You’ve done it! You’re successfully producing your own clean energy and using this energy to fully power your home. This is a fantastic achievement for both your household and the planet.
And it gets even better. Did you know that you can actually make some extra cash from all that energy you’re producing?
Read on to find out all about net metering and how you can set it up to cash in on your sustainable energy improvements.
Net Metering Explained
Net metering is when you sell the excess electricity produced by your solar power system back to the power company through the electric grid.
When a property starts to produce more electricity than it is currently using, the surplus energy can be sent to your local power grid and essentially “sold” to the energy company.
The power sold to an electric grid is valued at retail rates and given as a credit on utility bills to the homeowner. Other forms of electrical generation compensation are not net metering.
This is a huge benefit to developing your own solar energy system that can produce more electricity than you need. That extra electricity can go toward providing your community with green energy.
Your Guide to Net Metering Program Basics
There are a lot of things that must be considered before setting up your feed. Those include state and federal regulations, equipment, your household energy needs, and more.
Your specific power company will have different programs and regulations that you must adhere to when you participate in net metering. We’ll help you know what to expect.
- The Basics of Net Metering
- How Do Net Metering Programs Work?
- 8 Net Metering Questions to Consider
- Types of Renewable Energy Production Systems
- Necessary Equipment for Net Metering
- The Future of Net Metering
The Basics of Net Metering
When you get any sort of compensation for the energy you feed into the grid it’s called net metering. It doesn’t exist everywhere, but most states in America have adopted it.
Many utility companies offer net metering as well. This may even be the case in areas where net metering isn’t explicitly provided for.
Ultimately, the regulations for net metering differ from state to state. Each energy producer will need to work with the rules at hand.
The National Conference of State Legislatures has a great map and article, here, that will quickly tell you the type of program your state allows.
How Do Net Metering Programs Work?
When energy is sold back to the grid, compensation for the surplus energy you’ve created is credited to your property at retail rates.
So you receive full value for the excess solar electricity your produce.
In this situation, the utility company you use “turns back” your electricity meter. They give you credit for what is essentially free energy.
It’s “free energy” because your solar system (or wind turbine) produced sustainable electricity for you without a utility bill. That “free energy” eventually compensates for the cost of the renewable energy system.
If your system always provides 100% of the electricity you need then net metering may not be the right program for you because you don’t get a utility bill anyway.
Net metering systems are great for those who produce electricity but still rely on power from their utility company at certain times and don’t produce more than they use.
Here’s a quick video that visually explains how net metering programs work and why participation might be perfect for you.
Utility Companies and Net Metering
Utility companies often view net metering as a nuisance. It sometimes results in them losing revenue. This has caused quite a pushback from many of these companies.
Some have led the charge in trying to limit the ability of independent electricity producers to “sell” their power.
Other utility companies have sought to develop programs that will simultaneously encourage alternative energy development while ensuring the stability of the grid.
An example would be utility companies that offer billing incentives to homeowners who install a solar array and storage battery to stabilize grid draw and decrease electricity costs for everyone.
State Governments and Net Metering
Fortunately, many states see the value in independent power production. They have created legislation to enable and promote it.
In the bigger picture, energy production by independent properties is very beneficial to the healthy functioning of the power grid.
The extra injection of power allows utility companies to better manage peak electricity loads. It also allows them to reduce the problem of electrical loss due to long-distance electricity transmission.
Net Metering Legislation and Regulations
The federal government requires states to purchase surplus energy from independent producers. Legislation for net metering exists in almost every state. However, it is implemented in different ways.
As with most bureaucratic regulations, legislation in some states makes the process far easier than in others.
Before setting up your system, it’s important to take a look at your local government energy websites. You can also call the power company that services your area.
Best States for Net Metering Policies
- California is an all-around winner regarding renewable energy production. That is not just because of its great, sunny weather. Independent energy producers can receive financial compensation or credits for the excess energy they produce.
- Nevada allows independent energy producers to receive 95% of the retail rate for the excess energy they produce. Excess energy credits that have rolled over to the end of the year can be redeemed as cash.
- New Jersey is diverse in its promotion of renewable resource production as certain utility companies allow for more than others. For example, Jersey Central Power will compensate independent energy producers at the full retail rate for the excess energy they produce.
- Utah is similar to New Jersey in that certain utility companies are friendlier to it than others. For example, Rocky Mountain Power allows for independent energy producers to be compensated at 90% of the retail rate.
