There are plenty of industry terms to keep track of when you’re shopping for solar and net metering is among the most important.
Also referred to as net energy metering and NEM, net metering is a billing system that answers the age-old question: “How does solar work when the sun isn’t shining?”
If you’re thinking about going solar, it’s important to understand what net metering is, how it works, and if it’s available in your area.
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What is net metering?
Net energy metering is a billing mechanism that allows you to earn credit for excess solar production on sunny days to offset the grid energy you consume when your panels aren’t producing.
One way to think of net metering is spinning your energy meter backwards when you send excess solar electricity onto the grid.
Homeowners typically size their solar systems offset 100% of their electricity use, which means they push as much electricity onto the grid as they pull off of it. With NEM and 100% solar offset, you essentially replace your electricity bill with lower monthly payments on your solar panels.
Once the system is paid off, you’re paying for neither and the savings start to kick in!
How does net metering work?
Let’s say you have a 7.5 kW solar panel system in New York State. On a nice June day with 6 hours of peak sun your panels produce around 32 kilowatt-hours (kWh) of electricity, but you only use 25 kWh of electricity to power your house.
That 7 kWh of excess production goes back into the local grid to power systems like your neighbor’s refrigerator. As your electricity flows onto the grid, you earn credit which is used to offset the grid energy you use when your panels are producing.
At the end of the billing year you will “true-up” with your utility company and only pay for your grid electricity use minus the solar electricity you put on the grid.
If you have an exact 100% offset, you won’t owe a penny. But it’s more likely that your solar panels will slightly overproduce or underproduce your electricity consumption, in which case you may have a small bill or leftover credit at the end of the year.
Even though our power demand is not perfectly aligned with solar production, NEM allows solar to be a viable energy option by allowing homeowners to push and pull from the local grid — essentially using it as a giant battery backup.
Advantages of net metering
There are several advantages to net metering – from financial to environmental. Let’s look at a few.
Electricity Savings
The biggest advantage of net metering is the opportunity for substantial solar. The national average price for grid electricity is 16.7 cents per kWh (and rising) while the average price per kWh for solar through solar.com is closer to 7 cents per kWh.
Through NEM, you essentially replace your grid electricity rate with a much lower rate for solar power. Over the 25-plus year life of a solar system, that leads to tens of thousands in electricity savings.
Increased solar adoption
The biggest knock on solar energy is that it is inherently intermittent. Yes, your Uncle Todd was right at Thanksgiving – solar panels only produce electricity when the sun is shining.
Net metering solves that problem and was largely created to increase solar adoption. When the sun is shining, your house runs on solar. When it’s not, your house runs on grid.
All the while you’re only paying for your solar equipment, and at a much lower rate than paying for grid electricity. This simple yet effective billing structure has made going solar more than worthwhile and increased the rate of adoption.
Related reading: Solar Rebates and Incentives 2022
Cleaner, cheaper electricity mix
It’s not just solar owners that benefit from net metering. Utilities, communities, and the global ecosystem all benefit from clean, cheap electricity generated by rooftop solar.
- Utilities benefit from an influx of solar electricity in the summer which helps them minimize wear on the grid, achieve clean energy goals, and avoid buying and generating electricity from other sources
- Communities benefit from better local air quality and more efficient land use. After all, rooftop solar is emissions-free and requires zero additional land
- The global ecosystem benefits from the increased solar adoption as each rooftop solar system is another milestone in the clean energy transition
Disadvantages of net metering
Along with advantages, there are a few disadvantages of net metering. Let’s start with a widespread effort to change and eliminate net metering policies.
Net metering policies are changing
As we mentioned above, net metering was created in part to increase solar adoption among homeowners. However, the cost of solar has decreased dramatically in recent decades, leaving many policies outdated and arguably too favorable for solar owners.
States including New York and California are proposing updated net metering policies with new charges specifically for solar owners while other states, specifically Florida, have made (unsuccessful) attempts to remove it altogether.
Most recently, California – whose lead many states tend to follow – implemented a controversial new policy known as NEM 3.0. Just a few months later, the opening shots of a net billing battle in Arizona were fired by the state’s Corporation Commission.
Even if net metering policies change, the core of this structure is still very beneficial to solar owners.
Net metering isn’t available everywhere
One disadvantage of net metering is that not every homeowner in America has access to it. Net metering is usually operated through the utility, and not everyone is connected to a utility that offers it… or any utility at all!
Specifically, net metering is not very prevalent in Alabama, South Dakota, and Tennessee, aside from the Dispersed Power Production Program through the Tennessee Valley Authority (TVA), which compensates consumers of TVA electricity through TVA partners like Huntsville Utilities at wholesale rates for excess solar production.
If you’re off-grid or in an area that doesn’t offer net metering, you’ll likely need to pair your solar panels with battery storage in order to power your home.
Grid electricity still relies on fossil fuels
One of the key disadvantages of net metering is it relies on grid electricity for backup power, which is still primarily produced by fossil fuels.
Solar owners produce emission-free electricity during the day, but through net metering they are at the mercy of their utility’s energy mix at night.
The way around this is to pair solar with battery storage, essentially creating your own mini utility that runs entirely on clean solar energy.
Which states offer net metering?
Although a vast majority of states have state-mandated NEM policies for utilities, a handful of states don’t. The map below provides a snapshot of net metering policies for October 2022.
What if my state or local power company doesn’t offer net metering?
If your local power company doesn’t offer net metering, it may have an alternative compensation mechanism such as “net billing” in Arizona and Utah or Customer Grid Supply Plus/Grid Export in Hawaii.
However, there are still areas where there is no compensation structure for sending excess solar power into the grid. If that’s the case, your best option is to pair your solar system with battery storage so it can be stored and used on demand.
Is net metering worth it?
For homeowners with solar panels, net metering is absolutely worth it in terms of saving money and contributing to the clean energy transition. Net metering has been crucial in increasing rooftop solar adoption, which contributes to:
- Greater control of electricity bills
- Cleaner, cheaper electricity
- Reduced strain on the local grid
- Jobs and investments in clean energy
In fact, with the cost of solar energy so low, there’s an argument that basic net metering policies are too favorable for solar owners and several policies are undergoing changes.
If you’re in a state that’s considering updating it’s net metering policy – such as California or New York – it may be worthwhile to go solar sooner rather than later in order to be grandfathered in the existing structure.
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Net metering FAQs
What is net metering?
Net metering is a billing structure in which homeowners are credited for pushing their excess solar power onto the local grid to power their community. The credits are used to offset the grid energy they use when their panels aren’t meeting their household electricity demand.
Under net metering, it’s entirely possible for solar owners to completely offset their utility bills and drastically reduce their electricity costs.
How does net metering work?
Under net metering, homeowners first apply their solar production to their household needs, and send excess generation onto the local grid. As the excess electricity flows onto the grid, you earn credit which is used to offset the grid energy you use when your panels are producing.
At the end of the billing cycle, the homeowner is only billed for the net amount of electricity they used during the year – hence the name net metering.
So if you push as much electricity onto the grid as you pull off, you would have a $0 electricity bill (not including fees and taxes).
Is net metering worth it?
Rooftop solar and net metering are worth the upfront cost in several ways.
First, net metering allows for substantial electricity savings of the list of a solar system – often tens of thousands of dollars. Net metering has also been key in increasing rooftop solar adoption, which has contributed to:
- Greater control of electricity bills
- Cleaner, cheaper electricity
- Reduced strain on the local grid
- Jobs and investments in clean energy
In almost any form, net metering is very favorable for solar owners.
