Net metering is the method by which your utility provider pays you for returning energy onto the grid via solar panels. To understand net metering completely, you first need to understand some of the terminology of it:
• Net production – The net energy produced by the renewable energy system of your home or building. It’s what you have when you produce more energy than you use in your home.
• Net consumption – The net energy consumed by your home or building. It’s what you have when are using more energy in your home than your system can produce.
• True-up schedule – The period over which a utility calculates your net consumption/production. Typical true-up schedules are either monthly or annual, and usually follow your billing cycle.
• Avoided cost – The cost avoided by the utility for purchasing energy (in essence, the rate at which a utility claims it purchases its energy). This amount is typically based off of the cheapest available source of energy and is roughly 25 percent of the retail rate, which these days is typically imported wind energy here in Wisconsin. (For reference, average retail electricity price is ~$0.12/kWhr, and the avoided cost hovers around $0.03-$0.04/kWhr.)
Ok so, what is net metering? How does it work?
Net metering is the method by which your utility provider pays you for returning energy onto the grid, and it is one of the most important policies in existence for solar energy. Without some form of net metering policy, there would be slim hope for the economics of your residential solar system. (Grid-tied utility projects and some commercial projects still have a chance through other financial models, but for residential solar, net metering really is the main reality for your solar paying for itself).
The main concepts behind net metering are based around the fact that solar energy is a daily variable resource, and it doesn’t necessarily match your home demand profile. Most people work during the day, when the sun is out and shining brightly down on your solar panels, producing energy when you aren’t around to use it. It is also a variable resource in general, changing as cloud cover shifts, seasons change, and the sun rises and sets. Therefore, your energy is typically sent to the utility during the day for consumption by others on the grid, generating energy credits that are then returned to you at night when your energy consumption picks back up.
Net metering is the method by which utilities pay you for returning energy onto the grid, but not all utilities are so generous to do so. It works by generating energy credits, in kWhrs (Kilowatt-hours), whenever your system sends energy back on the grid. As stated earlier, typically during the day your solar system is sending energy back to the utility, as you are not around to use it. This is why most utilities install bi-directional meters for solar projects, meters that run forwards and in reverse in reference to energy taken or given back to the grid (as seen below).
The utility will then pay you for credits that may remain based upon their “true-up” schedule, which is typically on a monthly or annual period. In a monthly true-up, if you are a net producer at the end of your billing cycle, you will be paid avoided cost for the excess energy sent back to the grid in excess of what you’ve consumed in your home that period. If you are a net consumer, you will just receive a bill reduced by the credits you’ve produced that month. For all energy you have consumed and offset with solar production, you are credited at full retail price for the electricity, but for all excess, you are credited at avoided cost (again, about 25 percent retail).
In an annual true-up schedule, these credits you generate at the end of the month are allowed to roll over billing periods, allowing you to offset consumption in the following months. For example, if you were a net producer in September, you could use the excess credits to offset consumption in October, applying credits to subsequent bills until you no longer have credits to offset, or you have reached the end of your 12-month true-up, at the end of which your annual net excess (production) will be credited to you at avoided cost, typically in the form of a one-time payment. Annual true-ups are the most beneficial programs for solar in places like the Midwest, where solar varies greatly on an annual basis.
By: Ian Berg
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