Net Metering: A Quick Summary
Grid-tie solar system owners receive credit for sending electricity into the public utility grid. They use those credits to offset their energy bill. This agreement is outlined by your utility’s net metering policy, which sets the rates at which interconnected solar customers buy and sell electricity.
When you go solar, you need a way to store the energy generated by your panels. The easiest method is to hook into the utility grid to store energy and save it for later use.
But to do that, you’ll need to agree to terms with the utility company that outline how you are credited and billed for power. These policies are referred to as net metering (or net energy metering) agreements.
Under a net metering agreement, the grid acts as energy storage for the solar homeowner, banking the power they generate so they can use it later. The utility tracks your meter to record your net energy usage (energy consumed minus energy sent to the grid) so they can bill or credit your account based on overall usage.
Net metering agreements benefit both parties. The homeowner has a way to store solar power for later use, and the utility benefits because the extra supply of electricity smooths the power demand curve and prevents outages.
Each utility company has different terms and conditions, so it’s important to contact them before going solar to figure out how the connection process works. This article covers some of the most common agreements so you know what to expect.
Types of Net Metering Agreements
What is Net Metering?
In broad terms, net metering is an agreement with the utility company that allows you to get credit for solar energy sent into the grid. The utility gives you a credit for the solar electricity you generate, and you can use those credits at any time to draw power from the grid.
The utility monitors the meter on your property to track how much energy you use. If you withdraw more than you produce, you pay the utility for any extra usage.
If you produce more power than you use in a given month, any excess production is credited to your account and rolled over to future months. These credits can be “banked” for periods of low production, meaning credits you earn in August can be used in December when the days are shorter and the weather is worse.
Under most net metering agreements, the utility will reimburse you for excess generation, either through a check or energy credits toward your future bill. However, most utilities pay reimbursements at a wholesale rate (vs. awarding credits at retail rates), so most folks choose to take the credit.
What is a Feed-In Tariff?
Most net metering agreements use one meter to track net energy consumption (energy used minus energy generated from solar) and bill everything at a uniform rate.
Under a feed-in tariff, the utility installs two meters: one for the power you use, one for the power you generate. Each meter is billed at a different rate.
Feed-in tariffs are typically implemented by local governments to incentivize people to switch to renewable energy sources; the utility pays a premium rate to encourage solar adoption. For example, you might buy power at $0.12/kWh, but sell excess power to the utility at $0.25/kWh.
What is Net Purchase and Sale?
This is essentially the opposite of the feed-in tariff structure. The utility still installs two meters, but they charge electricity at retail rates and buy it from you at reduced wholesale rates.
Under this billing structure, the utility only pays their “avoided cost” for anything you feed into the grid—the cost they would have paid to generate that electricity.
This is not as good a deal for the consumer as the regulated feed-in tariffs, but it’s still decent because you can receive payment for surplus generation.
What is Aggregate Net Metering?
Aggregate net metering allows for multiple meters on a property to be offset by a single solar system.
Let’s say you live on a ranch property with your home, a barn, and a workshop, each with separate meters. Under this agreement, all three meters are counted toward the total net energy use on the property.
This works the same as ‘standard’ net metering. The only difference is that it allows you to track more than one meter on a property.
What is Virtual Net Metering / Community Solar?
Aggregate net metering allows a single customer to offset multiple meters on his or her property.
Virtual net metering differs in that it allows multiple customers to participate in net metering with a shared solar energy system.
Under this policy, shared residences like apartment buildings can build a centralized solar system, with individual tenants metered and billed under their own account.
Similarly, neighborhood residents can build a community solar farm to supply power to multiple homes in the neighborhood. Those who choose to buy into the community solar program receive an ownership stake in the shared system. They would be entitled to credits and/or reimbursement in proportion to their ownership stake in the system.
What are Time-of-Use Rates?
Lastly, your net metering policy may be affected by time-of-use (TOU) rates. Under a TOU policy, the utility charges more for electricity during peak demand periods, when people are home from school and work in the evening.
Where applicable, net metering calculations are affected by TOU rates. Solar generates energy during off-peak hours (when the sun is out during the day), so that production is credited at a lower rate. When you flip on lights in the evening, you are billed a higher rate for usage during peak periods.
The result is that you can generate enough energy to cover your usage and still end up paying a bill, because you pay a higher rate to use energy in the evenings than the rate you are credited for producing during the day.
To counteract this, you can invest in an energy storage system that allows for TOU offset. A small battery bank can store daytime production for use during peak periods. By drawing power from your battery bank (instead of the grid) in the evening, you avoid paying higher rates during peak usage periods and maximize the value of your solar production.
Net Metering Caps and Restrictions
Some utilities have restrictions and caps on their net metering policies. These restrictions are in place to level out supply and demand, and to prevent people from taking advantage of the policies purely for profit motive (since you can make money by selling off surplus energy).
These restrictions may include:
- System size caps: either a concrete limit (systems up to 1 MW) or a percentage (125% of consumption)
- Technology restrictions: outdated or inefficient technologies may not be eligible
- Credit rollover limits: credits can expire and be surrendered to the utility if not used within a certain timeframe
- Property type: residential, commercial and industrial properties may have different policies
- Renewable energy source: Aside from solar, net metering policies may apply to wind, hydro, fuel cells, biomass, geothermal, and other renewable energy sources.
Next Step: Understand Your Local Net Metering Policy
Thinking of going solar? Contact your local utility a call and ask about their net metering policies. Many have their policies published online.
They’ll explain how they credit you for solar energy produced, which is important to understand if you want to get the most out of your system.
For more help on permitting and interconnection with the utility, grab a copy of our free solar permitting guide!