- Massachusetts compensates independent energy producers with $0.22 for every kW of excess power they produce.
There are a lot of other states with great programs, and states are constantly updating their policies to reflect the desires of constituents. Make sure your legislators know you want net metering programs!
Financial incentives for Net Metering
So, will you get cold, hard, cash for the power you produce? The short answer: probably not.
Utility companies will offer credits for the energy you produce. You can then use that to pay for the electricity you draw from the grid.
Essentially, you can offset your electric bill by “trading” your energy for theirs. This is generally a fair exchange.
That’s because most households don’t have the capacity to go fully off-grid. They will need to dip into the local grid from time to time when the seasons change, or the sun isn’t shining.
On top of this, certain states and utility companies place caps on the amount of energy an individual producer can sell, reducing the odds that you’ll be able to make a profit.
That being said, several states have implemented policies ensuring financial compensation for independent energy producers.
How much money could you realistically save?
Depending on where you live and how good the solar incentive programs are, you could pay off your panels in 6 to 12 years.
The average time it takes solar panels to pay for themselves is about 8-9 years. After this point, they are essentially providing free energy to the property.
In states that offer incentives such as net metering at decent rates and with state and federal tax rebates, it’s not uncommon for solar systems to get a return on their investment in around 5 years.
When one considers the fact that the average lifespan of solar panels is around 20 years, the viability of a solar system really does become quite clear.
If you’d like to calculate how long it would take for your system to pay for itself, follow these easy steps:
- Calculate the upfront cost of your system.
*Be sure to subtract any green energy incentives or rebates you get when you purchase.
- Calculate your total annual benefits.
Total annual benefits = reduced electricity costs + credits from net metering + any other applicable benefits
- Calculate how many years it will take for your system to pay itself off.
Number of years = upfront cost of your system / total annual benefits
Your answer will be a rough estimate, but it should be pretty accurate.
Top 8 Net Metering Questions to Research
Net metering is a complex subject. Research into relevant factors is essential when considering the benefits of setting up your own energy production system.
First, ask yourself this: Does my state allow for net metering?
If the answer to that question is yes, then you can move on to some other very important considerations.
1. Does your state use market rate metering?
The basic principle market rate net metering relies on is time-of-use (ToU) billing. ToU metering describes the pricing strategy that many utility companies use.
The price of electricity is higher during peak usage times and less during off-peak times.
Market rate metering uses this concept to credit individual power producers with the price of electricity at the time of day it is produced.
This means that power fed into the grid in the evening may not earn you as much credit from your utility company as it would mid-day if that period is considered a “peak time” in your area.
Potential energy producers may want to create systems that benefit them the most by producing energy at times when it is worth more.
2. When do you produce the most power?
If companies calculate energy by market rate net metering in your state, then an important consideration is the type of energy production you have or plan to install.
One of the pros of solar energy is that most of your energy will be produced at times when sunlight is the strongest – peak hours which gives you the highest return on investment.
In this scenario, solar energy will earn you more in a state that has peak times during mid-day, rather than in a state whose peak times are during early morning or evening hours.
What if I have a Wind Turbine Instead?
If you have a wind turbine instead of solar panels you may produce energy more reliably in the evening as the late afternoon winds pick up. This is usually still during peak hours.
Peak hours tend to be hours when there is a lot of draw on the utility grid for running appliances.
- Morning for showering, cooking, running hair dryers, and such before work.
- Afternoon for running air conditioners
- Evening for cooking, doing laundry, and running central heating systems
Overnight hours, typically after 9 or 10 pm until around 7 am the next morning are off-peak hours, but that can be different depending on where you live.
Each system will have its own evaluation, and a simple climate report may help you to determine which one may yield the best results in your area.
3. What rate does your state pay for power?
Some states provide you with credit for the energy you produce at its normal market price, which is essentially the same price you pay them per kilowatt. This is called the “retail rate.”
States that pay retail rates are more beneficial for independent energy producers as it’s usually the rate of compensation a traditional producer receives.
Often you’ll get a high percentage of the retail rate, 90% or so, instead of the full compensation that a regular energy company would get.
If your utility company credits you for the wholesale price (also referred to as “avoided cost rate”) they will essentially be crediting you for the time it cost them to produce the energy per kilowatt.
