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What Is Net Metering And How Does It Work

As the cost of renewable energy sources continues to drop, more and more people are opting to generate their own electricity through solar panels or other sources. But many don’t realize you can benefit from any excess renewable energy you produce with net metering. Net metering enables homeowners and businesses with an on-site generation system like solar panels to feed excess power back into the grid, receiving credit for it on future electricity bills. 

Here at Wolf River Electric, we will explain all about net metering—what it is and how it works—so you can maximize your renewable energy investment. 

How Net Metering Works

Solar Panel Generation

Solar panels installed on a property harness sunlight and convert it into electricity through photovoltaic cells. When the sun is shining, the solar panels generate electricity, and any surplus energy beyond what the homeowner needs is sent back to the utility grid.

Two-Way Metering

Net metering requires a special two-way meter that records both the electricity consumed from the grid and the excess electricity fed back into the grid by the solar panels. The meter can measure the flow of electricity in both directions.

Crediting Excess Electricity

When the solar panels produce more electricity than the homeowner is using at any given moment, the excess energy is automatically fed into the grid. The electric utility companies then credit the homeowners’ electricity bill for excess energy generated. 

This credit is usually based on the retail rate of electricity, meaning homeowners receive a credit equal to the amount they would have paid if they consumed that energy from the grid.

Offsetting Electricity Costs

During times when the solar panels are not generating enough electricity (e.g., at night or on cloudy days), the homeowner will draw electricity from the grid as usual. The net metering system allows the credits earned from exporting excess energy to offset the cost of the electricity consumed from the grid, effectively reducing the homeowner’s overall electricity bill.

Monthly Billing and Carryover

Net metering programs usually operate on a monthly billing cycle. At the end of each billing period, the utility company calculates the net difference between the electricity consumed from the grid and the excess electricity generated by the solar panels. 

If the homeowner has generated more electricity than they consumed, the surplus credits carry over to the next billing period.

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Benefits Of Net Metering

Makes Solar Energy System More Financially Viable for Homeowners

Net metering allows homeowners with solar panels to earn credits for the excess electricity they generate and send back to the grid. By offsetting their electricity costs with these credits, homeowners can significantly reduce their utility bills, making solar energy systems more financially attractive and feasible.

Provides a Simple Way to Credit Solar Owners for the Energy Their Systems Produce

Net metering program provides a straightforward and efficient method to credit solar owners for the electricity their systems produce. With a two-way metering system, the excess energy fed back into the grid is accurately measured, ensuring fair compensation for the homeowners’ renewable energy contributions.

Encourages New Solar Power Development on Existing Structures

Net metering incentives encourage the installation of solar panels on existing structures like residential rooftops and commercial buildings. This encourages property owners to leverage unused or underutilized space to generate clean energy, maximizing the use of available resources and reducing the need for additional land use.

Reduces the Need for New Fossil Fuel Power Plants

By promoting solar energy production and consumption at the individual and community levels, net metering helps reduce overall electricity demand from traditional fossil fuel power plants. This decrease in reliance on fossil fuels contributes to a lower carbon footprint and helps combat climate change.

Reduces the Need for New Power Transmission Infrastructure

As solar energy is generated and consumed locally, excess energy sent back to the grid through net metering reduces the strain on power transmission infrastructure. This can lead to cost savings and reduced investment in building new power lines and transmission facilities, contributing to a more efficient and resilient grid.

Virtual Net Metering Makes the Benefits of Solar Available to People Who Don’t Own Their Homes

Virtual net metering extends the advantages of solar energy to individuals who may not own their homes, such as renters or apartment dwellers. With shared solar projects, they can subscribe to a communal solar installation and receive credits for the energy produced, making solar energy accessible to a broader population and fostering community involvement in renewable energy initiatives.

