What is net metering and how does it work?
There are many advantages to using solar energy to power your home in 2020. Benefits for homeowners who choose to install solar panels include the use of clean energy, greater independence from the electric grid, and most importantly, big financial savings.
So, what makes installing solar panels such a great way to save money? The answer to that is net metering.
On this page:
- What is net metering?
- How does it work?
- Equipment needed
- Benefits of net metering
- How long until solar pays off?
- Where is it available?
Thanks to net metering, your solar panels can save you - and help you make - a lot of money.
Let's take a look at what net metering is and how it can easily put money back into your pocket.
What is net metering?
Net metering is a solar incentive that requires your utility to purchase excess solar electricity that your solar panels produce at the full retail value of electricity.
In other words, when your solar panels produce more electricity than your home needs, that excess power will be sent to the power grid. Your utility will then pay you for that power sent to the grid, usually in the form of energy credits on your utility bill. This credit will be equal to the full retail price of electricity.
Solar panels will produce more electricity in the summer months and less during winter. Net metering allows you to build up these credits on your utility bill during the summer months, so that you can use them in the winter to offset your energy use.
If you have the right size rooftop solar system, you could make enough solar energy to cover all of your electricity usage for the year. This would wipe out your electric bill entirely!
How does net metering work?
Usually, your solar panel system will generate the most electricity during the middle of the day. This also happens to be when homes use the least amount of energy. Solar panels don’t produce energy at night, which is typically when homes consume the most energy.
The combination of high solar energy output and low electricity usage means that your solar panels are producing a lot of excess energy during the day.
This video explains how a grid-connected solar system works to power a home during the day:
When your utility offers net metering, that excess electricity your solar panels produce can be exported to the grid. Your utility will then give you a credit that can be used to offset your electricity usage later in the day, when your home is using more electricity, but your solar panels aren’t producing.
Here’s an example - let’s say your solar panels produced 10 kWh of electricity between noon and 1:00 PM. During the same time period, your home consumed 2 kWh of electricity. The extra 8 kWh your solar panels produced would be sent to the grid, and you would receive 8 kWh credits to be used later in the day when your solar panels don’t produce enough electricity.
In other words, you don’t pay for all the power you import from the grid. Instead, your power exports cancel out some, or even all, of your grid usage. This means you only have to pay your utility the ‘net’ difference. That’s why it’s called net metering!
Do I need to install special net metering equipment?
In order to participate in net metering, you will only need to add one additional piece of equipment to a standard grid tied solar panel system - a bi-directional meter.
Bi-directional electricity meters are capable of measuring electricity that flows to and from the grid. This allows your utility to track how much energy you consume and how much you produce. Your solar installer or utility will be able to install a bi-directional meter for you.
What are the benefits of net metering?
Utility bill savings
The biggest benefit of net metering to solar homeowners is the utility bill savings, as net metering can greatly reduce your monthly power bills. In fact, you can bring your electric bill down to zero if your system is designed to offset all of your electric usage.
This results in tens of thousands of dollars in savings over the life of your solar system, and your panels can quickly pay for themselves.
No need for expensive battery storage
Net metering also ensures that you get the most out of your solar panels. When your utility offers net metering, it allows you to use the grid as a ‘virtual’ battery to store the economic value of your excess solar power.
Without it, you would need to install a solar battery to store your excess electricity, which can run you thousands of dollars. Otherwise, your excess power would just get sent to the grid, without you getting any value from it.
How long will it take to pay off my solar system with net metering?
Areas that offer full retail net metering will have shorter payback periods than areas that do not offer net metering. On average, solar panel systems have a payback period between four and nine years.
There are a number of factors that go into determining the payback period for your solar energy system, such as:
- The size of your system
- The amount of electricity your home consumes
- The price of electricity in your area
- The cost of installation
- Applicable tax credits or rebates
Is net metering available in all states and cities?
Net metering is technically mandated in 38 states, and Washington D.C. In addition, major utility companies in Idaho and Texas offer net metering to their solar customers without being mandated to do so.
However, not all net metering policies are created equal. Net metering has come to be a catch-all phrase that is used to describe utilities purchasing solar power from homeowners. True net metering is what we have described throughout this article, where you receive the full retail rate of electricity for each kWh of power you send to the grid.
Some states only require utilities to compensate customers at the avoided cost rate of electricity for solar power sent to the grid, which is substantially lower than the retail rate and decreases your solar savings.
Other states have alternative programs, including things like ‘gross metering’ in Louisiana and feed-in tariffs in Hawaii. Alabama, South Dakota, and Tennessee don’t offer net metering or any alternative programs. You can find out specific information about programs in your area by selecting your state from the below table.
The following table shows what states offer the various types of net metering and which have alternative programs as of June 2020:
|State||Full-retail net metering||Avoided cost net metering||Alternative program|
*Major investor-owned utilities in these states offer full retail net metering even though there is no state mandate requiring them to do so.
We recommend consulting with local solar installers for the most accurate and up-to-date information on net metering in your area, as policies are always changing and can vary between utilities.
If your state allows it, having a net metered solar system is the best way for you to take advantage of renewable energy while saving thousands of dollars over the lifetime of the system.
Author: Catherine Lane | SolarReviews Blog Author
Catherine is a researcher and content specialist at SolarReviews. She has strong interests in issues related to climate and sustainability which led her to pursue a degree in environmental science at Ramapo College of New Jersey.