This rate of compensation is usually lower than the retail rate and may significantly reduce the benefit you gain from producing surplus energy.
With wholesale rates often being around half the value of retail rates, they can make net metering significantly less profitable for independent energy producers, discouraging participation in energy programs.
4. Does your utility company allow your credits to rollover?
If your utility company allows your energy production credits to roll over to the next month, they are essentially allowing you to use your credits for future energy use drawing from the grid.
This is similar to how many cell phone companies operate: they allow you to save minutes you haven’t used for use the following month.
While most states offer this incentive, there are some that don’t, and this could result in losing a lot of potential credit if your system provides the energy you usually need.
Furthermore, some states allow you to roll these credits over for an indefinite period of time while others cap it seasonally, yearly, or under a certain amount in dollars.
In rare cases, like Nevada, you’re guaranteed to receive some sort of financial compensation for the credits you generate if you haven’t had to use them by the end of the year.
5. Will you require aggregate net metering?
Aggregate net metering is a system that views several properties as one when determining their energy consumption.
The amount of consumption is then compared to their surplus energy production, even if the surplus energy was only produced on one of the properties and not on the others.
This type of metering allows multi-property establishments to simplify their energy consumption.
If you own conjoined properties, a large farmstead, or are part of a community solar initiative, or are a tenant in a large building that produces its own energy, you may require aggregate net metering.
Some states allow aggregate metering and others don’t, so it’s best to check if your state provides for it before planning a system around it.
Check here to see if aggregate metering is allowed in your state.
6. How does your energy generation affect your taxes?
Many states have extensive legislation surrounding tax incentives for the purchase and use of renewable energy systems.
This sort of legislation is designed to aid the potential renewable energy producer in setting up their system more cheaply, producing energy at a lower cost and making the process easier overall.
Potential Tax Incentives include:
- Property tax incentives
- Personal income incentives
- Corporate income tax incentives
- Sales import or VAT incentives
- Accelerated depreciation legislation
Tax legislation surrounding renewable energies changes quite rapidly though, and it’s always a good idea to stay up-to-date with the current laws surrounding these systems when considering a renewable energy system for your property.
7. Is there a net metering cap in your state?
Some states and/or utility companies place a cap on the amount of credit an independent energy producer can receive for their energy bill.
This may make buying that second set of solar panels obsolete as the extra energy they produce wouldn’t produce any real benefit.
These caps affect large installations the most and are a thorn in the side of larger establishments trying to eliminate their electricity bill completely.
If your state or utility company has placed a cap on the amount of energy you’d be able to get credit for, it’s a wise choice to calculate how much energy your potential system would produce in total.
Each system uses a different formula for calculation, so a little bit of math is inevitable.
Solar Energy Production Formula:
- Calculate your power rating per panel
Total amount of energy per panel (kW) = total surface area X efficiency rating X global radiation value X performance ratio
- Calculate your production per square foot
Total energy produced per square foot = (total amount of energy per panel / square feet per panel) X number of panels
- Calculate your production per day
Total production per day = total energy produced per square foot X total amount of sunlight per day
- Calculate your production per month
Total production per month = total production per day X 30
8. How much does electricity cost where you live?
The cost of electricity greatly impacts the economic viability of installing a renewable system that pays itself off in a reasonable amount of time.
This is due in part to the initial cost of the equipment versus the price of electricity it will be producing.
The higher the cost of electricity, the more benefits one could expect to gain from not paying for electricity from the grid.
States like Hawaii, Maryland, and Texas have expensive electricity rates, and this fact alone makes using renewable energy worth it when considering avoided electricity costs.
Now, if an area credits energy producers for the energy they produce at the retail rate, they would benefit greatly from the net metering system.
The cost of electricity differs from state to state and has a huge impact on net metering. It’s best to do a little reading up on the rates applicable to you when considering a system that produces surplus energy.
Types of On-Site Renewable Energy Systems
Various methods of generating renewable energy each bring with them a certain host of benefits.
We could view these systems as “feast or famine”, where they produce too much when conditions are right and almost none at all when conditions aren’t.
This is where net metering becomes highly beneficial, allowing excess energy produced in peak periods times to compensate for low production periods.
Essentially, net metering allows for the grid to become a giant battery. When excess energy is being produced, credits are earned, which can be used later when independent power is in short supply.
Home battery systems are often quite expensive and eliminating the need for one makes renewable energy systems more economically viable.
