What Is Net Metering, How Does It Work, Am I Eligible for it?

Solar photovoltaic (PV) technology has been massively growing since the early 2000s, this created a need for a mechanism that bills customers for the energy consumed and that also provides credits for the energy exported back to the grid. The answer was the net metering (NEM) program.

If you want to learn more about the net metering program and know if you are eligible for it, this article is for you. Here we cover the basics of NEM, explain how it operates, and provide you with the tools to know if it is the right choice for you and if you are eligible for it. We will also dive into an overview of the California net metering, one of the most matured in the country.

Net Metering Program Diagram
Figure 1: Net Metering program - Source: Zero Carbon

Basics: What is net metering?

Net metering is a billing mechanism for residential, commercial, and industrial owners of solar energy systems that provides energy credits for the excess generated power sent back to the grid. The key aspect is that every kWh sent back to the grid will be worth the same as a kWh of energy consumed, which is why the energy bill can be offset. Even though solar net metering is established around most of the U.S., this billing mechanism can vary between states.

Each state has its net metering laws, voluntary programs, or regulations that set the specifics for how electricity customers are billed for their credits and what they can do with them.

The first solar net metering program began in Idaho in 1980, adopted later on in Arizona in 1983, and so on different states have established net metering programs or laws. Most net meterings are called laws or programs, but California was the first one to design numbers attached to the set of rules in the NEM program, with the creation of Net Metering 1.0, and later on Net Metering 2.0.

How does net metering work?

Net metering programs work slightly similarly all across the U.S., but they might differ in some key aspects. In this section, we provide you with an overview of the working of the NEM program.

The residential customer gets credit

Net metering is a very simple and effective system, providing flexibility to the grid and savings to the end-user. When a net meter is installed, no further regulatory interaction or supervision is required to account for the consumed or exported energy. When a residential customer consumes power from the grid, the net meter credits the home for the consumed kilowatt-hours, which will be accounted for the monthly electricity bill.

Residential customers with PV systems generating excess solar power will get credited by the net meter for the exported energy going from the home to the grid. Each credit accounted for the kWh exported to the grid, which will make the net meter run backward an amount equal to the credits.

You can use Time-of-Use tariffs to your advantage

States with Time-of-Use (TOU) tariffs set higher rates during peak demand hours that are applied for both, the consumed and exported power. Solar homeowners with home battery storage systems exporting power during peak demand hours, will get better rates than during the rest of the day, reducing even more the cost for the monthly electricity bill.

You only get charged for the net energy consumed

At the end of the month, electricity customers are charged for their “net” energy used or billed. This means that the electricity bills will consider imported and exported energy and its cost, charging the home only for the exceeding amount in the case that the electricity bill was not entirely offset.

You can use surplus credits in future months

Depending on the state, homes with exceeding power generation that account for positive net energy during a month, can claim remaining credits in future monthly electricity bills or get paid for them. Depending on the state, customers may accumulate credits indefinitely, or have their credits account restarted every year.

Solar Net Metering Program: Solar Power System and Electricity Grid

Should I install net metering for my solar system?

The net metering program can be quite beneficial for all residential and commercial energy customers with installed solar energy systems or other renewable energy systems. These are some of the reasons why it is recommended to install a solar net metering program for your generation system:

Save on electric utility bills

With a net metering program, homeowners can reduce costs in electric utility bills, making it one of the most compelling benefits. Without a NEM program, you would just reduce the cost of your bills by consuming solar power during the day, but excess generated power would be entirely lost.

Thanks to NEM programs, utility customers can receive credits that reduce or offset monthly electricity bills. Most states allow you to use the remaining credits in the following months, ensuring further savings, while other states pay you for the unused credits at the end of the billing year. This reduces the ROI period for solar PV systems, which is why is one of the anchors of the solar energy industry in the U.S.

Better than Feed-in Tariffs

Feed-in tariffs are available in some states and are very popular in other countries. This mechanism offers a single rate for exported electricity disregarding the hour that the solar power is exported. This is a far less convenient option than net metering, since in most cases feed-in tariffs will offer a value below the electricity rate for the solar energy exported back to the grid.

Add flexibility to the grid

There are times when the grid is under stress by many consumers demanding power at the same time. By including the NEM programs that interconnect solar homeowners generating power with the rest of the power grid, it allows obtaining extra power from distributed energy resources to cover energy demands.

