How Net Metering Works

If you have looked into solar energy or solar panels for your home, you have probably come across the term “net metering.” At first glance this term may seem like technical jargon, however, net metering is actually a crucial component of your new solar array and it has many benefits.

Net metering is the policy which allows your electric meter to spin both backwards (during the day), and forward (at night), *this concept explained below.

This simple practice is what makes many of the residential solar energy systems today economically competitive with traditional forms of energy. In addition to reducing the payback period for solar energy, net metering also: helps to keep the costs to install an array lower, requires less maintenance, eases the strain on the public utility grid, and reduces the overall carbon footprint of the new solar energy system.

To first understand the implications of net metering, you should how it works and why it is important.

Does Your Home Qualify for Solar Tax Credits?

Solar Renewable Energy Credit (SREC)

A Solar Renewable Energy Credit (SREC) is a certificate that confirms your solar array has produced a specific amount of renewable energy in a year. Because many state energy distributors are required to purchase or offset a percentage of renewable energy each year, the SREC is a certificate they can purchase in order to contribute to this requirement.

When you have a solar array installed, the contractor should register the system with the grid operator and file the details of your system. This is the start of the process.

Depending on the amount of energy that your system has produced each year, you will be given number of SREC certificates (1,000 kWh = 1 SREC). They are usually electronic records; so don’t expect an actual paper certificate. Each certificate has a value and can be traded as a commodity. The sale of SRECs takes place in SREC Auctions handled by SREC Traders (again, your solar install company should help register for this).

Does Your Home Qualify for Solar Tax Credits?

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What is Net Metering?

If you do not have a solar energy system on your home, your electricity comes from the utility lines that connect your house to the power grid. Most properties do not have energy storage systems (batteries) and therefore the electricity from the power grid is delivered at exactly the moment that it is required (this is called “On-Demand Power”).

Between your home and the power grid is a meter, with which you are probably familiar. This energy meter is used by the power company to determine how much energy you have consumed during a period of time and how much you will be billed.

Before smart meters, the typical electric meter was powered by simple diodes, which powered a large wheel within the energy meter. Through a series of gears, dials turned on the front of the meter and gave the power company an accurate measurement to the energy which was delivered to your home.

When you used energy, the term was coined that your electric meter was “moving forward,” or pushing energy forward and into your home.

In the early days of solar energy, when a home had solar installed on the property and more energy was produced than consumed, the meter would literally begin spinning backwards as electricity was pushed back onto the grid (FYI – electricity is like water, it follows the path of least resistance and can flow backwards back onto the grid if the path leads it that way).

At the end of the month you were only billed for the amount that was shown on your electric meter and, without having to make any calculations, the energy you were charged for was the “net” amount that was used during that billing cycle.

This method was somewhat unofficial in certain areas and many municipalities and utility companies did not have net metering laws. In fact, some meters were made without the ability to “spin backwards” as a reaction to this.

The recent growth of solar energy also coincided with the widespread implementation of Smart Meters. Smart Meters use a completely different type of method to measure energy and rely more on electronics and processors.

The newer smart meters are capable of sending signals back to the utility grid operators in real time, and with more detail that tells how much energy you were using at a and how much energy you might also be producing.

Because the new systems were capable of measuring so much more data and the popularity of solar had begun to grow, municipalities had to establish net metering laws in order to regulate the size, rates, and methods to accommodate solar energy.

Net Metering is simply a set of guidelines that dictate how you will be billed for the difference between the energy that you used compared to the energy that you produced. These laws vary from state to state and will tell you how to determine if you pay the “net” for the month and how your particular utility company will handle any excess energy that is produces and put back onto the grid (there are a variety of options).

How Net Metering Benefits the Homeowner

When You Need to Use Net Metering:

During the day, if you use more energy than you produce, net metering is not at play. However, because many solar energy arrays produce a bulk of their energy during periods when many homes are unoccupied, there are several scenarios where your home has a surplus of energy. These overages are kWh of energy that you are able to “push” back onto the grid and obtain credits for them, thanks to net metering laws.

The reason that net metering is important is because a majority of solar energy arrays built produce up to 85% of the properties annual energy consumption during the sunniest 6 months of operation.

Because homes use the least amount of energy when solar arrays are working the hardest, it would be difficult to offset your total usage if you were limited to only consuming what you produce and losing the extra energy without credits (unless you have batteries, which is covered below).

Many municipalities have recognized the benefits of net metering and the laws are not widespread. In summary, net metering allows you to produce excess energy during peak periods and retain those credits to use either later that month, or within a single year from the date of the credit.

Because you do not need to have on-site batteries and because you are producing energy that can service other neighbors, there are many benefits to this program. However, we recommend you also check with your local solar company to make sure that you understand if any costs might be associated and that those are taken into your evaluation as well.

Without net metering, in order to capture solar energy and not “lose it,” you would have to have battery systems to store the energy you produce during the day and make it available for your home at night or during the winter months when solar arrays product less electricity.