Why Solar Net Metering is the Best
Of all the types of renewable energy systems, the average property owner could use, net metering benefits solar panel systems the most.
Solar panels produce a lot of energy during sunlight hours and none at night. Without net metering, this would make a battery storage system essential for those who want to reduce their electric bill.
Solar electricity is your best bet during summer months, especially. The panels are easy to install, have a low profile, don’t kill birds, and provide consistent solar electricity during daylight hours.
Using Wind Turbines to Supply the Electric Grid
Depending on where a person lives, wind energy could be producing a lot of energy, or none at all.
The power generation from a single wind turbine is inconsistent. The best turbines work about 50% of the time. The wind can’t be too low or too high or the turbine won’t generate electricity.
If the state or utility doesn’t offer net metering, the best a windmill can do is generate supplemental income when the wind is right.
However, in areas with the consistent prevailing wind, turbines make more sense than photovoltaic cells.
With net metering, the large amounts of energy that may be produced with a home wind turbine during windy weather can pay for the energy used on windless days.
Hydroelectric power generated from residential properties is the least beneficial form of net metering.
This is because hydroelectric generators tend to produce power consistently, making the battery-like nature of the net metering system essentially useless.
However, if your hydroelectric generator uses a stream that is heavily dependent on seasonal rains, or even runs dry at certain times of the year, net metering could fill the gap during those months.
In some states, it’s illegal to divert a stream of water for any reason, even if it’s simply passing through a hydroelectric generator. Check your local laws before you invest in your own hydro generator.
Necessary Equipment for Net Metering
Once you’re ready to set up your system and connect to the power grid, you’ll need a bit of equipment.
It’s important that you comply with various state and federal regulations regarding energy production equipment when making your purchasing decisions.
- If you buy a cheap, off-market unit that is not approved by the authorities, you run the risk of your local power company rejecting your energy production setup.
These rules are in place for various safety reasons and are essential to the health of the power grid for all users.
Grid-tie inverters are necessary pieces of equipment for setting up a net metering system. These inverters feed electricity from a home-based power system into the public utility grid.
Essentially, these systems can convert direct current into alternating current, which is what the power grid uses. You can use them for solar, wind, and hydroelectric systems.
Grid-tie systems allow you to easily switch from your independent production system to the electrical grid. You can then use net metering to calculate how much you have drawn from, and fed into, the grid.
In order to accurately determine how much power you’re feeding to the grid, you’ll need a meter.
Before moving forward, first check with your utility company. You’ll want to see if they provide meters (and at what cost), and what model they require.
Net meters only display a single number. This number is the “net” amount of electricity your property has fed into the grid. That is calculated by the electricity drawn minus the electricity produced.
When your property is producing energy, the meter will run backward. When you are drawing energy, it will run forward.
Dual meters use two separate meters which don’t communicate.
- One meter records electricity being drawn from the grid.
- The other records electricity going out into the grid.
These meters are simple but require extra calculations for you to get the net metering numbers. A lot of people like this because they can get the real numbers on power consumption and sales.
These meters are a little more difficult to read as they have three displays.
- One display shows electricity drawn from the grid
- Another shows power being fed onto the grid
- A third display is a test screen
The Future of Net Metering
Net metering is a subject of hot debate in many states, and because of this, legislation is always changing.
Utility companies’ policies regarding net metering often flip-flop from year to year, so it’s always a good idea to keep up-to-date with current programs to ensure you stay ahead of the curve.
Due of the nature of net metering and the effect it has on utility companies, as well as other public ratepayers, it is often a point of contention. It has been successfully argued against in many areas.
If you feel strongly about having the choice of using net metering, it’s a good idea to make your opinions known by contacting your state and federal representatives.
Final Thoughts on Net Metering
There isn’t a one-size-fits-all net metering solution that works for every household. We recommend consulting a solar installation company that works with your utility provider before investing in a system.
Don’t buy an oversized system until you’re sure that your power company will give you a good rate, ideally the retail rate, on the extra power you produce.
If you buy a big system and don’t get good money for your extra power you’ll lose money in the long run because it will take you that much longer to pay off your system.
Net metering is a smart way for states and utilities to gain public assistance with moving toward green energy.
What are your thoughts on net metering? Are you planning to invest in an independent power system? Are you having trouble getting net metering set up at your home? Tell us about it in the comments below!