Net Metering: The Ultimate Guide to Selling Your Energy

Yes, you have accomplished your goal of producing your own clean energy and utilizing this energy to fully power your home. Congratulations! This is a fantastic accomplishment for your family as well as for the environment.

Despite this, things get even better. Not many people are aware that they can actually make some extra money from all the excess energy they generate.

Net metering is the term used to describe the concept of selling your own generated energy. As soon as a property begins to generate more electricity than it is currently consuming, the excess energy can be sent to the local power grid and essentially “sold” to the energy company.

However, there are a plethora of factors that must be taken into consideration before creating your feed. State and federal regulations, equipment, your household’s energy requirements, and other factors are all considered.

The Basics of Net Metering

Net metering is the term used to describe the concept of receiving compensation for the energy you feed into the grid. It is not available in every location. However, it has been adopted by the majority of states in the United States.

Net metering is also offered by a large number of utility companies. Moreover, even in areas where net metering is not explicitly permitted, this may be the case.

The regulations for net metering are different from one state to the next, in the end. Each energy producer will have to work within the confines of the rules that have been established.

How Does it Work?

When you sell energy back to the grid, the compensation you receive for the excess energy you’ve generated is credited to your property.

You will have your electricity meter “turned back” by the utility company that you use in this situation. They give you credit for something that is, in essence, free energy. (It is, in other words, equivalent to what you have created.)

This method is ideal for those who generate electricity but still rely on power from their utility company at certain times of the day and do not produce more electricity than they consume.

Utility Companies

Net metering is frequently regarded as a nuisance by utility companies. It can result in them losing revenue in some cases. Many of these businesses have reacted negatively to this, and it is understandable. Some have taken the initiative in attempting to limit the ability of independent electricity producers to “sell” their power. Others have followed their lead.

Many states, fortunately, recognize the importance of independent power generation. They have enacted legislation to make it possible and to encourage it.

In the grand scheme of things, energy production by independent properties is actually very beneficial to the smooth operation of the power grid.

The additional injection of power enables utility companies to better manage peak electricity demand during peak periods.. The ability to reduce the problem of losses associated with long-distance electricity transmission is also a benefit.

Legislation and Regulations

As a condition of receiving federal funds, states must purchase excess electricity from independent producers. Almost every state has passed legislation allowing for the use of net metering. It is, however, carried out in a variety of different ways.

Laws in some states, as is true of most bureaucratic regulations, make the process far more straightforward than it is in others. It’s critical to look at your local government’s energy websites before you begin setting up your system. You can also contact the electric utility that provides service in your area.

Best States for Net Metering

  1. California has emerged as the clear winner in the field of renewable energy production. This isn’t just due to the beautiful, sunny weather that the city enjoys. The excess energy produced by independent energy producers can be repaid to them in the form of monetary compensation. Alternatively, you can use energy as a form of credit for energy that is drawn from the grid in the conventional way.
  2. For excess energy produced, independent energy producers (IEPs) in Nevada are entitled to receive 95 percent of the retail rate for that energy. If you have any excess energy credits that have carried over to the end of this year, you can get them back in the form of monetary compensation.
  3. The promotion of renewable resource production in New Jersey is diverse, with some utility companies allowing for more than others while others allow for less. In the case of independent energy producers, for example, Jersey Central Power will compensate them at the full retail rate for the excess energy they produce.
  4. According to Utah, certain utility companies are more accommodating to the state than others, similar to the situation in New Jersey. For example, Rocky Mountain Power allows independent energy producers to be compensated at 90 percent of the retail rate, whereas other utilities do not.
  5. Independent energy producers in Massachusetts are compensated with $0.22 for every kilowatt-hour of excess power they generate.

Check here for more information regarding net metering policies in your state.

Financial incentives

So, am I going to get paid in cold, hard cash for the electricity I generate? The short answer is: most likely not.

For the energy you generate, utility companies will provide credits to you. You can then use that money to pay for the electricity you use that comes from the utility company’s grid.

You can reduce your electric bill by exchanging your energy for theirs, which is essentially what it comes down to. In most cases, this is a reasonable exchange.

