How Net Metering Works

Net metering is one of the most exciting and interesting features in solar power today. Under net metering, you’ll get compensation for any excess solar energy you create, which is typically used as a credit on your electricity bill. Taking advantage of net metering programs available in your state is a great way to add to your solar power savings and get credit for your extra energy that might otherwise go to waste.

The Basics of Net Metering

With a residential solar power system, you’re able to generate much of your home’s electricity needs. But some days will be sunnier than others, and your energy use may not always line up exactly with your solar energy generation. That means on some days, your residential solar power system will generate more solar energy than you need for your home, while on other days, you’ll need to use (and pay for) power from the electrical grid. You could use a battery to store your energy, but often, home owners opt to use net metering.

Net metering effectively evens out the difference between the extra energy your solar power system generates and the power that you have to pay for from the grid. Instead of wasting the extra energy you create but are not likely to use, you will send it to the grid, which shares your energy with other grid customers. And at the same time, it makes your meter spin backwards.

It’s generous — and smart — to share your excess energy with others. Of course, you’re not giving away your energy for free out of the goodness of your heart. Rather, with net metering, you’ll be compensated for it in the form of a credit on your utility bill. With this credit, you can pay for the cost of using grid electricity. When it’s time to pay your electricity bill, you’ll only be charged for your net energy use, which is the amount of grid energy you’ve purchased minus any excess solar energy you sent to the grid.

How to Get Net Metering

Currently, 44 states and Washington, D.C. offer mandatory net metering rules. But you can ask for net metering even if you don’t live in a mandatory net metering state. To take advantage of net metering, you’ll need to work with your utility when you install your solar power system. Utilities will typically require an agreement as well as the installation of a bi-directional meter that can measure your electrical current flowing both in and out.

How Much Net Metering Can Save You

For home owners with a solar power system that regularly generates more energy than is consumed, net metering can mean you have an ongoing credit with your utility company and effectively never have to pay an electricity bill. This is uncommon in a correctly sized residential solar power system, however.

The typical residential solar power customer will send about 20 to 40% of your solar energy system’s output. It’s not uncommon to see a solar power system save home owners about 5,000 kilowatt hours a year. That can add up to about $400 annually, depending on net metering policies and energy prices in your area. Homes with larger systems, better access to the sun, or low energy use may see significantly more savings.

Net Metering Rules and Regulations

Under the Public Utility Regulatory Policies Act (PURPA), utilities in every state have to allow homes that create their own energy to connect to the energy grid. They are also required to buy the excess energy produced by these homes. There are formal net metering policies in 44 states as well as Washington, D.C., making net metering a widespread practice in the United States.

Net metering policies vary by state, and can even vary depending on your specific utility company within a state. Some states have better regulations and practices, while others are not as favorable. However, typically any net metering arrangement you can sign up for will be helpful for saving money on electricity and sharing your excess solar energy with others.

Net Metering Reimbursement Rates and Credit Usage

The most important policy to consider is the rate at which you’ll be reimbursed for your excess energy. Some utilities will reimburse you for the full retail rate, which is what you would have paid for the energy if you were to purchase it from the utility. Others offer a credit at the avoided cost rate, which is the amount the utility would have to pay to generate the electricity.

Another important consideration is how credits can be used. Some utilities will allow you to carry your credits for months or years, while others will not. In some cases, you’ll be able to receive a check for your excess credit, but with others, your unused credits will simply roll over to the utility.

Ideally, you’ll want a net metering arrangement that allows you to receive credits at the full retail rate, roll over credits indefinitely, and receive a check for excess credits. This is not always the case, but it is the best if you can find it.

In some states, you’ll find net metering caps, which limit net metering to a system of a certain size. It’s not unusual to see caps on systems at 125% of a customer’s total connected load.

You may also encounter grid access charges or fees. These essentially ensure a minimum bill for the utility whether you’re using grid energy or not. Some grid access charges are tied to the output of your output, others on peak energy consumption, and some simply charge a flat fee, typically ranging from $10 to $20. Often, consumer groups and solar energy groups seek to fight this type of charge, which is controversial.

The Bottom Line on Net Metering

Ultimately, net metering is a useful tool for savings and energy conservation that is recommended for every solar power home owner. View our state profiles, or contact your local solar power installer to learn more about the net metering policies available in your state with your particular utility.