Net metering vs. solar battery storage - which makes the most financial sense?
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One of the most enticing incentives for going solar is net metering. Essentially, net metering is a process in which you can earn money for the excess electricity that your solar panels create but your home does not use. This excess energy is sent to the power grid, and is then used to power other homes or businesses.
Recently, more homeowners have been adding solar batteries in addition to solar panels. These batteries are meant to absorb the excess energy that the solar panels produce for later use. This stored energy is then utilized when the solar panels are not producing electricity, like at night or during storms.
But this leaves the question, if your battery is absorbing all of the excess energy that your solar panels produce, can you still benefit from net metering?
This article covers the different types of net metering options, including which type works well with a solar battery, and what a newly-emerging incentive called battery net metering, can do to enhance battery storage use.
The purpose of net metering (NEM) is to offer a monetary incentive for homeowners to install solar panels that also acts as a way for utilities to gain access to extra power when they need it.
Each state, and sometimes specific utility companies, offer different net metering options that range - some offer bare bones savings while others can help you earn money each month.
The most prominent net metering options are as follows:
Utilities value excess energy at the full retail rate of electricity, meaning if you have extra energy to sell back to the grid, you will be paid the full cost of the electricity.
This rate, the full retail rate, is the amount your non-solar neighbor pays per kilowatt hour (kWh) for their electricity.
With avoided cost net metering, utilities pay you back at the price the utility saved by not having to provide you with electricity, which is lower than the retail rate.
Time-of-Use rates vary based on energy demand. Electricity is more expensive during peak hours and with net metering, your excess energy will be bought at the Time-of-Use rate.
So if your electricity is bought during peak hours, you will get more money. But if it is bought during off-peak hours, you will get less money. Learn more about Time-of-Use rates here.
The best and most predictable NEM policy is full-retail net metering because it does not fluctuate based on Time-of-Use rates or other outside factors. If you live in a state with full-retail net metering, solar panels are a great option.
But many states are moving away from generous net metering benefits and consequently, more customers are embracing solar batteries for excess energy storage.
These batteries are hooked up to your solar panels so that they can absorb any excess energy your home does not use. This stored energy can then be used for the times when the sun isn’t shining without having to draw power from the grid.
Depending on your circumstances, batteries could make more sense for you - or net metering and relying on the grid for backup power could.
There are many different brands and models of solar batteries to choose from, each ranging in cost from as low as $180 for a 1.2 kWh battery to $13,000 for a 16 kWh battery. Typically, home batteries need to store a large amount of kWh to be practical, like the LG Chem Prime with 16 kWh storage capacity.
Say you purchased a typical 6 kW solar system, which as of July 2021 would cost you about $17,100 before the federal tax credit. If you included an LG Chem, which for example’s sake costs $10,000 (although prices do vary), your total system cost would be $27,100 before any rebates or incentives. With the federal tax credit, the entire system would come to $20,054.
Your solar system’s payback period is the amount of time it takes for you to completely pay it off, and it is an important consideration when you start shopping around for solar.
Purchasing battery storage to pair with your solar system makes it much more expensive, and will increase the length of your payback period.
To calculate your payback period, you need to determine the amount of money you’ll save on your electricity bills with a residential solar system, both with and without installing battery storage. Knowing what your payback period is will help you determine if it is worth it for you to get a battery with your solar system or just rely on net metering and use the grid for backup power.
Payback period = Total cost of your solar system/yearly savings
U.S. Average energy usage in 2019: 877 kWh per month
U.S. Average utility cost of electricity: $0.13 per kWh
Monthly savings: 877 kWh * $0.13 = $114
Yearly savings: $114 * 12 months = $1,368
Payback period with solar battery: $19,255/$1,368 = 14 years
Payback period without solar battery: $10,745/$1,368 = 8 years
As you can see, without a battery, you would pay off your system more quickly because your solar system would be cheaper.
If you do decide to purchase a solar battery, it might have an effect on your net metering benefits, making it so you earn less money instead of relying on net metering alone.
We will walk you through an example of each net metering type. The price for electricity varies from state to state, but in our example we will use the 2020 average U.S. utility cost of $0.13 per kWh.
The avoided cost rate for utilities, or the amount the utility saved by not providing you electricity, can vary widely and is not the same each month. But for this example, we can assume it is $0.02 per kWh.