This is due to the fact that the majority of households do not have the necessary infrastructure to completely disconnect from the grid. The need to access the local grid will arise from time to time as the seasons change and the sun doesn’t shine as brightly as it should.

Added to this is the fact that certain states and/or utility companies are working to make it more difficult for full-time residential energy producers to make a profit. They accomplish this by imposing limits on the amount of energy that can be credited to a single individual producer.

Having said that, there are still a number of states that have implemented policies that provide financial compensation to independent energy producers.

What is the most money you could realistically save?

About 8 years is the average amount of time it takes for solar panels to pay for themselves. As a result, they are essentially providing free energy to the property after this point.

When solar systems are installed in states that provide incentives such as net metering at reasonable rates and tax rebates, it is not uncommon for solar systems to generate a return on their investment in as little as four years.

It becomes abundantly clear that a solar-powered system is economically viable when one considers the average lifespan of solar panels, which is approximately 20 years.

For those interested in calculating the length of time required for their system to pay for itself, simply follow these simple steps:

    1. Calculate the initial out-of-pocket expense of your system.
  • Make certain to deduct any green energy incentives or rebates from your purchase price.
    1. Calculate your total annual benefits by multiplying your salary by 12 months.

Total annual benefits = reduced electricity costs + credits from net metering + any other applicable benefits

    1. Attempt to estimate the number of years it will take your system to pay for itself.

Number of years = upfront cost of your system / total annual benefits 

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Top 8 Net Metering Questions to Consider

Net metering is a difficult concept to grasp. When weighing the advantages of establishing your own energy production system, it is critical to conduct thorough research into all relevant factors.

First and foremost, determine whether your state allows for net metering.

If you answered yes to that question, you can move on to some other very important considerations that you should keep in mind.

1. Does your state use market rate metering?

The time-of-use (ToU) billing principle is the foundation upon which market rate net metering is built. ToU metering is the term used to describe the pricing strategy that is used by many utility companies. It is more expensive to purchase electricity during peak usage hours and less expensive to purchase electricity during off-peak hours.

By utilizing this concept, individual power producers can be credited with the price of electricity that is available at the time of day when the electricity is produced. This means that if your utility company considers the evening to be a “peak time” in your area, power fed into the grid may not earn you as much credit as power fed into the grid during the daytime.

Potential energy producers may wish to design systems that are most advantageous to them, such as producing energy when it is more valuable than at other times.

2. When do you produce the most power?

If companies calculate energy by market rate net metering in your state, then an important consideration is the type of energy production you have or plan to install. If most of the power you produce comes from solar energy, it’s only logical that most of your energy will be produced at times when sunlight is the strongest.

In this scenario, solar energy will earn you more in a state that has peak times during mid-day, rather than in a state whose peak times are during early morning or evening hours.

However, not all energy producers use solar power. Perhaps you have wind turbines and where you live wind tends to pick up in the late afternoon, or you harness hydroelectricity from a river which flows at a regular but slow pace.

Each system will have its own evaluation, and a simple climate report may help you to determine which one may yield the best results in your area.

3. What rate does your state pay for your power?

The energy you produce may be credited to your account if it sells at a normal market price, which is essentially the same price you pay them per kilowatt. This is referred to as the “retail rate.”

As a result, states that pay retail rates are more advantageous for independent energy producers because it is typically the same rate of compensation that a traditional energy producer receives.

The wholesale price (also referred to as the “avoided cost rate”) is essentially a credit from your utility company for the time it took them to produce one kilowatt of electricity.

This rate of compensation is typically lower than the retail rate, and it may result in a significant reduction in the benefit you receive from producing excess electricity. Because wholesale rates are frequently less than half the value of retail rates, net metering for independent energy producers can be significantly less profitable than it otherwise would be.

4. Does your utility company allow your credits to rollover?

If your utility company allows your energy production credits to roll over to the following month, they are essentially allowing you to use your credits to offset future energy consumption resulting from grid drawdowns from the grid.

This is similar to how many cell phone companies operate: they allow you to save minutes that you haven’t used for use the following month if you haven’t used them yet.

