Net Metering: The Ultimate Guide to Selling Your Energy

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 yet, it gets even better. Did you know that you can actually make some extra cash from all that energy you’re producing?

The concept of selling your home-grown energy is called net metering. 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.

However, 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.

The Basics of Net Metering

Companies call the premise of getting compensation for the energy you feed into the grid net metering. It doesn’t exist everywhere. However, most states in American 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.

How Does it Work?

When energy is sold back to the grid, compensation for the surplus energy you’ve created is credited to your property.

In this situation your utility company you use “turns back” your electricity meter. They give you credit for what is essentially free energy. (That is, equivalent to what you have produced.)

This method is 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.

Utility Companies

Utility companies often view net metering to be a nuisance. It sometimes results in them losing revenue. This has caused a 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.

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 actually 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 losses due to long-distance electricity transmission.

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

  1. California is an all-round winner regarding renewable energy production. That is not just because of its great, sunny weather. Independent energy producers can receive financial compensation for the excess energy they produce. Alternatively, you can use energy as credit for energy drawn from the grid in the traditional manner.
  2. Nevada allows for independent energy producers to receive 95% of retail rate for the excess energy they produce. Excess energy credits that have rolled over to the end of the year can be redeemed in the form of financial compensation.
  3. 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 full retail rate for the excess energy they produce.
  4. 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.
  5. Massachusetts compensates independent energy producers with $0.22 for every kW of excess power they produce.

Check here for more information regarding net metering policies in your state.

Financial incentives

So, am I going to get cold, hard, cash for the power I 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/or utility companies reduce the viability of full-time residential energy producers making a profit. They do that by placing caps on the amount of energy an individual producer can be credited for.

That being said, there are still several states that have implemented policies ensuring financial compensation for independent energy producers.

How much money could you realistically save?

The average time it takes solar panels to pay for themselves is about 8 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 tax rebates, it’s not uncommon for solar systems to get a return on their investment in around 4 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:

    1. Calculate the upfront cost of your system

*Be sure to subtract any green energy incentives or rebates upon purchase

    1. Calculate your total annual benefits

Total annual benefits = reduced electricity costs + credits from net metering + any other applicable benefits

    1. 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 

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Top 8 Net Metering Questions to Consider

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 being 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 which 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. If most of the power you produce comes from solar energy, it’s only logical that most of your energy will be produced at times when sunlight is the strongest.

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.

However, not all energy producers use solar power. Perhaps you have wind turbines and where you live wind tends to pick up in the late afternoon, or you harness hydroelectricity from a river which flows at a regular but slow pace.

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 your 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 following retail rates are more beneficial for independent energy producers as it’s usually the rate of compensation a traditional producer receives.

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.

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. 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.

5. Will you require aggregate net metering?

Aggregate net metering is a system that essentially views several properties as one when determining their energy consumption.

The amount of consumption is then weighed up against 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 for multi-property establishments to simplify their energy consumption.

If you own several conjoined properties, a relatively large farmstead, 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.

For more information, check here.

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:

    1. 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

    1. 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 

    1. Calculate your production per day

Total production per day = total energy produced per square foot X total amount of sunlight per day

  1. 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 has a huge impact on the economic viability of installing a renewable system that pays itself off in 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 benefit 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 such as this credits energy producers for the energy they produce at 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.

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Types of Renewable Energy Production 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.

The Best: Solar Energy

Of all the types of renewable energy systems the average property owner could use, net metering benefits solar the most. Solar produces a lot of energy during sunlight hours and little to none in the evening and nighttime. Without net metering, this would make a battery essential for those who want to reduce their electric bill.

The Runner-up: Wind Energy

Depending on where a person lives, wind energy could be producing a lot of energy, or none at all. In the absence of batteries or net metering, this makes wind energy systems impractical as its generation of power is inconsistent.

With net metering, the large amounts of energy that may be produced with a home wind turbine during stormy or windy weather can pay for the energy used in the following windless days.

The Worst: Hydroelectric Power

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.

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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 industry regulatory bodies aren’t guaranteeing, then you run the risk of your local power company rejecting you. 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

Grid-tie inverters are necessary pieces of equipment for setting up a net metering system. These inverters allow for the feeding of electricity from a home-based power system to a 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.

Utility Meters

In order to accurately determine how much power you’re feeding to the grid, you’ll need a meter. There are a few different variations. However, they all essentially do the same thing, just in different ways.

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

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 backwards. When you are drawing energy, it will run forward.

Dual Meters

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 may require extra calculations on your behalf.

Bi-directional Meters

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, and a third display is a test screen. These meters show power going in or out with codes or symbols, and yours will have its own system to differentiate the power.

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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 rate payers, 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.

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