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What Is Net Metering? [Types, Benefits & Drawbacks]

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Net metering, or Net Energy Metering (NEM), is a billing arrangement that allows residential and business customers who generate their own electricity from solar power to feed electricity they do not use back into the grid.

This means that when your solar panels produce more electricity than you need, that energy is sent to the grid in exchange for credits.

Then, at night or other times when your solar panels are underproducing, you pull energy from the grid and use these credits to offset the costs of that energy.

This can significantly reduce your utility bill and potentially even result in a net profit, depending on your local policies and the amount of electricity your solar panels produce.

This article is for you if you’re considering adopting solar but are unsure how net metering could affect your savings or if you want to learn more about net metering.

We’ll go through net metering benefits, how it works, if it’s a worthwhile program to participate in, and whether it’s available in the area you live.

What Are the Benefits of Net Metering?

Net metering comes with several significant benefits, including:

Energy Bill Savings

When you have a solar panel system and it produces more electricity than you use, that excess power is sent back to the grid.

The power utility company then credits you for this excess energy.

These credits can be used to offset your energy bill during times when your solar panels aren’t producing enough electricity, like at night or during periods of heavy cloud cover.

This can lead to significant savings on your energy bills.

Efficient Energy Use

Without net metering, any excess electricity your solar panels produce would simply go to waste because there would be no way to store it.

With net metering, this power is sent back to the grid where it can be used elsewhere.

This makes the entire power system more efficient because less power is wasted.

Lower Energy Costs in Peak Times

Some power companies charge more for electricity during peak usage times (usually in the late afternoon and early evening).

With net metering, you can generate power during the day when the sun is out, and use the credits you earn to power your home during these peak times, effectively reducing your electricity costs.

Encourages Renewable Energy Use

By making solar power more cost-effective, net metering provides a financial incentive for more consumers to install solar panels.

This helps to increase the overall use of renewable energy and reduce reliance on fossil fuels.

Reduces Dependence on Fossil Fuels

Solar power is a renewable resource, unlike coal, oil, and gas.

By increasing the use of solar power, net metering helps to reduce demand for these non-renewable resources, which in turn helps to reduce greenhouse gas emissions and combat climate change.

Potential for Profit

In some areas, if your solar panel system produces more power than you use over the course of a billing period, the solar company will pay you for this excess power.

This can turn your solar panel system into a source of income.

However, the specific rules for this can vary, so it’s important to check with your local solar company to understand how it works in your area.

Drawbacks and Controversy

While we, as proponents of solar energy, would like to assert that net metering has no downsides, it wouldn’t be entirely accurate.

Research indicates that solar energy contributes positively to the grid when the number of interconnected net metering systems is small.

However, the situation becomes more complex when net metering reaches a saturation point of approximately 5% to 10% of peak demand.

Here are some of the drawbacks of net metering:

Grid Infrastructure and Costs

The increased adoption of solar power and net metering can put stress on the existing electrical grid, which was not originally designed to handle power flowing in two directions.

Upgrades and maintenance may be needed to accommodate this, which could result in costs being passed on to all consumers, not just those using solar power.

Inequitable Cost Distribution

Critics argue that net metering policies can lead to an unfair cost distribution.

Households that can afford to install solar panels benefit from lower electricity rates or even payments for excess electricity, while those who cannot afford solar installations do not receive these benefits.

Additionally, as more people go solar, fewer are left to cover the fixed costs of maintaining the grid, potentially leading to higher rates for those who can’t afford or choose not to install solar.

Dependence on the Sun

Solar power is inherently dependent on sunlight, which can be inconsistent. Solar panels don’t produce power at night and produce less power on cloudy days.

This means that solar users will still need to rely on the grid for consistent power.

Changes in Policies

Net metering policies can vary greatly by region and are subject to change. Changes in policy could potentially affect the economic benefits of installing solar panels.

Initial Investment

While solar panels can save money over time, the initial cost of purchasing and installing a solar system can be high, which may be a barrier for some households.

Considering the cost, a Power Purchase Agreement (PPA) can be an alternative solution for those interested in utilizing solar energy.

How Is Net Metering Measured?

With net energy metering, you are billed for the “net” energy used. Net energy is the difference between the total amount of energy used by the house and the total amount of energy produced by a solar power system.

Your electricity meter records the amount of extra power that is fed to the grid and the amount that is pulled from the grid when your home requires more power.

By comparing these numbers, you can figure out your net energy usage.

The net meter for a solar house supports net metering functions in both ways, as opposed to a standard, non-solar meter that simply monitors the energy you are drawing from the grid.

The net meter doesn’t literally “spin” backward since most meters have digital screens; instead, there is usually an arrow that points in one way when adding additional power to the grid and in a different direction when taking electricity from the grid.

This measurement is used by your utility provider to calculate the amount of solar power net metering credit it will grant you.

No matter how much electricity you produce, you won’t receive a cash payment from your utility since net solar metering only credits you for energy fed into the grid.