While most states provide this incentive, there are a few that do not, which could result in a significant reduction in the amount of credit that could be earned. More to the point, some states allow you to carry over these credits for an indefinite period of time, whereas others limit them to a specific season, year, or dollar amount.

5. Will you require aggregate net metering?

When it comes to determining energy consumption, aggregate net metering is a system that treats several properties as if they were a single entity.

The amount of energy consumed is then compared to the amount of surplus energy produced on each of the properties, even if the surplus energy was produced on only one of the properties and not on the others. Multi-property establishments can streamline their energy consumption by utilizing this type of metering.

In some cases, aggregate net metering may be required if you own several conjoined properties, a relatively large farmstead, are a participant in a community solar initiative, or are a tenant in a large building that generates its own renewable energy. Some states permit aggregate metering, while others do not, so it is best to check with your state’s regulatory agency before designing a system around the technology.

Check here to see if aggregate metering is allowed in your state.

6. How does your energy generation affect your taxes?

The taxation of renewable energy systems is heavily regulated in many states, with extensive legislation governing the purchase and use of renewable energy systems in particular. This type of legislation is intended to assist potential renewable energy producers in setting up their systems more affordably, producing energy at a lower cost, and making the process more straightforward in the process as a whole.

Potential Tax Incentives include:

  • Property tax incentives
  • Personal income incentives
  • Corporate income tax incentives
  • Sales import or VAT incentives
  • Accelerated depreciation legislation

Although renewable energy tax legislation is constantly changing, it’s always a good idea to keep up to date with the most recent changes when considering a renewable energy system for your home or business.

For more information, check here.

7. Is there a net metering cap in your state?

There are some states and/or utility companies that place a limit on the amount of credit that an independent energy producer can receive for their electricity bill. It is possible that purchasing a second set of solar panels will become obsolete because the additional energy they produce will provide no real benefit.

These caps have the greatest impact on large installations and are a thorn in the side of larger establishments attempting to completely eliminate their electricity bill.

Considering that your state or utility company may have placed a limit on the amount of energy you are eligible to receive credit for, it is a wise decision to calculate how much energy your potential system would generate in total. Because each system relies on a different formula for calculation, a certain amount of math is unavoidable.

Solar Energy Production Formula:

    1. Calculate your power rating per panel

Total amount of energy per panel (kW) = total surface area X efficiency rating X global radiation value X performance ratio

    1. Calculate your production per square foot

Total energy produced per square foot = (total amount of energy per panel / square feet per panel) X number of panels 

    1. Calculate your production per day

Total production per day = total energy produced per square foot X total amount of sunlight per day

  1. Calculate your production per month

Total production per month = total production per day X 30

8. How much does electricity cost where you live?

When it comes to the economic viability of installing a renewable energy system that pays for itself in a reasonable amount of time, the cost of electricity has a significant impact.

This is due in part to the difference between the cost of the equipment and the cost of the electricity it will generate at the time of installation. One can expect to gain more benefit from not having to pay for electricity from the grid if the cost of electricity is higher than it is currently.

States such as Hawaii, Maryland, and Texas have high electricity rates, and this fact alone makes using renewable energy worthwhile when considering the savings on electricity costs that would otherwise be incurred. In this case, energy producers would reap significant benefits from the net metering system if the area credited them for the energy they produce at retail rates rather than at wholesale rates.

The cost of electricity varies from state to state, and this has a significant impact on the use of net metering in each state. When considering a system that generates excess energy, it’s a good idea to do a little research on the rates that apply to your situation first.

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Types of Renewable Energy Production Systems

The various methods of generating renewable energy each have their own set of advantages, which can be found in the table below. We could think of these systems as “feast or famine,” in that they produce excessive amounts when conditions are favorable and little or nothing when conditions are unfavorable.

This is where net metering proves to be extremely beneficial, as it allows excess energy produced during peak production periods to compensate for periods of low production.

Net metering, in its most basic form, allows the grid to function as a giant battery. In the event of an excess of energy being produced, credits are earned, which can be redeemed at a later date when independent power is scarce.

