Net metering is one of the many ways for homeowners to save on electricity bills by going solar. This billing arrangement allows individuals and businesses with solar panels or other renewable energy systems (like wind or geothermal) to transfer surplus power to the public utility grid and receive credits in return. However, compensation can vary widely due to differences in state regulations and laws. Learn more about the potential savings of using renewable energy sources.
Key takeaways:
Net metering allows solar homeowners to credit excess energy for later use.
Net metering has many benefits, such as saving money, lowering environmental impact and supporting your community.
To get started with net metering, contact your utility company.
Not all states have net metering policies, so check with yours to see what’s available.
How does net metering work?
Net metering tracks the electricity a user consumes and produces. Surplus solar electricity generated by solar panels or other renewable energy systems is fed back into the public utility grid for use by others. In return, the solar system owner receives credits to offset future electricity bills.
“At certain times of the day, [households] are producing more [energy] than they consume, so they can sell the excess back at a pre-negotiated rate,” said Doug Mackenzie, the vice president of energy resilience at real estate investment firm JLL.
He added: “My grandmother is an amazing woman and an avid knitter; drawing a parallel that would resonate with her, I would say: It would be as if you spun your own yarn at home, made a sweater for everyone in your household and sold the excess yarn to the local market.”
Types of net metering
Net metering is an umbrella term that encompasses several arrangements. Here are a few types you may come across.
Traditional net metering
In this model, when a solar panel system generates more electricity than is immediately consumed by the home or business, the excess power is sent back to the electric grid. A bidirectional meter measures both the electricity consumed from the grid and the surplus electricity fed back in.
The distinctive feature of traditional net metering is that customers receive credits for the excess electricity they contribute to the grid. These credits can be used to offset the cost of electricity drawn from the grid when the solar panels are not generating enough power, such as during the nighttime. Essentially, traditional net metering allows consumers to balance out their electricity usage over time.
Buy all/sell all
In buy-all/sell-all net metering, solar production and home energy consumption are separately metered, with the solar array contributing electricity directly to the grid. Homeowners receive compensation through billing credits for the electricity sold to the utility at a specified rate, which are then applied to their electricity bill.
Two separate meters are essential: One tracks solar production, and the other monitors household consumption. The billing process factors in the net difference between electricity bought from the utility and sold to the grid, ensuring transparent energy accounting and allowing homeowners to pay only for the net electricity consumed after considering the solar contribution.
Net billing
Net billing programs differ from traditional net metering by allowing you to sell excess energy directly to the utility company at a wholesale rate instead of collecting credits. This setup treats your home solar system as a small-scale power generator, though the compensation rate is generally lower than that of net metering. It involves a direct monetary exchange, emphasizing the immediate sale of surplus energy to the utility rather than crediting it for future use. Individuals considering net billing should review specific terms offered by their utility as they can vary.
Solar buyback
Some states, including Hawaii, don’t have specific laws in place governing solar net metering or net billing. Instead, you can enter into a solar buyback agreement with your local utility company.
Solar buyback programs earn you credits toward your energy bills, like net metering. But while net metering typically gives you full credits for every kWh sent to your power grid, with solar buybacks, the utility sets the compensation rates. These rates are typically lower and include fees like consumption and feed-in tariffs.
Advantages of net metering
The merits of net metering extend beyond individual households to the environment and the overall energy grid.
- It could save you money. When your solar panels generate surplus electricity, it goes back to the grid, earning you credits from the utility company. These credits reduce your energy bill, saving you money during low solar production days.
- It can help decrease your environmental impact. Net metering makes solar power affordable, promoting wider use of renewable energy and reducing reliance on fossil fuels, in turn helping combat climate change.
- It can help your neighbors and community. Net metering eases grid strain during peak demand by distributing excess solar power, preventing waste and addressing storage limitations. That could mean fewer blackouts and brownouts in times of high electricity demand.
Drawbacks of net metering
Despite its benefits, net metering might not be for everyone. Here are some potentially negative implications homeowners should know:
- Your financial benefits might get cut. Electric utilities in some states, like California, have recently lowered net metering compensation rates. Lower rates mean less savings and incentives for your solar investment.
