Net Metering Basics

Posted by Brian Thumann on

Net metering is a utility accounting or billing system that allows individuals or businesses with renewable energy sources, such as solar panels or wind turbines, to sell their excess energy back to the utility grid.

Here's how it works: when a renewable energy system generates more electricity than the energy user, building owner or occupant is using, the excess energy is sent back to the grid, and the utility meter “runs backwards” to credit the owner for the excess energy. When the renewable energy system is not generating enough electricity to meet the owner's needs, they can draw from the grid as normal or by adding enough energy battery storage they can draw from this saved energy source as opposed to the utility grid.

At the end of the billing cycle, the owner is responsible for paying for the net difference between the energy they consumed from the utility grid and the excess energy they produced and sent back to the grid.   Energy stored in a battery system is for the owner’s use and doesn’t impact the net metering calculations – only the energy used from the utility grid and the energy sent back to the utility grid.

Net metering can be a cost-effective way for individuals and businesses to use renewable energy, as it allows them to offset their energy costs by generating their own electricity. It also helps to promote the use of renewable energy and may reduce reliance on fossil fuels, as it gives individuals and businesses an incentive to invest in renewable energy systems.  This will vary greatly as different utilities provide energy from different generating sources.  There is even debate within the energy community as how to define certain sources of power such as nuclear energy – is it a renewable, non-carbon emitting resource or do you have to consider the costs and impacts associated with spent nuclear fuel rods, their storage, as well as the water needed for reactor cooling.

Net metering policies and rates vary by state and utility company. Different terminology is often used so it is sometimes difficult to compare one state’s program versus another.  Even still, a state may have net metering policies in place; however, not all utilities are required to offer such programs.  Some states have adopted net metering policies that require utility companies to offer net metering to their customers, while other states have voluntary programs. There are still states and utilities that do not offer net metering as an option or limit the participation rate in such programs. The credits that a utility can offer its participants also vary with some locations being more advantages than others which may impact the return-on-investment timeline for installing renewable energy systems. For example, the California Public Utilities Commission (CPUC) recently voted to approve California’s third iteration of the States net metering program, or NEM 3.0. NEM 3.0 will significantly reduce net metering compensation rates for new California solar customers by about 75 percent. It is important for individuals and businesses considering investing in renewable energy systems to understand the net metering policies and rates in their area as part of a pre-installation assessment.  Also, owners need to understand local zoning laws, building codes, as well as homeowner association regulations.   Often, a third-party energy service company or renewable systems installer can help to navigate these challenges and hep to secure the necessary permitting and utility net metering program information.  Owners should always receive net metering program terms in writing from their participating utility, so they clearly understand the term and conditions as well as definitions of terms and even demand charge, cost recovery and program termination fees.

States Revise Net Metering Incentives. According to Solarviews, “ Many states throughout the US, such as Louisiana and Minnesota, have begun moving away from net metering. The motivation behind transitioning away from net metering is mainly due to utilities claiming that they have to charge their non-solar customers more money in order to make up for the revenue they lose from net metering, which is referred to as "cost shifting". 

Energysage reports, “ Nevada NV Energy customers are eligible for a modified net metering program that pays customers an “excess energy credit” for every kilowatt-hour (kWh) of electricity that they send back to the grid after monthly netting. This credit is worth slightly less than the rate that customers pay for electricity from the utility, and is determined by calculating a percentage of the retail rate.  Customers are guaranteed to receive the rate they initially receive for a 20-year period. As of early 2021, NV Energy's net metering rate is 75% of the retail rate. Credit rates with a higher percentage of the retail rate are no longer available to new customers.”

To address cost shifting, New York created a new transition program in 2017. This program, called the Value of Distributed Energy Resources (VDER), ensured solar system owners wouldn’t receive the full retail rate of electricity like they do with net metering. Instead, they would receive a Value Stack Tariff rate."

Overall, though, net metering is a useful tool for promoting and implementing the use of renewable energy and helping individuals and businesses reduce their overall energy costs. Sometimes, adding such systems can add to the overall value of a property – however, this too is dependent on local market conditions.  Net metering is an important part of the transition to a more sustainable energy system, have a positive rate of capital return and can enhance an energy user’s impact on the environment.