What Is Net Metering?
Net energy metering (NEM) is a billing arrangement in which excess electricity production from photovoltaic (PV) solar panels is tracked by your electricity provider and subtracted from your monthly electric utility bill. When your solar power system produces more kilowatt-hours of electricity than your home is consuming, the excess generation is fed back into the grid.
For solar customers, the benefits of net metering include higher monthly savings and a shorter payback period. Without this benefit, you only save on power bills when using solar energy directly, and surplus generation is lost unless you store it in a solar battery. Utility companies also benefit, since the excess solar electricity can be supplied to other buildings on the same electric grid.
Generally, you will see more home solar renewable energy systems in places with favorable net metering laws. With this benefit, going solar becomes an attractive investment even for properties with minimal daytime consumption. Residential customers can turn their roofs into miniature power plants during the day, and that generation is subtracted from their nighttime consumption.
If a power grid relies on fossil fuels, net metering also increases the environmental benefits of solar power. Even if a building does not have an adequate area for rooftop solar panels, it can reduce its emissions by using the surplus clean energy from other properties.
How Does Net Metering Work?
There are two general ways net metering programs work:
- The excess energy produced by your solar panels is measured by your utility company, and a bill credit is posted to your account that can be applied to future power bills.
- The excess energy produced by your solar panels is measured by your home’s electricity meter. Modern power meters can measure electricity flow in both directions, so they tick up when you pull from the grid at night and count down when your solar panels are producing an excess amount of electricity.
In either scenario, at the end of the billing period, you will only pay for your net consumption — the difference between total consumption and generation. This is where the term “net metering” comes from.
How Does Net Metering Affect Your Electric Bill?
Net metering makes solar power generation systems more valuable for homeowners, as you can get credit for any extra energy production to your utility company. However, it’s important to understand how charges and credits are managed:
- You can earn credits for your surplus electricity, but utility companies will not cut you a check for the power you provide. Instead, they will subtract the credits from your power bills.
- If your net metering credit during the billing cycle is higher than your consumption, the difference is rolled over to the next month.
- Some power companies will roll over your credit indefinitely, but many have a yearly expiration date that resets your credit balance.
All of this in mind, it is possible to reduce your annual electricity cost to zero. You can accumulate credit with surplus generation during the sunny summer months, and use it during winter when solar generation decreases. You will achieve the best results when your solar energy system has just the right capacity to cover your annual home consumption.
Oversizing your solar array is not recommended, as you will simply accumulate a large unused credit each year. In other words, you cannot overproduce and charge your power company each month. Some power companies will let you pick the expiration date of your annual net metering credits.
If you have this option, it’s wise to set the date after winter has ended. This way, you can use all the renewable energy credits you accumulated during summer.
Is Net Metering Available Near You?
Net metering offers a valuable incentive for utility customers to switch to solar power, but these types of programs are not available everywhere. Net metering laws can change depending on where you live. In the U.S., there are regulatory net metering rules in 38 states and Washington, D.C.
Most states without a mandate have power companies or city governments that voluntarily offer the benefit in their service areas. For example, in Texas, net metering is available in San Antonio and Austin but not Houston or Dallas.
South Dakota and Tennessee are the only two states with no version of net metering or similar programs. If net metering is available in your area, you will be credited for your surplus energy in one of two ways:
- Net metering at retail price: You get full credit for each kilowatt-hour sent to the grid. For example, if you’re charged 16 cents per kWh consumed, you’ll get a bill credit of 16 cents per kWh exported. This type of net metering is required by law in 29 states.
- Net metering at a reduced feed-in tariff: Surplus electricity sent to the grid is credited at a lower rate. For example, you may be charged 16 cents per kWh for consumption but paid 10 cents per kWh exported. Feed-in tariffs and other alternative programs are used in 17 of the states where retail-rate net metering is not mandatory.
Note: This is just a simplified example — the exact kWh retail price and solar feed-in tariff will depend on your electricity plan.
What Are Other Incentives to Go Solar?
Net metering policies are one of the most effective incentives for solar power. However, there are other financial incentives and rebates that can be combined with net metering to improve your ROI: