Net Metering

Net energy metering (NEM), or net metering for short, compensates customers for the excess solar energy they generate and export to the utility grid. As an incentive-based policy and billing tool, it’s been a major driver of the residential solar industry. In many respects, it’s responsible for the high level of clean, renewable energy powering our homes today.

But as the net meter system has made solar energy systems more affordable and thus more widespread, some utilities see it as a threat to their business. As a result, policymakers and stakeholders are working to develop net energy metering schemes and rate structures that recognize the significant value of solar and compensate customers fairly. 

Net metering rules are changing so it’s important to keep on top of them. Excess generation credits, fixed energy charges, and changes to the value of electricity bought vs. sold are some of the issues being examined. Virtual net metering and schemes like independent net metering in Texas are some of the creative solutions currently underway. 

With net metering policies evolving, here’s what you need to know.

How Traditional Net Metering Works

What is net metering and how does it work? Basically, it’s a system that enables solar customers to use the utility grid to store the excess solar electricity produced by their PV panels — and then use it at a later time. 

With traditional net metering, you’re billed for the “net” energy used each month. In this context, the net is the difference between the energy your solar PV system generates and the energy you consume over the monthly billing cycle. 

Net metering (also known as solar metering or power metering) has been used since the early 1980s but has really gained traction over the last decade. It allows you to use the traditional electric grid to store the energy produced by your solar grid (solar PV) system — and then use it later, like at night or during expensive peak rate times.

For solar customers in net metered homes, this has been a huge incentive. Through their local net meter scheme they can offset both the solar panels cost and the electricity they draw from the grid throughout the monthly billing cycle. So they end up paying for the net energy drawn from the grid. 

When your net metered system sends excess solar energy to the utility grid, the electric meter (or net meter) runs backwards. Then, depending on the net metering policy where you live, the utility sends a credit for that electricity (sometimes the full retail value) to your account. You are then billed only for your “net” energy use. The excess electricity generated goes back to the grid for others to use.

Essentially, the solar electricity sold to the grid is valued at an equal rate to electricity bought from the grid. With traditional net metering, the customer is billed only for their net consumption over a billing cycle. Therefore, the utility bill is entirely made up of energy charges.

As a result, even though a customer’s solar installation only makes power for them during the day, they can use excess electricity production during the day to offset and even cancel out their nighttime usage and drop their electric bill down to nearly zero.

How is Solar Net Metering Evolving?

Solar net metering is evolving in different ways and at different speeds across the country.

It’s important to check the solar metering or net metering policy where you live, as it can differ state by state. A majority of states have now passed net metering laws. In other states, there are voluntary net meter programs offered by some of the utilities. Due to differences between state legislation, regulations and policies, the system for compensating solar customers varies widely.

As solar energy (and, in tandem, solar net metering) use becomes more widespread, some utilities see the mechanism of net energy metering as a threat to their business models. In response, state policymakers, energy industry representatives and others are working to develop net energy metering schemes and rate structures that recognize the significant value of solar and compensate customers fairly. 

The Solar Energy Industries Association (SEIA) explains it this way: “Unfortunately, some utilities perceive net metering policies as lost revenue opportunities. In fact, net metering policies create a smoother demand curve for electricity and allow utilities to better manage their peak electricity loads. By encouraging generation near the point of consumption, net metering also reduces the strain on distribution systems and prevents losses in long-distance electricity transmission and distribution.”

Excess generation credits, fixed energy charges, and changes to the value of electricity bought vs. sold are some of the elements currently under discussion. 

Excess Generation Credits

Some utility companies now have an annual “use it or lose it” expiration for credits. This means that, during a one-year billing period, your excess electricity credits can be applied to future months. But at the end of this period, the credits may be lost. 

Now, facing backlash from customers, some utilities have found common ground with monthly (rather than annual) credit expiration policies and other solutions that let you carry credits forward toward future energy charges.

