What is Net Metering?

Net metering, also knows as Net Energy Metering (NEM), allows homeowners who generate surplus electricity with their solar panels to feed the electricity back into the grid. This electricity credit can then be used during periods when the solar panel system is not producing enough energy to meet the home’s needs ─ for example, during a month of stormy, sunless weather.

Net Metering Technology

To understand how exactly net metering works, it may be helpful to understand the technology that makes it possible. Once installed, solar panels essentially convert a home into a mini-power plant. When the solar panels do not generate enough electricity, the home draws electricity from the grid. When the solar panels generate extra electricity that is not immediately needed, this extra energy can be “sold” to the utility company.

To visualize the process, imagine the digital meter is running in 2 directions. The electric meter spins “forward” when electricity is flowing from the utility company to a home, and spins “backward” when power flows from a residence to a utility. This back and forth ensures that no energy is wasted and that your shortages are still met.

At the end of each month, the electric bill will reflect your net consumption for the month.

[Energy consumed] ─ [Energy generated] = [Net consumption]

Of course, if your panels produced excess energy, your net consumption would be zero. Instead of paying, you would receive a credit net number of kilowatt-hours you gave back to the grid

Basically, the utility company acts like a battery, crediting the homeowner if energy production exceeds energy consumption.

Net Metering Laws in the US

Currently, many US states in which the solar trend is gaining popularity have some form of net metering. Because NEM policies are different depending on location, the benefits of net metering vary widely for solar customers across the country.

The Energy Policy Act of 2005 mandated that all utility companies offer a net metering option if requested by customers. As of today, 43 states have passed net metering laws or other forms of regulation. In many states, utilities offer voluntary programs in an attempt to attract solar customers who may otherwise rely solely on solar power.

To learn about net metering policies in your state, use the Database of State Incentives for Renewables and Efficiency (DSIRE).

Benefits of Net Metering

Net metering provides a variety of benefits for consumers, utilities, and the economy.

Consumers benefit by saving on their electricity bills. By exporting power to the public grid, sometimes at a higher price, consumers actually get a greater value for the electricity they generate. In California, which is one of the largest consumers of solar energy, net metering will save schools and public agencies $2.5 billion in electricity costs over the next 30 years.

Utilities benefit from residential net metering by avoiding the administrative costs of purchasing from small scale renewable energy facilities. In addition, net metered systems potentially reduce the utility’s peak load demand. Peak load periods, in which electricity demands are very high, are often expensive for utility companies ($15-20 per kwh), so any energy supply that can counteract such high demands is welcome. By reducing the strain on distribution systems, net metering also prevents losses in long-distance electricity transmission.

The economy significantly benefits in terms of jobs, income, and investment. Because net metering creates an incentive for homeowners to switch to solar energy, this increase in demand for solar creates jobs for manufacturers, installers, and other parties in the solar supply chain. In 2016, 1 out of 50 new jobs created was a job in the solar industry. Any policy such as those associated with net metering are what allows this economic growth to thrive.

Drawbacks of Net Metering

The biggest complaint about net metering is from utility companies who see it in terms of lost revenue opportunities. Because customers are usually reimbursed for their energy at the full retail rate, utilities often end up paying more for electricity from net metering solar customers than from power plants where they purchase at wholesale prices . Recently, there has been a push to do away with retail pricing in net metering policies and to treat residential solar power sources and traditional utility companies more or less the same.