Home battery systems are often prohibitively expensive, and removing the need for one makes renewable energy systems more economically viable in the long run.

The Best: Solar Energy

Net metering is the most beneficial of all the types of renewable energy systems that the average property owner could use, and solar is the most beneficial of these systems. Solar generates a lot of energy during the daytime hours of sunlight, but little to no energy in the evening and at night. In the absence of net metering, a battery would become an absolute necessity for anyone wishing to reduce their electric bill.

The Runner-up: Wind Energy

According to where one lives, wind energy may be producing a significant amount of energy or none at all, depending on the situation. Due to the inconsistency of wind energy generation in the absence of batteries or net metering, wind energy systems are impractical in the absence of these two technologies.

If your home wind turbine generates a large amount of energy during stormy or windy weather, the energy produced can be used to offset the energy consumed on subsequent windless days. This is known as net metering.

The Worst: Hydroelectric Power

Using net metering to generate hydroelectric power from residential properties is the least advantageous method of doing so. As a result, because hydroelectric generators tend to produce consistent amounts of electricity, the battery-like nature of the net metering system is effectively rendered ineffective.

However, if your hydroelectric generator is connected to a stream that is heavily reliant on seasonal rains, or even runs dry at certain times of the year, net metering may be able to make up for the shortfall in power during those periods.

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Necessary Equipment for Net Metering

A few pieces of equipment will be required once you have completed the installation of your system and have connected it to the power grid. When making your purchasing decisions for energy production equipment, it is critical that you adhere to the various state and federal regulations that apply.

If you purchase a low-cost, off-market unit that is not guaranteed by industry regulatory bodies, you run the risk of having your local power company reject your application. For a variety of safety reasons, these regulations are in place, and they are critical to the overall health of the power grid for all users.

Grid-tie Inverters

For the purpose of establishing a net metering system, grid-tied inverters are required pieces of equipment. Electricity from a home-based power system can be fed into a public utility grid through the use of these inverters.

Essentially, these systems are capable of converting direct current into alternating current, which is the type of current used by the power grid. You can use them for a variety of renewable energy systems, including solar, wind, and hydroelectric.

Grid-tie systems make it simple to transition from your independent production system to the electrical grid when necessary. After that, you can use net metering to figure out how much electricity you have drawn from and fed back into the grid.

Utility Meters

The use of a meter is required in order to accurately determine how much electricity you are supplying to the grid. There are a couple of different variations on this. However, they all essentially perform the same function, albeit in a slightly different manner.

Before proceeding, make sure that your utility company is aware of your plans. To determine if they provide meters (and at what cost), as well as what model they require, you should contact them.

Net Meters

Net meters only show a single number on their displays. This figure represents the “net” amount of electricity that your property has contributed to the grid. This is calculated by subtracting the amount of electricity consumed from the amount of electricity produced.

It will run backwards if your property is producing energy during that time period! When you draw energy from a source, it will move forward.

Dual Meters

Dual meters are two separate meters that do not communicate with one another. One meter keeps track of how much electricity is being drawn from the grid.

The other monitors the amount of electricity that is released into the grid. These meters are straightforward, but they may necessitate additional calculations on your part.

Bi-directional Meters

Due to the fact that they have three displays, these meters are a little more difficult to read. Electricity being drawn from the grid is shown on one display, power being fed into the grid is shown on another, and there is a test screen on the third display. These meters display the amount of power coming in or going out using codes or symbols, and yours will use a different system to distinguish between the amounts of power.

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The Future of Net Metering

Due to the heated debate over net metering in many states, legislation governing the practice is constantly changing and evolving. Because utility companies’ policies on net metering frequently change from year to year, it is always a good idea to stay up to date with the most recent programs to ensure that you remain one step ahead of the competition.

Because of the nature of net metering and the impact it has on utility companies, as well as other public rate payers, it is frequently a source of contention among those involved. In a number of instances, it has been successfully argued against. If you are strongly opposed to having the option of using net metering, it is a good idea to express your concerns by contacting your state and federal representatives to voice your concerns.

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