the full retail value electricity rate in a given location. For example, if your utility charges you 15 cents per kilowatt-hour (kWh) for the electricity you consume, you will get a credit of 15 cents per kWh for the solar generation you send to the grid. Only in California, utilities provide monetary compensation in the form of a check instead of giving you credit. 

Net metering policies are set by individual states to make solar more enticing and increase solar adoption. In states with no net metering laws, utility companies have developed their own credit systems for solar producers.

Does my state offer net metering?

Whether your state offers net metering benefits depends on the state you reside in. Currently, 38 states offer net metering policies. Tennessee and South Dakota do not have a net metering law. While Idaho and Texas have not passed statewide net metering laws, some of their utility companies voluntarily provide credits to solar owners for the electricity produced from their panels. 

Database of State Incentives for Renewables & Efficiency (DSIRE), policy research and analysis service funded by the U.S. Department of Energy, provides detailed information on net metering and other incentives in every state.

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How does net metering work?

A bi-directional meter calculates the flow of electricity moving in two directions – the amount of electricity you consume from the grid and the amount of excess solar-generated energy you send to the grid. A traditional meter shows only a reading of the amount of electricity delivered from the grid to your home. A bi-directional meter shows three different readings:

• Delivered electricity
• Received electricity
• Net electricity (a difference between delivered and received)

The utility that operates in your area will monitor the amount of electricity you use and put into the grid. Net metering credits help reduce your monthly electricity bills, you only pay for your net energy use. This is why it is called net metering. According to the Solar Energy Industries Association, an average of 20-40% of a solar system’s generation is fed into the grid.

What are the benefits of net metering?

Net metering is one of the significant incentives for homeowners to invest in solar panels. The primary benefit of net metering is saving hundreds of dollars on utility bills every year. During the lifetime of your solar panels (usually up to 30 years), you may save thousands of dollars by cutting your electricity use from the power grid. Typically, the more energy you put into the power grid, the more net metering credits you will get. 

If you have a solar loan, you pay it off in monthly installments as you would pay for a car loan. If you purchased your solar system with cash, you would enjoy higher returns on your investment as you save money on your electricity bills. 

With net metering, solar panels have a shorter period to recoup your investment. You lose the excess solar generation without it unless you store it in a battery system. You can only offset the cost of your monthly electric bills by using your solar generation. 

Net metering does not require any additional equipment or action from a solar owner after the solar system’s original installation. Your electric meter does all the work. It spins backward when you send electrons from your solar panels to the grid, which then offset your electricity bill at the end of the month. In some states, solar owners get a credit of a full retail value from their utility company for the power that goes to the grid. In others, the rate for solar owners is less than full retail value. Only California’s net metering policy gives the option of getting financial compensation in the form of a check for excess energy fed to the grid. But the cash-out option in California is at the cusp of change.

Utilities also benefit from residential and commercial residential solar power generation because it eases the pressure on the power grid. When solar owners rely on their own generation instead of getting it from the grid, utilities reduce their electricity loads.

Do net metering benefits change?

Yes, according to DSIRE Insight, over half of U.S. states have discussed overhauling the existing net metering rules. States with sizeable net metering benefits, including New York, Massachusetts, New Jersey, Georgia, Texas, Arizona, Nevada, Florida, California, and North Carolina, have seen high solar adoption rates. But net metering may be subject to change even in states with the most generous credits for solar generation. As more homeowners and businesses go solar, net metering benefits gradually decrease. 

Many states are poised to amend or significantly reduce the benefits. That means that the full retail value for solar generation may change to a lower compensation rate at some point. Net metering compensation may disappear altogether in some states.

In many cases, solar system owners enrolled in a specific net metering rate are likely “grandfathered” into their rate and will not be subject to a dramatic decrease. However, new solar customers enrolling in net metering are likely to get locked into lower tariffs.

While these are the two general examples of how changes to net metering impact solar owners, each state and utility have their own rules governing solar benefit rates. It is essential to check with your utility for details on what kind of net metering rates you would be eligible for if you go solar.

Do net metering credits roll over?

Yes, net metering credits roll over monthly or yearly in most cases. The difference is typically rolled over if you earned more net metering credits than your electricity consumption from the power grid. Whether you can roll over your net metering credits at the end of the month or year depends on the state you live in. Some power companies let you roll over your solar credits forever, but others have an expiration date at the end of every year. Yet others can require solar owners to forfeit excess credits at the end of every month. 

Some utilities allow you to choose an expiration date for your yearly net metering credits. Suppose you live in a geographically cold region of the U.S. In that case, it is best to pick the expiration date after winter or in early spring to offset the high cost of electricity during cold periods. After credits expire, you re-start your balance in a new year. Individual states set net metering policies on how net metering works in their jurisdiction. Utilities in the same state may offer different benefits. Your local utility is the most accurate source of information about a net metering law in your location and how it works. They will explain how much credit you can get for your solar power generation. Many of them publish the details of their net metering policies on the Internet.