What is Net Metering and How Does It Work?

If you’re considering switching to solar in California, you should know about one of the advantages available to homeowners — net energy metering (NEM). This program allows you to sell excess energy generated by your solar panels back to your electric provider. The sale price is typically at the same retail rate that the company charges customers, making it a great way to save money on your utility bills while also benefiting the environment.

With NEM, when your solar panels make more electricity than your home needs, you don’t waste it. Instead, you share it with others through the grid and get credit for it. Later, when you need more electricity than your panels make, you can use these credits to pay for it.

But remember, net metering rules can be different in each state. Some states have net metering because utility companies want to, while others require it by the law. So, before you jump into net metering, it’s essential to understand the rules and rates in your state to make the most of your solar power.

How Does Net Metering Works?

Net metering connects your home’s power system to the local grid, enabling you to send any excess electricity you generate back to your utility company. There may be an initial connection fee to set up net metering. Once established, your electric meter tracks both the electricity you use and the excess you send to the grid. 

When you generate more electricity than you use, your meter counts backwards; when you use more than you generate, it counts forwards. At the end of each month, you only pay for the net amount of electricity you use after credits for your excess generation are applied.

Some net metering programs allow you to sell electricity to the grid at peak rates and buy electricity from the grid at off-peak rates, which can help you recover the cost of your solar investment more quickly. Over time, net metering programs have evolved, changing how energy exchanges and billing credits are managed.

California Net Metering Programs: Evolution and Impact

Net Metering 1.0 (Original Program)

When net metering was first introduced in California, its primary goal was to encourage the installation of renewable energy systems at the point of use. At the time, California’s electric grid relied heavily on fossil fuels to meet its energy demands. The original program, applicable to customers enrolled before July 1, 2017, offered substantial incentives:

Free Interconnection: Participants paid no fee to connect their solar systems to the local grid known as solar interconnection.
Monthly Connection Fee: A nominal fee of $1 per month, regardless of actual costs.
Bill Credit: Participants received $0.25 per kilowatt-hour in bill credits, translating to an average monthly savings of $245 for a 10 kW system.
Return on Investment (ROI): With these incentives, the average ROI for a 10 kW system was just six years.

California Net Metering 2.0 (Changes)

In 2017, California introduced Net Energy Metering 2.0 (NEM 2.0), which retained many original incentives but introduced some changes:

Interconnection Fee: A one-time fee of $75.
Monthly Connection Fee: Increased to between $10 and $20.
By-passable Charge: $0.02 per kWh for users who don’t use enough energy from the utility to cover account costs.
Bill Credit: The bill credit amount remained the same as NEM 1.0, resulting in an average monthly savings of $204 for a 10 kW system.
ROI: Despite changes, the average ROI for solar remained at six years.

California Net Metering 3.0 (Latest)

Due to the success of net metering, California faces challenges meeting electricity needs during evening peak hours, prompting the introduction of Net Energy Metering 3.0 (NEM 3.0):

By-passable Charge: Increased to $0.04 per kWh, potentially higher in some areas.
Monthly Connection Fee: Starts at $8 per kW, with additional surcharges from specific electric suppliers. For a 10 kW system, this translates to $48 to $64 per month.
Bill Credit: Reduced significantly to the export rate, lowering compensation by approximately 75%. Average monthly savings drop to about $70.
ROI: With these changes, the average ROI for solar installation extends to 10 years or more. Adding battery storage can help achieve a faster ROI under this model.
While NEM 3.0 introduces higher costs and lower bill credits, it emphasizes solar installation and battery storage to support grid reliability during evening peak hours.

NEM 1.0 provides the most benefits to homeowners, allowing them to receive credits at the retail rate for excess energy sent back to the grid. NEM 3.0, on the other hand, is most advantageous to utility companies, with lower compensation rates for exported energy. NEM 2.0 represents a middle ground between the two, balancing benefits for homeowners and utilities. It’s crucial for homeowners to understand their state’s net metering policies, as these can greatly impact the financial returns of installing solar panels.

Seasonal Variations and Net Metering

The energy production of your solar panels fluctuates throughout the year, peaking during sunny summer months and declining during cloudy winters. Net metering accounts for these seasonal variations by crediting you for surplus electricity. This surplus can be tapped into during periods of reduced solar production, ensuring a stable energy supply year-round.

Electricity Bills with Net Metering

Typically, homes generate excess electricity in the summer while consuming more from the grid during the winter. Since these patterns are predictable, utility providers don’t issue monthly payouts for surplus electricity. Instead, you accumulate credits during high-production months, which can be utilized during low-production periods. With careful system design, your solar setup can generate enough power to cover your annual electricity needs, balancing out variations in monthly production.

