Selling Electricity

Selling Electricity from your Solar Panels: Net Metering Explained

By going solar, you make a meaningful contribution toward purifying the air we breathe and reducing the impact of climate change. But ecological pluses aside, there are also economic reasons to install solar panels on your house. Imagine your electric meter running backward, so that instead of racking up charges for the energy you use, you’re credited with the extra energy your solar panels make. It’s a real practice called net metering, and homeowners everywhere are taking advantage of it by becoming power producers, rather than just power consumers. But how does it work exactly?

Net Metering: Creating Excess Energy to Sell Back to the Grid

Imagine this. It’s a perfect, sunny day. No one is home, so little AC is needed. The washer and dryer aren’t running, no televisions are blaring, and no computers are humming. All lights are off. From an energy perspective, your house is napping. But your solar panels are wide awake. They’re at their peak, churning out green energy.

So much energy and nowhere to go, right? But if your home is able to take advantage of net metering, that electricity runs through your meter and out to the grid. A digital meter on your house records electricity moving in either direction as it comes into the house and as it leaves the house. The “net” part of the term means that the homeowner pays the “net” amount for the electricity used by the house minus the extra sold back to the grid.

From a consumer’s point of view, it’s a no-brainer. You don’t have to invest in expensive batteries. You use what you need, and you have a ready market to buy up your surplus energy, which lowers your overall electric bill.

However, there are still some complications you should know about before you start spending the extra monthly cash you expect from energy bill savings. The first depends on where you live, since not every state allows net metering, and among those that do, the policies vary—some are more favorable for the consumer than others. There are 44 states, as well as the District of Columbia, that already have mandatory net metering rules, while Alabama, Mississippi, Tennessee and South Dakota do not have net metering policies. Texas and Idaho do not have mandatory state-wide net metering rules, but some cities and energy providers in those states offer net metering.

net metering

Net Metering Breakdown

It’s not enough to know if your state or utility company allows net metering. You need some understanding of the fine print since not all net metering programs are created equal. Here are a few things you might want to investigate. Then do the math to see how much net metering will benefit you.

First, can your net metering credit be rolled over from month to month? (Think of the old cell phone plans that rolled unused minutes to the next month.) Similarly, what happens to unused credits at the end of the year? Do they expire? Are they paid out at a lower rate than monthly surpluses? Another important consideration is: does your utility charge a monthly connection fee? Finally, it’s important to know exactly how much your utility pays for the excess power you produce through net metering. Some utilities reimburse you for your excess electricity fairly—and some not so much.

The majority of states pay retail rates for surplus electricity, so the utility pays you the same rate it charges when it sells its electricity to you. About 10 states, however, pay consumers so-called “avoid costs rates,” which are basically what it cost the power company to produce its electricity—and these are lower than the retail rate.

You should also check and see if your utility or state impose limits on how much surplus electricity you can sell back to the power grid. Many states have limits. Knowing the cap might help you decide how many solar panels you want to install. If net metering limits are generous—or non-existent—you may choose to be more liberal in the size of your solar system. However, net metering should not be the primary consideration when designing a household solar system. It’s usually more cost effective to focus on roof angle, orientation, and area, as well as your average electricity usage, when sizing your system.

There are very few states in which surplus sales can exceed a consumer’s average usage, which makes sense since net metering policies are designed to encourage residential solar panel usage, not the building of commercial scale solar farms. In fact, almost half of states that allow net metering cap it at 1 megawatt (MW).* Others have even smaller caps: Vermont and Wisconsin allow net metering for systems up to 20 kilowatts (kW).

Massachusetts offers a generous 10 MW limit for certain systems. New Mexico tops that with an 80 MW cap. A few have no net metering capacity limit—namely Arizona, New Jersey, and Ohio.

Consumers should also be aware that policies can change. A new law in Virginia, for instance, limits new residential solar installations to the size needed to meet annual consumption for the past 12 months. So be sure you’re up to date.

Anti-Solar Utility Companies

Unfortunately, a handful of utilities are trying to make it hard for consumers to go solar. Why? Well, think about it. If you’re getting your electricity from the sun, you’re not buying it from the local utility. It’s a competitive issue. Many utilities own power plants. As more consumers go solar, the need to run the plants diminishes (which is good news for the air, if they happen to be burning fossil fuels.) These utilities worry that they could end up getting stuck with expensive power plants that no longer have a use. Given solar’s growing popularity, it’s easy to see why utilities would be nervous.

Some of these utilities attempt to penalize or tax solar users. In one of the more notable cases, Arizona utility Salt River Project in February approved the addition of a $50 “demand charge” added to the monthly bills of solar customers. Other less-than-friendly utilities are reducing solar incentives—or trying to convince state regulators to do so. Local solar advocates or installers can let you know if your utility is solar-friendly or not.

But don’t be disheartened by these warnings. Solar has a lot of champions these days: from the White House to governors and mayors throughout the US, environmentally clean energy is a top priority.

Trends are running in favor of the green homeowner. Solar prices have fallen tremendously. Cities and states are offering rebates and incentives. Consumer-friendly financing is available. And the solar industry has matured—there are countless large and reputable solar installers who will guide you in your solar journey.

But don’t be disheartened by these warnings, because trends are running in favor of the green homeowner. Solar prices have fallen tremendously. Cities and states are offering rebates and incentives. Consumer-friendly financing is available. And the solar industry has matured—there are countless large and reputable solar installers who will guide you in your solar journey. But best of all, solar has a lot of champions these days: from the White House to governors and mayors throughout the US, environmentally clean energy is a top national priority. Add net metering to this mix of solar pluses, and it’s easy to see why the day of the prosumer is here to stay.

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