Net Metering: How it Works

CalendarJanuary 9, 2018

While researching the pros and cons of rooftop solar energy for your home, you may have come across the phrase “net metering.” The most common questions about net metering are “What is net metering?” and “Can it save you money?” The short answers are:

  • Net metering, or Net Energy Metering (NEM), is a billing agreement with your utility company that allows you to receive credit on your utility bill for excess electricity generated by your rooftop solar system and sent back to the grid.
  • How much you save as a result of net metering depends on the terms of the agreement offered by your utility (where available), the size of your solar system, and a few other factors. The good news is that most states offer some form of net metering. Visit your utility’s website and your state’s .gov website to find out what is available to you.

Read on to find out how it works, why it’s always in the news, and what you need to do to take advantage of net metering with your new rooftop solar system.

How net metering works

Solar panels may generate more electricity than a household needs during daylight hours, triggering the system’s inverter to send that excess electricity out to the grid. That power is then available for other consumers to access through the grid (a benefit to both solar and non-solar utility customers alike).

A special energy meter measures the amount of electricity you use from the grid as well as how much your solar system sends out to the grid.Your utility company then credits you at a certain rate (which varies by state and utility) for the “net” electricity you send to the grid.These credits are then put toward future utility bills. Each net metering program is unique so be sure to research the terms and conditions of the net metering program in your area. 

Because rooftop solar only produces energy when the sun is out, you will still be dependent on your utility provider for electricity at night or when you need more electricity than your solar system provides, like when your extended family comes to visit. Credits earned through net metering can help offset the cost of purchasing that electricity from your utility. 

So not only are you creating your own electricity with your solar system, you are also saving money on energy you draw from your utility.

Let’s look at a hypothetical example. 

Meet Sally and her busy family of four. On average, Sally’s family uses around 900 kWh each month (energy usage is measured in terms of kilowatt hours, or kWh). The solar system Sally and her family recently installed generated 1100 kWh of electricity this month while her household used a total of 950 kWh, resulting in an excess of 150 kWh sent back to the utility grid.

Sally’s electric bill will show a net credit for - 150 kWh. Sally will be credited at a specified rate for that electricity, as determined by the net metering agreement offered through her utility. Some utilities allow these credits to roll over from month to month, which can be especially helpful during the winter months when the sun shines for fewer hours during the day.

The news

Net metering has been a bit of a hot-button topic in the news recently, and some states are exploring changes to their net metering policies. Here are a few key things to keep in mind as you try to make sense of net metering debates.

Distributed generation is a term for energy that is generated on-site - say in a rooftop solar energy system or a small wind power generator - rather than at a utility’s power plant. Leveraging distributed generation is good for utility companies because:

It takes load off existing power plant infrastructures, which will extend the time they can operate without expensive upgrades and maintenance. 

It helps utilities meet state-mandated Renewable Portfolio Standards where they exist. (An RPS specifies how much of a utility’s energy must come from renewable sources.) 

Distributed solar generation in particular generates peak electricity at peak daytime hours - so the utility’s capacity to provide power during those hours grows without the utility investing in more infrastructure.

Net metering is one way utility companies incentivize distributed generation. Distributed solar generation has grown so much in recent years, though, that many states and utility companies are still figuring out how their business models should adapt. This is where you see some squabbling. Generally, the rate you pay for electricity helps cover the cost of grid maintenance. Some utilities have argued that distributed generators aren’t paying their fair share of grid maintenance and that non-solar customers unfairly bear the burden of this cost-shifting.

Because the benefits of solar energy (both to the grid and to the environment) are not always easy to quantify, and neither is the grid cost of distributed generation, utilities and solar advocates often don’t see eye-to-eye on long-term rate and policy solutions. The debate about net metering often centers around whether utilities should be required to pay distributed generators the going retail rate or the wholesale rate (which would be equivalent to the utility’s cost for power generated at a central plant). Of course there are other ideas being debated too, like charging those with their own energy generation a higher base price for grid service. This very idea recently became nearly a two year policy debate in Nevada.

Utility regulators voted to phase out net metering credits in December 2015 and increased fixed fees on residential solar customers in the state. The rate change caused the growing rooftop solar market to come to a halt and hundreds of solar workers were laid off or relocated. Nevadans were understandably against the decision and fought to reinstate solar, which lead the legislative decision to become a national story that drew negative attention to Nevada’s legislature. Due to the overwhelming support to restore solar energy choice for Nevadans, the newly appointed Governor Sandoval signed a bill (AB 405) in June 2017 to establish new rules and regulations that reopened the market. More details on the story here.

While this was a great case study that demonstrated consumer demand and support for net metering, it’s likely that we’ll continue to hear debate about how to adapt the grid to meet consumer demand for distributed energy generation. However, it’s important to note that most changes to net metering agreements so far have included grandfather clauses for existing solar customers, meaning their net metering policies are protected and remain the same regardless of policy changes that may come after they’ve installed solar. 

The next steps

Now that you know what the big deal is about, check the specific net metering requirements for your state and utility. You can find helpful policy links by state at DSIRE - but also be sure to visit your state and utility website for the most up-to-date information. If net metering is set to expire after a certain date in your area, take note of that as well as what policy or policies are slated to replace it. 

The other perks

If you’re not eligible for net metering, your state may offer different compensation for distributed generation so be sure to check your state’s .gov site and/or your utility’s website to find out what’s available. You can also read more about solar tax incentives and credits here.

How to Go Solar

Vivint Solar makes renewable energy a simple and affordable alternative. We take care of everything from solar system design, to paperwork and permitting, to installation and maintenance.

Get a free estimate