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What Is Net Metering And Why Is It Important For Home Solar?

Apr 8, 2022

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When you're first considering getting a solar system, you may not realize how net metering, also called net energy metering (NEM), plays into the process – and your wallet.

Net energy metering can make a huge difference in the amount of money solar customers save and can also have a major impact on lessening the burden on the grid. Let's dive into the definition of net metering and how it might benefit you.

What Is Solar Net Metering?

Residential and commercial customers who use solar power to generate their own electricity can use net metering if it’s available in their area. Net metering simply means that you can sell the electricity you don't use back to the grid.

In other words, net metering is a way for utility companies to compensate homeowners who produce solar energy and use the grid to store excess electricity. In essence, their excess energy goes into the grid and the homeowner can pull energy from the grid at night or at times when they’re not generating enough power to run their home.

Compensation differs from state to state and utility company to utility company based on regulations. It's best to contact your utility company for more information about your local net metering program.

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How Does Solar Net Metering Work?

With a system of the right size, you can nearly cover your electricity consumption. But the production output of your system depends on the amount of sunlight you get and your energy use, among other factors. If you have a streak of sunny days, you'll produce more electricity than you would compared to a week of cloudy days. In other words, you'll experience fluctuation throughout the weeks, months and years that you have your solar system.

Net metering generally factors in these seasonal differences by crediting you for every kilowatt-hour your system produces.

At the end of the month, as the homeowner, you only get billed for the "net" energy use you use each month. This is the difference between the energy produced by your system and the energy used by your house over that particular month.

Note, however, that it’s rare for utilities right now to pay you if you build a system that generates renewable energy far beyond your needs. This means, don’t oversize your system just to try to maximize your net metering savings.

What Is The Purpose Of Net Metering?

Net metering is a common incentive used to encourage solar adoption. First and foremost, homeowners can benefit from net metering as it can reduce your monthly electricity bills and save you money over time.

During peak consumption periods, utilities offering net metering programs can use your solar energy to supplement the power grid. This takes pressure off the grid and gives utilities access to low to no-cost clean energy from your system. Solar customers can "get credit" for their assistance with saving energy and can also help utility companies meet sustainability goals.

Do All Utility Companies Use Net Energy Metering For Solar?

You can find a wide variety of net metering policiesused throughout the country.

Thirty-nine states have mandatory net metering rules, but some don't at all – it all depends on the local utility companies. For example, Arizona doesn’t use a net metering program despite its favorable climate for solar power generation. In addition, utility companies in Utah, Louisiana, Michigan and Mississippi offer generation compensation instead of net metering.

Also, the Nevada Public Utilities Commission drastically cut back net metering payments in Nevada (which, incidentally, led the state's three largest rooftop solar panel providers to leave the Nevada market).

Some utility companies oppose net metering because it hurts their profits, even though consumers benefit. Rooftop solar can cause energy pricing to increase for those without solar. Some utility companies argue that net metering benefits for solar homeowners put the burden of maintenance costs on non-solar customers. In other words, some utility companies have said that those who don't have rooftop solar panels end up paying extra each month to cover the ones who do – some customers subsidize other customers.

Check the Database of State Incentives if you’re considering solar power for your home.

Can You Make Money By Generating Excess Power?

It’s very rare for customers to profit through excess generation. For example, let's say you put up far more solar panels for your home than necessary with the goal of making money off your utility company's net metering policies.

When there were few residential solar customers, utilities had a more generous rate for net metering as a way to encourage customers to add solar panels to their homes.

Today, as solar use has increased among utility company customers, utility companies have amended net metering rate plans to pay customers far lower than the retail rate to produce electricity.

Even though some homes are grandfathered into their former rates (which makes them sought after when they go up for sale), it's best not to assume you can make money by turning your home into a power plant.

What Are SRECs?

Solar renewable energy certificates (SRECs) are credits awarded to homeowners, representing the positive environmental benefits of generating solar energy. Utility companies purchase these SRECs to meet Renewable Portfolio Standards (RPS). One SREC is generated for each megawatt-hour (mWh) of electricity (which equals 1,000 kilowatt-hours) that you generate with your solar panels.

In certain states, it’s possible to sell SRECs to power companies. For example, SRECs were selling for $227 in New Jersey in early 2022, though it's important to note that SREC prices can fluctuate daily.

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How Do Electric Bills Work With Net Metering?

Net metering billing with solar energy varies by state and by utility company. Some utility companies charge grid-tied solar users a service fee and a demand fee in order to connect to the grid. They still might credit the homeowner for the power they generate.

In some cases, your monthlyelectric bills may show negative charges and your utility company may also show on-peak and off-peak charges separately. Ultimately, net metering can result in substantial savings over the life of your solar system.

What About Going Off-Grid?

What does "living off-grid'' mean? Living off the grid refers to living without relying on the grid for power. Obviously, one of the ways you can do this involves installing a solar power system that absorbs and generates energy from the sun. If you do this, you must have batteries to store that energy in order to have power when the sun is not shining.

If you're considering going off-grid, you may want to consider a few other factors, such as:

  • An off-grid solar system can cost a lot more, thanks in part to the necessary storage battery.
  • An off-grid system will likely require more panels and a battery to supply energy at night or during cloudy days.
  • Off-grid systems may also have to follow local regulations that add to the cost.
  • You might have to reduce energy consumption, which means you may have to adjust your lifestyle – turning the thermostat down in the winter and up in the summer, for example.
  • Off-grid systems can be a problem on continuously cloudy days when your system can't generate enough electricity on its own (yes, even if you do have batteries!).
  • Extra energy production can go to waste instead of going back to the utility company for use.

The Bottom Line

Net metering programs offer a lot of incentives for customers who want to integrate their own solar energy with the electric grid. Solar panels regularly produce excess electricity and this excess generation gets paid back to you by the kilowatt-hour if net metering is available.

However, net metering policies vary from state to state and region to region, and the retail rate and amount you can return back to your pocketbook changes depending on these pricing policies.

You might be tempted to go off-grid so you don't have to deal with net metering at all. However, it's a good idea to think about the pros and cons of doing this. An off-grid system will likely require more panels and you may need battery power for cloudy days.

Thinking about getting a solar array for your home? Be sure that your home is a good candidate for solar power first!

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