- You might not get credit for all the excess energy your solar panels generate. Most net metering programs cap credits at the annual energy consumption level, preventing homeowners from accumulating excess credits beyond their yearly needs. Although some programs may roll over credits to the next billing period, they rarely provide payment for excess generation over 12 months.
- Instead of cash, you get credit. While a few net metering programs may offer cash payments for billing cycles when credits exceed consumption, such arrangements are uncommon, subject to restrictions and not widely available across the nation. Instead, many net metering programs offer a credit system.
Does net metering save money?
Net metering can significantly reduce electricity bills through credits offsetting future consumption costs.
A typical 7 kilowatt (kW) residential solar array produces approximately 965 kilowatt-hours (kWh) of electricity monthly. The average U.S. household used 899 kWh monthly in 2022, and the average bill was $135.25. That 7 kW solar array would generate more electricity than is used, saving the average homeowner their full electric bill of $135.25.
Net metering can even earn money. For example, in Rhode Island, net metering enables customers with eligible renewable energy systems to earn bill credits for all generated power, up to 125% of their on-site consumption during a billing period.
How to get started with net metering
If you’re considering net metering for your energy needs, follow these steps to get started:
- Install a renewable energy system. Eligible sources typically include solar, wind, biomass, hydroelectric power, waste heat, geothermal energy and others meeting state or territory guidelines. Check with your utility company for the specifics.
- Contact your utility company. Most utility companies have dedicated net metering information available on their website, where you can sign up from your online account. However, you may have to call the company directly. Read all information completely, especially the terms and conditions of the net metering agreement.
- Complete necessary paperwork. The paperwork for net metering typically includes a net metering application, an interconnection/net metering agreement and technical specifications for the renewable energy system.
- Install a bidirectional meter. Make sure your system is fitted with a bidirectional meter to precisely track both energy consumption and production.
Where is net metering available?
pro tip
DIY solar projects probably won’t qualify for net metering. Electric companies typically mandate professionally installed systems meeting specific standards, such as grid-tied solar inverters. That’s something a homeowner can’t easily DIY.
Currently, 38 states, along with Washington, D.C., have enacted laws supporting net metering, while seven states offer alternative net metering programs facilitated by utility companies. Here is a list of the states that are currently confirmed as having some form of net metering:
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State net metering
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Utility net metering
|
Net billing
|
Solar buyback
|
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|---|---|---|---|---|
| Alabama | ? |
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| Alaska | ? |
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| Arizona | ? |
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| Arkansas | ? |
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| California | ? |
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| Colorado | ? |
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| Connecticut | ? |
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| Delaware | ? |
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| Florida | ? |
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| Georgia | ? |
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| Hawaii | ? |
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| Idaho | ? |
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| Illinois | ? |
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| Indiana | ? |
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| Iowa | ? |
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| Kansas | ? |
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| Kentucky | ? |
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| Louisiana | ? |
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| Maine | ? |
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| Maryland | ? |
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| Massachusetts | ? |
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| Michigan | ? |
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| Minnesota | ? |
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| Mississippi | ? |
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| Missouri | ? |
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| Montana | ? |
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| Nebraska | ? |
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| Nevada | ? |
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| New Hampshire | ? |
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| New Jersey | ? |
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| New Mexico | ? |
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| New York | ? |
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| North Carolina | ? |
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| Ohio | ? |
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| Oklahoma | ? |
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| Oregon | ? |
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| Pennsylvania | ? |
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| Rhode Island | ? |
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| South Carolina | ? |
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| South Dakota | ? |
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| Tennessee | ? |
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| Texas | ? |
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| Vermont | ? |
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| Virginia | ? |
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| Washington | ? |
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| West Virginia | ? |
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| Wisconsin | ? |
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| Wyoming | ? |
Source: Database of State Incentives for Renewable Energy (DSIRE)
Why do some utilities oppose net metering?
Net metering promotes solar adoption but raises concerns among utility providers. Utility companies lose revenue due to lower kWh sales and credits, leading to cost shifting and potentially higher rates for non-solar households. This has sparked some utility companies to campaign against solar policies.
Bottom line
Net metering empowers homeowners to save on energy costs while paying it forward to a more sustainable future. While there are some drawbacks, the benefits make it a compelling option for those looking to harness renewable energy and reduce electricity bills.
