Net metering is a program offered by some utility companies where if a customer generates more power than they use they can receive a credit from the company.
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Excess power generation. Let’s say a family has installed a solar array on their rooftop, and they live in a sunny state. Quickly, the residential solar contribution to the grid exceeds the amount of energy the family uses.
Energy is tracked. The utility then tracks energy flowing to and from the grid and works out the ‘net power’ of a home or business.
Energy production is credited. Then, if local laws and practices allow and encourage, the company has to buy the excess energy from its customers.
For most electricity users, a solar array will generate more power in the summer months than their home or business uses. In the winter, however, the opposite is true. With net metering, many utility companies use summer credits to offset winter electricity bills. In a handful of places, net metering allows customers to actually receive a payment if their solar array generates more power than they use.
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The benefits of net metering are that you can power your home or business using solar (or wind) power and be self-sufficient, with the reassurance of backup power from the grid if you need it.
If you have a PV array but you don’t have a battery for storage, you’ll almost certainly want to be connected to the main electrical grid, so you can access power when the sun isn’t shining. In such a case, it almost certainly makes sense to apply for net metering.
The nitty-gritty of net metering – how it works in practice
If you have a residential solar array (or wind turbine) and have been approved for net metering, this is how you can expect the setup to work:
- Your solar panels (or wind turbine) make energy from the sun, converting it into direct current (DC) electricity
- You have an inverter that converts DC into alternating current (AC) electricity
- You use that electricity to power your home or business first
- Any excess electricity flows into the main electrical grid for distribution to other customers
- A smart meter tracks the inflow and outflow of energy to and from the grid
- Any excess power generated is credited to your account, either to offset your bill or as a payment, depending on your utility provider.
Most utility companies require that you own or lease the equipment generating the electricity. It’s likely that you’ll also need to be located in an integrated energy network. However, some companies do allow for net metering in non-integrated areas, where electricity is produced intermittently via a range of resources including diesel and renewables, plus net metering.
Disadvantages of net metering
So far, we’ve only discussed the benefits of net metering, but if the idea is so great, why isn’t net metering available everywhere in the U.S.? There are some disadvantages when it comes to net metering, the most notable being:
- Makes electricity pricier for homes that don’t generate their own power
- Can work to the disadvantage of low-income households and small businesses
- Makes it harder for utilities to schedule power generation
The short answer is that utility companies have a lot of, ahem, power. Utility companies spend significant money, time, and energy trying to prevent state regulators from mandating net metering. They don’t want to be forced to pay customers for electricity and they especially don’t want to pay more than they charge their customers.
This is where you could make a seemingly reasonable argument against net metering. If utilities are forced by inflexible laws to pay customers more than the market cost for electricity, the market cost of electricity would eventually increase, to the detriment of customers not producing power at home.
Who would this price creep affect the most? Customers in low-income households and small businesses already feeling the pinch of their electricity bills. In addition, these customers are unlikely to be able to afford the upfront costs of installing renewable energy systems, so they are prevented from benefiting from any net metering schemes. Community solar is helping to change that, but this is also harder to access in many low-income neighborhoods.
We need to remember that utility companies don’t pocket 100% of what they charge their customers. Instead, utilities incur distribution and transmission expenses that take a chunk out of potential profits. The same can be said, of course, for residential solar producers. Your rooftop array doesn’t come for free and just start generating power you can use instead of paying your electric bill. To figure out the true cost of solar, you have to factor in the cost of installation, permitting, maintenance, and so forth.
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One other argument sometimes made against net metering is that it makes it harder for a utility to schedule power generation. As this argument goes, net metering customers make the grid more complicated for utilities, which makes power production less cost-effective.
The problem with these arguments
Let’s deal with that last argument first. Residential solar actually benefits utilities because it both reduces the demand on the grid from the solar customer and provides additional energy the utility company can send to its non-solar customers, again reducing demands on power plants. In places where utilities commonly fail to meet energy demands during heat waves, for instance, rooftop solar can help relieve stress on the electric grid and keep both your A/C running and your neighbors’ A/C too.
The other arguments against net metering seem to make sense but only if you avoid looking at the bigger picture. It’s not the fault of folks installing rooftop arrays that there’s a lack of infrastructure to facilitate cheaper, cleaner electricity. Preventing net metering doesn’t make this problem go away, it just prevents the production of electricity from renewables. Essentially, you’re throwing the baby out with the bathwater.
Similarly, effectively banning net metering by not enacting state-wide mandates does nothing to help enhance the distribution of cleaner, greener energy. In fact, it arguably does the opposite as utility companies get to maintain the status quo while pocketing higher profits.
Ideally, net metering would be just one strategy to increase uptake of renewable energy, along with funding for infrastructure to create more efficient, reliable, decentralized energy networks.
Is net metering allowed in every U.S. state?
The U.S. federal government mandates that all states must allow net metering. However, the specifics of net metering are left up to each state.
In 2020, the Federal Energy Regulatory Commission (FERC) unanimously rejected a plea by utility industry group the New England Ratepayers Association (NERA), which argued that FERC, not states, should regulate sales of electricity from rooftop solar and other customer-generated renewable power. The plea, if approved, would have effectively declared all state solar net-metering policies illegal, which would have been a big win for utility companies who don’t want to compensate customers for generating power using renewables.
So, which states actually offer net metering in the U.S.? Technically, they all should, but the reality is that a few still lack any policies mandating net metering or similar programs.
I’m looking at you Alabama, South Dakota, and Tennessee. In these states, customers have to negotiate directly with their utility companies to request net metering.
In addition, neither Idaho nor Texas have mandatory state-wide net metering. However, in Idaho all three investor-owned utility companies have a net-metering tariff approved by the Idaho Public Utilities Commission (PUC). Similarly, many utility companies in Texas offer approved net metering programs.
States with net metering mandates or similar
As of May 2022, net metering is available in some shape or form in almost all states and territories in the U.S.
Five states (California, Illinois, Indiana, Kentucky, and Michigan) currently offer net metering but are in the process of transitioning to other schemes, mostly to the benefit of utilities rather than customers.
The easiest way to figure out if your utility company offers net metering is to ask them. Call the company, check their website, send an email, or tweet at them if they have social media. You might also consider badgering your local representatives if your state hasn’t enacted regulations around net metering or if the regulations are unfavorable to customers.
Final thoughts on net metering
There’s a lot to chew on when it comes to net metering. The long and short of it though is that the best states for installing a rooftop solar array (or other renewable energy production system) aren’t just the ones with the most sunshine.
States with the best net metering policies also offer a great opportunity to recoup the cost of solar installation faster, as do states with significant rebates and tax credits in place for solar.
A rooftop solar array in New Jersey might pay for itself in just four or five years, while a system in South Dakota could take 12 or more years to pay off. This is largely because net metering is available in New Jersey but isn’t in South Dakota.
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Net metering is complicated, and the best days are probably behind us as utility companies continue to be successful in fighting policies to preserve their profits. In general, if solar is in your budget now, act fast. There’s a strong chance that more states will amend their net metering policies to the disadvantage of solar customers in years to come. There are also some excellent rebates and tax credits available that are set to expire in the next few years.
Finally, remember that saving money on your electricity bill is just one benefit of installing a solar array. Sure, it costs you money upfront, but rooftop solar reduces your reliance on fossil fuels and an imperfect electrical grid, while contributing to a cleaner energy grid overall.