Instead, for every watt you feed into the grid, you gain credit, which you may then utilize to lower costs when you take watts from the grid. Your entire power bill will be less expensive as a result.

You can create enough energy with a sizable solar power system to completely offset your annual electricity costs, saving you practically all of your usual utility costs.

Contact a solar professional to learn more about the solar energy metering laws in your region because most utilities have limits on how much power you can generate and feed into the grid, known as a maximum offset.

How Does Net Metering Work: The Process Explained

Net metering allows individuals or businesses with these renewable energy systems to connect to the grid and receive credits for any surplus electricity they generate.

As people get ready for the day or return home from work and school, most homes consume more electricity in the morning and the evening.

However, solar-powered homes generate more electricity in the afternoon, when families are using less electricity.

Here’s how net metering works:

1. Installation: A solar power system is installed on your property. The system is connected to the local electrical grid through a two-way meter installed by your utility company. You might need a solar loan or PPA to get your solar system installed.

2. Generation: During the day, your solar panels generate electricity. This power is used first to meet your own energy needs in real time. If your system produces more power than you’re using, the excess power is fed back into the grid.

3. Return to Grid: When your solar system produces more electricity than you need, the surplus is sent to the power grid, and your meter effectively “spins backward.” In these instances, you are often “banking” this excess energy and receiving credits from your utility company.

4. Night and Cloudy days: At night, or during other periods when your solar panels are not producing electricity, your power comes from the grid, and you are charged based on your usage.

However, if during the day you have contributed more electricity to the grid than you use during the night, then you would essentially be using those banked credits.

5. Billing: At the end of the billing period, you only pay for the “net” energy usage, which is the difference between the energy your system produced and the energy you have used.

What Are the Types of Net Metering?

1. Time-of-Use (TOU) Net Metering

In TOU net metering, the cost of electricity fluctuates based on demand. Customers can sell back electricity to the grid when the price is high and buy it when the price is low.

2. Net Billing

In the net billing system, solar energy utilized to power domestic appliances effectively aids in reducing the homeowner’s electricity bill equivalent to the retail electricity cost.

However, if the energy is channeled to the grid, a lower rate is credited.

These monetary credits are directed towards the consumer’s bill, although they rarely balance the cost of the electrical energy pulled from the grid when the solar panels are not generating power.

This system is frequently intertwined with Time Of Use (TOU) billing, with solar owners often receiving meager credits for energy supplied during the sunniest periods of the day, while high prices are established for energy purchased from the grid during the evening.

Consequently, net billing promotes the use of batteries in solar systems among owners, which allows them to store rather than sell their solar energy cheaply and use that stored energy during the evening instead of buying more expensive power from the utility.

3. Buy-all, Sell-all

Under an extreme scenario for residential solar power, you might have to participate in a “buy-all, sell-all” arrangement, or “parallel operation”, with the utility grid.

This means that you would purchase all of your required energy from the utility company, while all of the solar energy produced by your system would be supplied to the grid.

4. Virtual Net Metering

Virtual net metering (VNM) is a system for crediting bills related to community solar.

This term is used to describe solar energy that isn’t consumed at its location of production but instead supplied to the grid.

The credits accrued from this net metering process are then distributed among subscribers.

You buy the energy generated by your portion at a lower rate, which lowers your electrical bill.

Generally, any surplus energy produced by your part of a community solar initiative will result in credits on your electrical bill.

Net Metering and PPA

Net metering programs, offered by many states, permit you to sell excess solar electricity to your local utility company in exchange for billing credits.

Typically, solar PV systems installed via a lease or PPA qualify for participation in net metering.

Which States in the USA Have Net Metering?

According to Yellow Lite, 42 states in the USA have mandatory net metering rules. They are:

The states that offer net metering policies are:

  1. Alaska
  2. Arkansas
  3. Colorado
  4. Connecticut
  5. Delaware
  6. Florida
  7. Georgia
  8. Hawaii
  9. Illinois
  10. Indiana
  11. Iowa
  12. Kansas
  13. Kentucky
  14. Louisiana
  15. Maine
  16. Maryland
  17. Massachusetts
  18. Michigan
  19. Minnesota
  20. Mississippi
  21. Missouri
  22. Montana
  23. Nebraska
  24. Nevada
  25. New Hampshire
  26. New Jersey
  27. New Mexico
  28. New York
  29. North Carolina
  30. North Dakota
  31. Ohio
  32. Oklahoma
  33. Oregon
  34. Pennsylvania
  35. Rhode Island
  36. South Carolina
  37. Vermont
  38. Virginia
  39. Washington
  40. West Virginia
  41. Wisconsin
  42. Wyoming

Three additional states offer forms of compensation called net billing, and those are:

  1. Arizona
  2. California
  3. Utah

To make sure about the up-to-date status of net metering in each state, you should check the Database of State Incentives for Renewables & Efficiency (DSIRE).