What is net metering?
And can it help offset your solar costs?
Along with perpetuating our planet’s health, net metering is one of the most lucrative aspects of switching your home to solar. Net metering allows you to sell any excess energy from your home solar system back to the utility company. While this sounds great, there are a few drawbacks to consider. Here’s how it works and what you need to know before adding your solar system to the power grid.
Key insights
- Net metering can offset your energy costs or the cost of your solar panels.
- You can’t participate in net metering and be completely off the grid.
- Compensation varies depending on your location and the utility company you partner with.
- There are mandatory net metering policies in 41 U.S. states.
How net metering works
With net metering (also called “net energy metering” or NEM), if a home solar system creates more energy than the home can use, it can pump it back into the electrical grid for others to use. Typically, electric companies will compensate owners for the extra energy their solar panels provide.
There are two ways to get compensated for your excess electricity. The utility company may send you a check for the energy you provide, or it may give you a credit on your bill to pay for any utility energy you need when your solar isn’t producing enough juice, like on cloudy days or during the winter. Sometimes electricity companies will let you cash in unused bill credits for money.
To get started, your utility company will need to reprogram the electricity meter on the side of your house or replace it with one that can handle net metering. You may also need to pay a one-time interconnection fee to the utility company. The fee can vary depending on which utility company you use. Customers in California, for example, can expect to pay a fee of $145 with PG&E, $94 with SCE or $132 with SDG&E.
To learn more, ask the contractor installing your solar system about net metering in your area. These companies often have departments specifically for helping customers set up net metering.
Pros and cons of net metering
Net metering can help offset your solar energy costs, but it’s not for everyone, particularly if you want to go fully off the grid.
Pros
- Compensation for extra electricity
- Provides clean energy for the grid
- No batteries required to store excess power
Cons
- Varying compensation terms
- Credits may expire or you may not get paid
- System must be connected to the grid
Pros
The major advantage of net metering is getting compensation for your excess electricity. You also save money because you don’t need to buy batteries to store extra solar power. On cloudy days or in winter months, when your solar panels aren’t producing enough electricity, you can get backup power from the electric company instead.
Another pro is that you contribute clean, eco-friendly energy to the power grid. Solar is an emissions-free form of energy that, when used to replace energy production from fossil fuels, can lead to a reduction of greenhouse gasses that contribute to climate change.
Cons
The biggest downside to net metering is the runaround you can get from the electric company. For example, depending on your location and the utility company, you may or may not get compensated for the full retail rate of the electricity you produce. Companies can also cap how much electricity they pay you for and restrict how many solar customers can contribute to net metering in your area.
If you plan to go fully off the grid, net metering isn’t for you — this cost-saving method requires that you partner with an electric utility.
Also, if you do receive a credit, it may expire before you can use it — so be sure to check your state laws and the policies of the utility company. One ConsumerAffairs reviewer in Illinois shared their experience: “Installed solar panels and was connected to ComEd's grid for net metering. All was well, was getting monthly credit for electricity surplus, then it suddenly stopped. I did not discover the error for a year and a half.”
They continued: “Upon discovery, I called and asked for a check to refund me the money I had paid ComEd for the electricity I had not used for last year and a half in the amount of $1,300. I deposited the check successfully and used the funds for Christmas presents. A week later, I got a letter in the mail from my bank saying that ComEd had voided the check and I no longer had access to the funds and was charged a $12 fee for the voided check.”
Ultimately, they were told the company needed to revoke the check and would rebill them independently for each period from the last year and a half — and that it would take awhile.
And if you had dreams of going off the grid when you installed your solar system, net metering won’t work for you. To get started, you have to connect your system to your area’s power grid and sign up with a utility provider.
Types of net metering
There are three types of net metering: buy all, sell all; net billing; and aggregate net metering (ANM).
Buy all, sell all
Some utility companies offer “buy all, sell all” arrangements. With this type of metering, the utility sets up two meters at your home. One of them records how much energy your home uses, and the other notes how much power your solar energy system produces. Your home uses the electricity the utility company provides, and all the energy your solar system makes is sold to the electricity company. In return, you get a credit on your electric bill.
With this process, like with other net metering, the electric company may charge you more for using electricity than it pays you for the solar energy you sell it. So, you might not break even on your electricity bill.
Net billing
Net billing is an alternative to net metering. With net billing, a solar panel kilowatt-hour is worth the same amount as a kilowatt-hour produced by the grid. You get compensated at the wholesale rate, while net metering often pays residents with retail rates on power. Net metering is the better call if you’re looking to make a little profit.
Aggregate net metering (ANM)
Aggregate net metering is the same as regular net metering, but it's for people who own multiple properties. It allows the utility company to track your solar system's energy output and consumption when multiple apartments or condos use it.
FAQ
Is net metering good?
Net metering can be a good option if you want to offset the cost of your power bill or your solar panels. It’s also a good option for those who don’t want to pay for batteries to store their excess power but still need supplemental power in the winter.
Is net metering worth it?
If you want to offset your solar costs, then yes, net metering can be worth it. Even if you just get a credit of $25 from net metering per month, that would save you $7,500 over the lifetime of your home solar system. That credit can go toward electricity you may need throughout the year or the cost of your solar panels. If you plan to go off the grid, though, net metering isn’t a fit for you. And keep in mind the utility might give you the runaround.
Why is net metering controversial?
In many states, electric companies are required to compensate people for their excess electricity. It can be challenging for an electric company to make large profits if it buys electricity for around the same amount it sells it for. So companies may raise rates for their nonsolar-producing customers to make more of a profit. Of course, no one likes higher rates, making net metering controversial. Some people also have trouble getting paid by the utility.
Does my state offer net metering?
Probably — 41 states, as well as Washington, D.C., American Samoa, the U.S. Virgin Islands and Puerto Rico have mandatory net metering policies. Even if you live in a state that doesn’t have mandatory net metering policies, many utility companies still offer net metering services.
What is virtual net metering?
Virtual net metering is when a community shares a solar system and benefits from metering the shared unit. For example, if a condo association decides to collect from the members to purchase a solar system for everyone to share, virtual net metering ensures each member receives the benefits. The credits are shared to multiple meters.
Bottom line
Net metering is a good way to use any excess electricity your solar panels produce while earning credits for your electricity bill. It also lets you support your local power grid with eco-friendly energy. However, the terms and practices of the electric company you partner with can make the process a little aggravating — but thorough research can alleviate some of these problems.
If you don’t have a solar array just yet, getting started is simple. Head over to our solar guide to learn more about the best solar energy companies.
Article sources
- California Public Utilities Commission, “ Customer-Sited Renewable Energy Generation .” Accessed Feb. 6, 2023.
- National Renewable Energy Laboratory, “ Net Metering .” Accessed Feb. 6, 2023.
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