Examples Of Net Metering Programs

Credit Rollover (Monthly Vs. Annual Vs. Indefinite)

Some net metering programs allow homeowners to carry over excess energy credits from one billing period to the next, providing flexibility to use accumulated credits over a specific time frame – either monthly, annually, or indefinitely, depending on the program’s rules.

Value Of Credits

The value assigned to net metering credits can vary, with some programs offering a one-to-one credit, where each kilowatt-hour (kWh) of excess energy exported to the grid earns the homeowner a credit equal to the retail electricity rate, while others may offer a different credit rate based on specific factors or time of generation.

Time Of Use Rates

Certain net metering programs use time-of-use rates, where the value of net metering credits varies depending on the time of day the excess energy is generated and sent back to the grid, incentivizing homeowners to produce energy during peak demand periods when electricity costs are higher.

Other Alternatives To Net Energy Metering

Net Billing

With net billing, excess energy sent back to the grid is credited at a reduced rate compared to the retail electricity rate, and the homeowner pays for any net electricity consumption at the standard retail rate. 

Buy-All, Sell-All

In the buy-all, sell-all model, homeowners sell all the energy their solar panels generate to the utility at a predetermined rate, and in turn, they purchase all their electricity from the grid at the standard retail rate. This system eliminates the need for tracking excess credits and simplifies compensation arrangements.

Limitations Of Net Metering

System Size Limits: Some net metering programs impose restrictions on the size of the solar system eligible for net metering, limiting the amount of excess energy that can be credited back to the grid.

Excess Credit Treatment: In certain regions, excess energy credits earned through net metering may be carried forward only for a limited period, and any surplus credits may not be refunded or compensated.

Complex Regulations: Net metering policies and regulations can vary significantly by location, leading to confusion and complexity for solar panel owners trying to navigate the program requirements.

Non-Uniform Compensation: The value of net metering credits may not always be equivalent to the retail electricity rate, leading to discrepancies in the compensation received for excess energy generation.

Grid Infrastructure Costs: The increased adoption of net metering can lead to shifts in grid management and costs, potentially shifting some grid infrastructure expenses to non-participating utility customers.

Policy Changes: Net metering policies are subject to change over time, and alterations in regulations can impact the financial benefits and incentives for solar panel owners.

Go Solar And Save With Net Metering

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Understanding Net Metering technology is the key to getting the most out of your solar investment, for both short-term and long-term savings. While up-front costs can seem expensive, you can enjoy big savings by generating and supplying energy instead of buying traditional electricity. 

Most states require utilities to offer net metering, so there will always be a market for the energy you generate. What’s more, utilities provide financial incentives or other subsidies that reduce your investment cost in setting up a Net Metered system. We encourage you to explore all the benefits and savings associated with using Net Metering to go solar and determine if it’s a good option for you. 

FAQs

The net metering process benefits solar customers by allowing them to receive credits for excess electricity they generate and send back to the grid. When their solar panels produce more energy than they consume, the surplus power is fed into the utility grid, and they earn credits on their electricity bill. These credits can offset future electricity consumption, resulting in potential cost savings and more efficient use of renewable energy.

Net metering is typically associated with solar energy, but some regions have expanded the concept to include other renewable energy sources. Virtual net metering, also known as community solar or shared solar, allows individuals who cannot install solar panels on their property to participate in net metering programs. They can subscribe to a shared solar project and receive credits for the electricity generated by the communal solar installation.

Virtual net metering is a mechanism that allows multiple electricity consumers to benefit from a shared renewable energy system. In virtual net metering, a solar or renewable energy project is installed at one location, and the electricity generated is distributed to multiple subscribers who may not have the ability to install renewable energy systems on their properties. Each subscriber receives credits on their electricity bill for their share of the energy produced by the communal project.

In some areas, net metering credits may have an expiration date, typically at the end of the billing year. However, other regions may allow credits to roll over indefinitely or provide the option to cash out unused credits. This means the expiration of solar net metering credits depends on the regulations and policies set by the local utility company or government. 

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