Net metering policy varies not only state by state, but also in terms of how customers are credited. Your net excess may be compensated at different rates — from full retail to less than retail to none — and there may be different rules about when credits expire.

Fixed Energy Charges

Net metering is also evolving in terms of fixed energy charges that cannot be offset with solar energy credits.

Most utility companies provide customers with fixed or minimum bills, calculated separately from their energy charges. In many cases, these cannot be offset by excess solar electricity production.

Some utilities, including the three largest in California, keep a portion of the electricity rate fixed. This means that you’re always charged for a fixed portion of the energy you buy from the grid, regardless of whether you produce enough solar energy yourself to offset it at a future time.

Value of Electricity

How is the net meter billing system evolving in terms of the value of electricity? How does it differentiate the value of solar electricity that’s sold to the grid vs. electricity that’s drawn from the grid?

Recently, some utilities have reduced the value of solar electricity sold to the grid, devaluing the energy production from solar PV systems. This is often done on a percentage basis. For instance, the customer might only get 85% of the value of an equivalent amount of electricity bought from the grid.

What Does the Future of Net Metering Look Like?

As solar continues to grow, net energy metering will continue to evolve as utilities change their rate structures and policies. Meanwhile, keep an eye out for interesting trends like virtual net metering and other alternative billing mechanisms.

Virtual net metering is similar to net metering, except the system is not required to be on site. For instance, virtual net metering has been used for group renewable energy projects, where several customers can get net metering credits tied to their own share of the bill. The value of these virtual credits varies depending on the net metering policy you have in place.

According to an article on Net Metering by the National Renewable Energy Laboratory (NREL), some states have been experimenting with alternatives to net metering to more finely calculate the costs and benefits of distributed energy generation and compensate stakeholders accordingly. Advancements in communications and smart grid technologies also enable more refined calculations of distributed energy generation value. 

Net metering in Texas and California

Currently, 38 states have mandatory net metering rules, and two states — Texas and Idaho — have voluntarily adopted net metering programs. This means only some utilities in Texas have net meter policies.

How does that affect customers of net metering in Texas? Even though the state of Texas doesn’t have a net metering policy, many of its utilities credit residential solar grid owners for the electricity they generate. 

If your utility has a net metering policy, you get credits on your monthly bill for the extra electricity your solar grid generates. When your PVs aren’t generating enough power to meet your household needs, you can cash in those net meter credits instead of buying expensive electricity from the grid.

Here’s California’s net metering explained, as of now:  According to EnergySage’s article Explaining Net Metering in California, homeowners and businesses can use the state’s net metering to receive bill credits for the excess electricity that their solar panels produce, as long as the system is less than 1,000 kilowatts (1 MW). With net metering in California, residents who install solar panels often save $10K or more on electricity over the lifetime of their solar panels. Two main points: 

  • Under California’s NEM 2.0 plan, you’ll still save money when you install solar panels
  • The state’s NEM 2.0 customers are required to be on a time-of-use (TOU) rate plan. You can’t have a net metered billing plan without also having TOU. 

Net metering in California has helped propel it to its position as the number one state for solar in the US. Now it is evolving, as policymakers and industry representatives work toward the latest “net metering policy 3.0.”

Investing in Your Own Solar Grid

Most industry analysts agree that, however net metering policy may evolve, it’s a smart idea to invest in residential solar energy systems sooner rather than later. By installing a comprehensive energy management solution like Lumin’s smart electrical panel with home battery storage, you can reap the benefits of solar plus storage and offset your solar panels cost. Add a whole home battery backup as well, and you won’t need a power generator when the grid goes down. As energy policies continue to evolve, it’s a very good time to take control of your household energy with your very own solar grid. 

Here’s another benefit: Since your solar system is generating “local energy,” this reduces strain on the utility grid’s infrastructure as well as the energy loss that results when sending it miles away from the nearest power plant.

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