For simplicity, we will assume that the Example Home produces 900 kWh of electricity a month but only uses 850 kWh of it.
The amount you save with a battery will depend on the types of net metering policies your state or utility offers. We will compare the most common options below, the following figures hold true for each example:
|Solar energy produced||900 kWh|
|Solar energy consumed||850 kWh|
|Retail rate of electricity||$0.13 per kWh|
|Avoided cost rate of electricity||$0.02 per kWh|
If your solar panels produced 900 kWh but your home only used 850 kWh, you could sell that extra 50 kWh of unused energy back to your utility company at a rate of $0.13 kWh, meaning you would receive a credit of $6.50 on your utility bill.
In this scenario, installing a solar battery does not make sense financially because of the available full-retail net metering benefits. If you were to purchase battery storage, instead of selling your excess power to utilities, it would be used in your home during non-sun hours.
You can find net metering benefits for your state here.
If you are interested in having backup power in case of a power outage or grid failure, a backup battery can give you that security - but it will not help you earn or save more money.
With avoided cost net metering, your extra 50 kWh would be sold at the avoided cost rate of $0.02, making your credit a total of $1.00. While a credit might seem attractive, the value of storing your excess energy in a battery instead is $6.50 - since you would need to buy energy at the full retail rate.
Since your energy is worth more if stored for your own use, a battery makes sense in this situation. If you sold that excess energy back to the grid, you would make less money than if you stored and used the energy yourself.
With Time-of-Use electricity rates, utilities charge you more during “peak times” and less during “off-peak times”.
These different rates can make determining your net metering benefits a bit more difficult. Before diving into the math, take a look at the infographic below detailing typical peak solar panel energy production and peak energy consumption times.
Peak solar production hours do not match up with peak energy usage. This is what makes a battery storage system attractive - you can save your solar energy for peak electricity use. Without a battery, you would rely on the grid for excess energy.
For this example, we will use peak night time hours and assume that your utility defines “peak hours” as 4pm-9pm, where electricity would be $0.20 per kWh, whereas all other times of the day are considered to be “off-peak” and are charged at a rate of $0.13 per kWh.
Naturally, your system will produce more electricity in the middle of the day. Unfortunately, this is when electricity is cheapest. The extra energy you send back to the grid during this time will be worth $0.13 per kWh.
Conversely, your solar panels will produce the least amount of energy during peak hours, when utilities charge the most - at a price of $0.20 per kWh.
If you install a solar battery, you can store the excess energy produced during the day for use during peak hours. Your excess energy will technically be worth $0.20 per kWh instead of $0.13, because you are using it during peak hours instead of buying it from your utility - which saves you money.
Purchasing a solar battery makes the most financial sense in this scenario. If you need to pay more for electricity during peak hours, which is typically at night and when the sun is not shining, you can rely on your battery power that was stored during the day instead of paying extra.
The same is true for areas with no net metering available. You wouldn’t make any money at all from your excess solar power, so you might as well store it for your own use.
While cost and savings are important, different circumstances could make a battery more attractive. For example, if your state is prone to power outages like California, having a backup battery will help keep your lights on.
Or, if you are interested in only using renewable energy, a backup battery will help reduce your reliance on the grid.
A new concept is beginning to be considered as an update to net metering policies - it is called “battery net metering” or “NEM paired storage”, and was recently signed into law in California.
Similar to how net metering works now, where utilities can purchase excess energy from customers' solar systems, utilities could also purchase unused energy that is stored in a solar battery. This concept is slowly becoming popular in other states, as well - because home battery storage has been increasing throughout the U.S.
What makes this law especially appealing in California is that the state’s three major utilities are moving to Time-of-Use rates, meaning electricity will be more expensive during peak hours.
As detailed above, having your own backup battery can help you avoid paying for electricity during peak hours. With battery net metering, you also have the opportunity to sell any excess energy you don’t use - so long as the energy generated is 100% from solar.
Ultimately, if your state has good net metering policies and your only concern is saving and earning money, do not buy a battery. But if your state has bad net metering policies, no net metering at all or uses Time-of-Use utility rates, a battery makes sense for you.
And while battery net metering does have potential, it is not yet widespread enough to be part of your calculation when deciding whether or not to get a solar battery.
Find out how much it can cost to install solar panels, and potentially a solar battery, on your home by using our solar panel calculator below.
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