Exploring Other Net Metering Models

While traditional net metering is prevalent, alternative models may be available depending on your location and utility provider:

Buy All/Sell All

This model allows users to sell 100% of the energy generated by their panels to the utility company. In return, they purchase 100% of their home’s energy from the utility at the retail rate. It requires two separate meters, and users pay the difference between the energy generated and consumed. With this approach, you don’t directly consume the energy produced by your solar panels.

Net Billing

Initially common in large commercial solar installations, net billing is gaining popularity among residential users as distributed solar systems grow. It’s similar to NEM, using the grid to store excess energy. However, the compensation rate for surplus energy is typically lower than what you pay for electricity. Instead of accumulating credits, you sell excess power back to your utility, often at wholesale rather than retail rates.

Harness the Power of Net Metering for Solar Savings

Net metering emerges as a pivotal strategy in the realm of solar energy, offering an ingenious means of producing green electricity and stockpiling excess energy for future use. This policy enables individuals to capitalize on their solar generation by feeding surplus power back into the grid, allowing them to save substantial sums – potentially tens of thousands of dollars – over their solar panel system’s lifespan while reducing reliance on grid-supplied electricity.

While it’s essential to note that net metering is not the sole method by which utility companies reward homeowners for adopting solar solutions, it undeniably stands as the most prevalent and efficient approach currently available. For those contemplating the adoption of solar energy, it’s advisable to explore whether their respective state offers net metering or alternative solar compensation programs.

Benefits of Net Metering

Net metering offers a range of significant benefits to those who harness solar energy. Let’s delve into each of these advantages in greater detail:

Utility Bill Savings

Net metering presents a powerful solution to alleviate concerns about high utility bills. Allowing you to credit surplus solar power back to the grid effectively reduces your overall electricity costs. For instance, imagine you require $200 worth of electricity from your utility. Still, you’ve accumulated $150 in energy credits from feeding excess power into the grid during sunny days. In this scenario, you would only need to pay $50 for the additional energy you used, resulting in a substantially lower utility bill.

Speedier Payback Period

The solar payback period signifies the duration required for the savings from your solar investment to offset the initial installation expenses. Once you reach the end of this payback period, all electricity your solar system generates becomes free. Net metering is pivotal in expediting this payback period, with total retail NEM offering even more accelerated benefits. 

Consequently, residents in states that provide full retail net metering enjoy a shorter payback period, as these policies amplify electricity bill savings, enabling a quicker return on their investment. For example, solar panel systems in New Jersey typically boast a payback period of 5 to 6 years, largely thanks to robust net metering policies. Conversely, a similar approach in South Dakota might take up to 12 years to break even due to less advantageous net metering arrangements.

It’s worth noting that your solar payback period hinges on several factors beyond net metering, including:

• Electricity prices in your region
• The size of your solar setup
• Available tax credits and rebates
• Your electricity consumption patterns
• Installation costs

Grid as a Backup Battery

Net metering transforms the grid into a virtual battery, allowing you to store excess energy for later use without needing a costly solar battery installation. This convenient feature eliminates the necessity for an upfront investment in additional storage solutions.

Reduction of Grid Strain

Residential solar and commercial solar power represents a substantial boon to utility companies, as it alleviates the burden on the electricity grid. Solar-equipped properties generate their electricity, reducing the grid’s load. Moreover, thanks to net metering, homes with solar capabilities can supply surplus electricity to neighboring non-solar residences, meeting their energy needs. 

This localized electricity generation shortens the distance electricity must travel and positions power generation closer to consumption points. Consequently, solar energy plays a crucial role in decreasing grid demand and relieving stress on distribution and transmission infrastructure. This benefits individual solar adopters and contributes to a more resilient and sustainable energy landscape.

Does Net Metering Provide Cost Savings?

Indeed, NEM can help you save money. By utilizing the credits accrued when you supply surplus power to the grid, you can offset the cost of electricity consumption, ultimately reducing your utility expenses.

Consider the winter season when electricity bills tend to soar due to heating requirements and extended hours of illumination. If you’ve generated surplus power during the summer and contributed it to the grid, you can confidently approach the winter months. Your accumulated net metering credits will be a financial buffer, unquestionably reducing your expenses.

Remember that net metering may yield little savings right after your solar installation. Factors such as weather fluctuations and the amount of excess power your solar panels generate can influence the time it takes to observe significant results from net metering. However, when you tally the benefits over an entire year, the actual value of net metering becomes evident.