When a solar homeowner sends solar power to the grid, the excess power generated can be used by non-solar customers demanding power from the grid. The power injection to the grid does not only reduce the stress over the grid distribution system but also helps reduce carbon footprints from the grid by reducing the consumption of fossil fuel-generated power.

Am I eligible for net metering?

To be eligible for a solar net metering program, you need to install an on-site PV system connected to the grid. Additionally, your state and the utility that you are connected to need to have a net metering program. Currently, 41 states in addition to Washington D.C., Puerto Rico, American Samoa, and the U.S. Virgin Islands, have mandatory NEM policies. Figure 2 shows a reference of which states work under NEM.

U.S. State Net Metering Policies
Figure 2: Net Metering policies by state - Source: NCSL

While not every state has mandatory NEM policies, some states like Texas and Idaho offer voluntary net metering programs that depend on the utility.

An overview of California net metering

California is the state with the largest solar capacity installed. Currently, California has a solar generation capacity of 34,950 MW, which is the required capacity to power more than 10,000,000 homes. California is one of the pioneers in the sector and also has one of the most innovative and updated solar net metering programs.

Net Metering 1.0

California first established Net Metering 1.0 in 1996, under the code SB 656. This program aims to incentivize homeowners to go solar, including a $1 interconnection fee, featuring entirely bypassable charges, and a credit account for each kWh exported to the grid with a value equal to $0.25.

Net Metering 2.0

In 2017, the incentives provided by the NEM 1.0 were slightly reduced in the California Net Metering 2.0 program. The program introduced a $75 one-time interconnection fee, while the monthly connection fee increased from $1 to $10 or even more in some cases.

The California Net Metering 2.0 also introduced non-bypassable charges of $0.02 per kWh. This means that even if you offset your electricity bill with solar power, you still have to pay $0.02 per kWh consumed from the grid during the month. The credits accounted for each kWh exported to the grid, would stay the same as with NEM 1.0, changing the kWh value depending on the utility.  

Another inclusion in the California Net Metering 2.0, was the mandatory transfer of homeowners to a Time-of-use (TOU) rate. If you are currently looking to go solar in California, you can check TOU rates and special tariffs at this link. If any charges are pending for the utility consumption even after considering solar power generation, customers will receive the True-Up Bill in utilities like PGE which will represent an annual billing scheme for all energy consumption that was not offset by solar power.

California Net Metering program includes Net Surplus Compensation and Renewable Energy Credits (RECs) system. This system provides solar homeowners with a surplus electricity balance at the end of the 12-month billing period, with credits called net surplus compensation (NSC) in the RECs system.

Net Metering 3.0

The California Net Metering 3.0 program attempted to promote solar-plus-storage systems by discouraging the development of grid-tied solar systems. The NEM 3.0 switched the net metering from being a compensation-based mechanism into a net billing mechanism in which the value for the solar would be much lower than the value for energy consumed. Moreover, additional charges, called grid-participation charges would add a fixed amount of $8/kW installed to be billed at the end of each month. Representing up to $576 per year for a 6kW system.

Entirely offsetting an electricity bill is also more difficult with Net Metering 3.0, since the credits compensation per kWh delivered to the grid reduce down to $0.05. Net metering 3.0 was supposed to be established in 2022, but now the California Public Utilities Commission indefinitely delayed it due to protests against this new net metering program.

Bonus Read: Types of net metering

Net metering can also be adapted to special applications. Below you will find a couple of examples of this.

Net Metering Program Aggregation (NEMA)

The NEM Aggregation was established under the Senate Bill (SB) 594 in 2012, created by the California Public Utilities Commission (CPUC) in conjunction with the Investor Owned Utilities (PG&E, SCE, SDG&E).

The NEMA program establishes that solar generators can aggregate the load accounted for in multiple meters, sharing NEM credits all over the adjacent or contiguous properties to the generation facility. To be eligible for a NEMA program, a single customer must be the sole owner, lease, or renter of the properties.

Virtual Net Metering (VNEM)

Virtual Net Metering is another interesting type of net metering program available for communities looking to enjoy the benefits of solar power with a community solar farm, without having to install a PV system at their homes. VNEMs distribute NEM credits generated by an on-site community solar farm or an off-site solar garden, among the property owners of the community registered to the VNEM.

The VNEM provides direct and equal benefits to low-income tenants, delivering the benefit of a single solar system to multiple property owners. This allows them to install a single community solar farm for a better $/kWp price, without requiring to have a single PV system installed at their homes.


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