The Benefits of a Non-Battery System (Financial)

Batteries are expensive, and even though Tesla and other battery manufacturers have begun making great advances in battery storage systems, the fact remains that they add to the cost of your solar energy system.

With net metering, the homeowner has no need for a battery backup system in order to recoup their excess energy and essentially the power grid acts as a battery backup for them.

Although many homes are equipped with some form of battery system or a generator, the cost to handle the amount of energy an average solar array produces would be tremendous. Even on the lower end, batteries could add at least 15% to the cost of having an array installed. This is not even considering the cost to maintain the battery or normal replacement, which can occur in the 10 to 20 year range (most solar panels are warrantied for 25 years and will have a useful production life of 30 years).

Thanks to net metering and the avoidance of having to purchase batteries, the cost for a new residential solar array is much lower and requires less maintenance. Large, utility scale power plants do not have batteries either and by foregoing this purchase, the residential solar array systems costs are much lower and can be more competitive with traditional power production.

The Benefits of a Non-Battery System (Environmental)

In addition to saving the financial cost of a battery, you are also saving on the amount of raw materials required to make your new energy array. Because the goal of many homeowners who choose solar energy is to reduce their overall carbon footprint, skipping the battery bank is an added environmental benefit.

A simple car battery requires 140lbs of Lithium alone. This is in addition to the Lead and other metals/ plastics required to manufacturer a battery. A home would require up to 4 times the amount of energy storage in order to last through the night and on cloudy days when solar is less efficient.

As discussed previously, the resources required for batteries are tremendous and can be avoided thanks to net metering. The production of an average car battery can create carbon emissions to equal the amount of carbon that your car produces in 6 months. Imagine the impact that has on a battery bank large enough to power your entire home?

For residential solar arrays with an accompanied battery bank, it is estimated that in many cases the battery bank could add an additional year of production required to offset the carbon emission from battery manufacturing. Simply put, avoiding the batteries and subscribing to net metering is a good environmental decision in most cases.

Having said all this, there are cases where it makes sense to install a home battery back up system and when you’re installing solar is the best time to review whether a battery system is right for your home.

The Benefits of Net Metering on the Utility Grid

During the summer, it is becoming more common for energy companies to partake in “Emergency Cycling Events.” This is when the utility company isn’t able to produce enough electricity in order to meet the demand (imagine a hot summer day, home AC systems are running at their peak, office lights and computers are working away, etc). In some cases it would be too expensive to ramp up “peaker plants” which are auxiliary power plants that use natural gas or oil.

Therefore the utility company will instead dial down the amount of energy it sends to specific customers. These “rolling brown-outs” occur during the hottest times of day and because of grid strain, you actually see a bottleneck of energy being delivered. (*Note – blackouts are the same as brownouts but include times when electricity service is completely cut off to a specific area. This is a rare event in the United States and only occurs in the most extreme cases).

One answer to the grid strain is distributed energy production. In most cases this refers to smaller and utility scale solar arrays installed on commercial rooftops or farms. However, it can be argued that the array on your residential rooftop can serve that purpose.

During the summer, an average neighborhood may experience up to 5 “emergency events.” If everyone had solar, and energy production was at it’s peak (ironically, solar energy produces the most power during these types of events), it can be argued that grid strain will be reduced and your excess energy may also help keep your neighbors lights on!

One Last Issue to Consider

Although net metering is a positive policy which helps solar, one thing any homeowner must consider is the volatility of the market. Depending on your state and the local regulations, Net Metering may be determined by either (1) kWh produced, or (2) value of the energy when it is being produced. This 2nd measure basically puts a value on the kWh which the homeowner back feeds onto the grid and then issues a credit in dollars to their bill.

This becomes an issue because the homeowner is subject to market conditions of the “spot market,” which is the value of electricity based on current market conditions.

For example, in the late spring when solar panels are getting maximum exposure but temperatures might not be that high, most houses use little to no electricity during the day if they are unoccupied and the owners have their HVAC turned off (as often the case in states like Massachusetts, Maryland, New York, Pennsylvania, and Virginia).

In this case, many solar systems in a concentrated area or a simple overage of energy being produced can drive the market rates for energy extremely low. (In a rare case in Texas, there was such an overage of electricity that a Texas wind farm had to shut down operations because there was actually a “negative” value on energy, meaning they had to pay a penalty for producing it.)

If your local municipality has net metering laws which are centered on value, the financial payback for solar can be affected. It is recommended that you to speak with your solar installer about these fluctuations and consider various scenarios accordingly.

The way your net metering values are calculated can greatly affect your bottom line.

In summary, net metering allows the utility grid to act as your own personal battery system. In most cases there are associated fees with keeping the credits you have pushed back onto the grid, however those are minimal compared to the energy savings you will be rewarded with in the long run.

Net metering has allowed many homeowners to install larger systems for less money, which is something that benefits us all.

Please see the sources listed below and a great reference for solar energy regulations is, a non-profit with an excellent system for viewing all available credits for solar, wind, and other home improvement projects.