Pros and Cons of Net Metering

When contemplating the financial viability of NEM versus battery storage, weighing the benefits and considering your specific circumstances is essential.

The good news is it’s not an either or scenario; you can enjoy the advantages of net metering and battery storage if your area offers net metering. However, certain factors can make one option more attractive than the other.

Backup Power Needs

If your region is prone to power outages or experiences frequent blackouts, investing in battery storage is prudent. This enables you to accumulate credits for surplus electricity sent to the grid when your batteries are full. Additionally, you’ll have a reliable power source during grid failures or extensive outages.

Poor Net Metering Policies

In cases where your state has unfavorable net metering policies or lacks solar energy net metering programs, incorporating energy storage into your solar system can be a wise choice. This ensures you can maximize your solar investment without relying on net metering.

Striving for 100% Renewable Energy

Investing in ample solar energy storage may be necessary if your goal is to rely solely on 100% renewable energy and reduce or eliminate dependence on coal-powered or other non-renewable sources. This allows you to disconnect from the grid entirely and operate autonomously on clean energy.

Favorable Net Metering Policies

Conversely, suppose your state offers robust net solar panel metering with favorable policies. In that case, you can significantly reduce your electricity bills through net metering alone without the added expense of battery storage.

Energy Storage Net Metering (NEM Paired Storage)

Sometimes, you may have the option of energy storage net energy metering (NEM paired storage). This arrangement allows you to export all the energy stored in your battery to the grid, receiving net energy metering credits, typically when electricity rates are advantageous. This option can be enticing because it enables you to earn additional income from excess stored energy and receive recognition at specific times of the day, not just when power is generated.

Choosing between net metering and battery storage should align with your energy needs, local policies, and sustainability objectives. Careful consideration of these factors will help determine which option offers the most financial sense for your specific situation.

Will Net Metering Provide Monetary Compensation?

No, net metering for solar energy will not result in a paycheck. Instead, you’ll receive energy credits on your billing statement, which you can apply toward your future electricity consumption.

The more electricity you contribute to the grid, the more NEM credits you’ll accumulate. Consequently, you can achieve more significant savings on your utility bill. However, it’s essential to understand that earning net metering credits differs from receiving payment for the electricity you generate.

Is Net Metering Equivalent to Going Off the Grid?

No, net metering does not equate to going off the grid. However, it does alter your relationship with your utility provider. When you employ an off-grid solar energy system, you operate independently of the utility’s grid, relying solely on solar power to energize your home. To sustain power during periods when your solar panels aren’t generating electricity, such as at night, you must have a means of storing surplus energy produced during daylight hours, typically via a solar battery storage system. In this setup, you lack access to additional electricity from the grid; your electricity supply is confined to what your system generates and stores in batteries.

Conversely, if you remain grid-tied (on-grid), you maintain constant access to electricity. Even when your solar panels are not actively generating power, you can still draw electricity from the grid, and your net metering credits can offset any expenses incurred. The only exception is during grid outages. However, by incorporating battery backup into your solar power system, you can ensure a continuous electricity supply during those periods.

Net Metering Requirements

Qualifying for net metering is quite straightforward for the majority of homeowners. All you need is a solar panel system installed on your home that is connected to your local electric company’s grid.

Additionally, net metering isn’t limited to individual home solar systems; it can also be an option for multi-tenant properties using virtual net metering. For instance, if you reside in a condominium or apartment complex, members of the community could potentially lower their electricity costs by harnessing energy from solar panels installed on the property.

FAQs About Net Metering

What is Aggregate Net Metering?

Aggregate net metering enables a single solar system to offset multiple meters on a property. For instance, if you have separate meters for your home, barn, and workshop on a ranch property, all three meters contribute to the total net energy use. This operates similarly to standard net metering but allows you to monitor and credit more than one meter on the property.

Do Net Metering Credits Expire?

Although it can vary depending on your location, in the majority of states, your net metering credits will carry forward from month to month, and sometimes even from year to year. This means you don’t have to utilize all your credits in a single billing period. Consequently, during the summer months when your solar energy system generates excess energy, you can accumulate credits to offset your energy costs during the winter billing cycles when your energy production is lower.

Is Net Metering Worth It?

Indeed, net metering enables you to send any surplus solar energy back to the local grid, receiving credits on your power bill in return. This can effectively reduce your electricity expenses. Moreover, it can serve as a cost-saving alternative to investing in a solar battery, which can be quite expensive, often exceeding $10,000. Essentially, the grid functions as a sort of solar battery by storing the excess energy your system generates.