What is Net metering?
As utilities and grid operators grapple with a distributed grid, they are introducing a number of changes and reductions to the availability of net metering.
Net Metering, what is it?
HOW TRADITIONAL NET METERING WORKS
Under traditional net metering, customers are only billed for their net consumption over a billing cycle, meaning that any energy they consume from the utility can later be offset by energy production from their solar installation. As a result, even though a customer’s solar installation only makes power for them during the day, they can use excess energy produced during the day to cancel out their nighttime usage and drop their electric bill down to nearly zero.In this most basic form of net metering, the electricity sold to the grid is valued at an equal rate to electricity bought from the grid. Second, the utility bill is entirely comprised of energy charges; the amount the customer is billed for is directly connected to their energy usage alone, and, importantly, those charges can be offset by solar production. In this scenario, there are no fixed energy charges (charges which cannot be offset, and which may or may not correspond to the amount of energy used). Finally, credits from excess solar generation can be applied to future months indefinitely.
WHAT IS THE GRID AND HOW DOES IT RELATE TO SOLAR INSTALLATIONS?
While most people have a general familiarity with the electric grid—often referred to simply as “the grid”—as the source of power for their homes and businesses, few people have a strong understanding of how it works. The grid is a network of power plants and transmission lines that work together to deliver electricity to consumers across the U.S. Because electricity is always in demand, the grid is constantly operating, and grid operators carefully manage energy output to meet demand; energy that flows into the grid must be immediately consumed. It is a complicated system that is vital to the operation of countless services we depend on. For a typical home without a solar installation, all of the electricity needed to meet occupants’ demands is drawn from the grid. When solar panels are installed, the relationship between the customer’s home and the grid changes because energy can now flow in two directions. The solar array acts as a small power plant that provides an additional source of energy for the home and the grid.When the household consumes energy at the same time that its solar panels are producing it, they can use that energy directly in place of what they would draw from the grid. This results in lower energy consumption through the utility company and thus a lower electric bill. This is the part of solar savings that most people intuitively understand—but there’s more to how a solar installation saves customers money. Unlike a traditional power plant that can be turned on and off as needed, the amount of energy produced by a solar array changes depending on factors like the time of day and the weather. This variability means that there will be times when the installation produces more or less energy than the occupants are consuming. This is a key reason why most solar customers still rely on the grid even after installing solar.
HOW NET ENERGY METERING REDUCES SOLAR CUSTOMERS’ ENERGY BIL
When a customer’s solar panels do not produce enough energy to match their needs, the grid provides the additional energy needed. On the contrary, when solar panels produce more energy than the household is using, the excess energy is fed back onto the grid. This two-way relationship between a customer’s solar panels and the grid is central to net energy metering (NEM), the primary way U.S. solar customers save money on their utility bills.We know that solar panels can directly save customers money by decreasing the energy they buy from the grid, but what happens when the system is producing a lot of energy when they don’t need it—like on a hot summer day when they’re away on vacation? Net energy metering answers this question by putting a value on the excess energy solar customers send back to the grid when their system produces more energy than they need. Under net metering, excess electricity generated by the solar installation is valued at the same retail rate customers would pay the utility for it1, which allows them to cancel out the cost of electricity they purchase from their utility at other times.One way to visualize this process is that when the system produces pay only for their net energy consumption. Coupled with the direct decrease in energy consumption from the grid, net metering compensation often allows solar customers to pay nearly nothing for electricity. Because solar customers are paid at the retail rate for the extra energy they produce, they may wonder whether installing a very large solar system could provide a source of income rather than just savings. However, almost all net metering policies are structured so that customers are only compensated at the retail rate for solar energy up to the total amount of energy they consume over the course of the year.Any energy production beyond that is compensated at a much lower rate (this is called the utility’s Net Surplus Compensation policy). This is why solar designers typically recommend a system that produces slightly less energy than the total amount the customer needs. Going solar is a big decision, so providing prospective customers with a concrete understanding of how it will put more money in their pockets is an essential first step in communicating the value of your solar design—in addition to quantifying how much solar energy the system will produce and exactly what their savings will be (both of which are easy to calculate if you use Value Solar Power).