What is Solar Net Metering and How Does it Work?
Many consumers who are thinking about going solar have heard the term net metering but aren’t sure what it means.
What is Net Metering?
Put simply, net metering is a utility billing mechanism available in most states that offers a credit to residential and business customers who are making excess electricity with their solar panel systems and sending it back to the grid.
How Does Net Metering Work?
When you have a rooftop solar system, it can often generate more electricity than you consume during daylight hours.
With net metering, the homeowner is only billed for the net energy used each month, that is, the difference between the energy produced by the solar power system and the energy consumed by the house over the monthly billing period.
When your house or business is net-metered, you’ll see the meter run backwards, and that means, depending upon local policies, you may get a credit to hedge against the electricity you use from the grid when it’s not sunny or at nighttime. You are then billed only for your net energy use. The excess energy generated gets put back to the grid for your neighbors to use. (Read about net metering for businesses on the SunPower Business Feed.)
The Benefits of Net Metering
Net metering can save homeowners hundreds of dollars on their utility bills every year, so it’s a good reason to make the money-saving choice and go solar sooner rather than later.
There’s another benefit from net metering. Since your solar system is generating electricity near the point where it will be used, this reduces strain on the grid’s distribution and transmission infrastructure and minimizes energy loss from sending voltage many miles from the nearest power plant. While some claim that net metering represents an unfair burden on non-solar electricity customers, many net metering cost-benefit studies have found the opposite to be true.
Does My State Offer Net Metering?
Although some state regulators and utilities have proposed policies that challenge the value of simple retail NEM, there haven’t been many changes to the rules — yet.
The original retail net metering policies were designed for areas with low solar adoption. But with California, New York and other states seeing Rapid increases in the amount of solar that’s being installed, there will be changes coming in the next few years. California has already instituted what’s being called Net Metering 2.0, and at least one study has shown how there are reasons to be optimistic about the new policies compared to the original retail net metering approach used in the Golden State.
To learn more about net metering and other related policies in your state, check out the Database of State Incentives for Renewables Efficiency (DSIRE). Another resource for information about net metering, pro-solar energy policies and consumer advocacy programs is the Solar Energy Industries Association (SEIA), or ask your local SunPower dealer for the latest on possible net metering-related policy changes in your area.
There are many discussions taking place across the country on how to evolve the current programs. Net metering updates may factor in such things as a more accurate valuation of the solar energy flowing into the distribution grid; rate structures that charge more for electricity at certain times of the day (or night) or look at where on the grid the excess electricity is being generated; credits at a wholesale rather than retail rate; and the impact of residential solar energy storage batteries.
If you are already benefiting from net metering for your solar system, you likely will be shielded from any significant reductions — you will be grandfathered in, regardless of any changes that may impact the rate design of new solar customers.
So, to take advantage of current favorable net metering policies, don’t delay going solar. Visit our Going Solar page to learn everything from how many solar panels you’ll need to how much solar panels cost.
Net Metering: How You Can Get Paid for Solar Power You Generate
You won’t use all the electricity your solar panels generate, but net metering means it’s not going to waste.
If you have solar panels on your roof. you almost certainly aren’t using all of the energy they produce and all that excess is sent to the grid. joining your utility’s supply of electricity. If panel owners received nothing in return for this extra energy, solar panels would be a harder investment to justify. While home battery storage can help you save the energy you don’t immediately use, there’s a simpler (and cheaper) option available to solve this imbalance.
Net metering is one way utilities compensate you for the electricity you produce, making sure you get something in return for the solar power you produce but don’t use. While net metering is the most common and well-known compensation scheme, there are a few others. We’ll explain them all below so you can better understand how much money your solar panels could save you over your lifetime.
How does net metering work?
In states that offer net metering (check here to see if your state qualifies), you can sell your excess solar energy back to your utility company in exchange for credits that offset the cost of your energy usage. You may generate excess solar power when it is clear and sunny out, but see less energy than is necessary to power your home when it is cloudy or rainy. By selling your excess energy back to the utility grid, you’ll be able to use the credit to cover the cost for any electricity you need to use. You end up paying only for the net energy, or the difference between how much you sold and actually used.
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The types of net metering
There are three different models of net metering, and which one is available to you may depend on your state and your utility provider.
Net metering
Net metering is the most common arrangement, and works by selling any surplus power generated by your solar panels to the utility operator in exchange for credits, which offset any electricity you may need to use from the grid. The credit is applied at the retail rate, which means the rate that you pay for electricity. Only one meter is required to track this, though your meter may need to be upgraded when you go solar.
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Buy all/sell all
The buy all/sell all model works by selling 100% of the energy that your solar panels generate to the utility company. It is sold at wholesale price, which is cheaper for the purchases. In exchange, you get 100% of your home’s energy from the utility company, which you pay the retail rate to use. This requires two separate meters, and you will pay the difference.- if any.- between the amount generated and the amount consumed. It’s important to note that under this model, you do not directly consume any of the energy your solar panels generate.
Net billing
Much like net metering, the net billing model allows you to use the electricity generated by your solar panels and sell the excess to the utility company at retail price. Unlike the net metering model, though, you cannot bank credits for future billing cycles. This arrangement is more common for commercial situations than residential ones.
What to consider when it comes to net metering types
In some cases you won’t have a choice when it comes to the type of net energy metering arrangement, as utility companies may only offer one option. However, if you can choose, you’ll want to keep in mind a couple things.
Net metering is the most common option for a reason: it’s the simplest to understand. You get credits for energy sold and those credits are at retail price, meaning they are paid at the same rate that you pay for your electricity. That makes the math simple.
However, that doesn’t mean it’s the best deal available to you. If you’re in a situation where you expect to generate a lot of electricity.- a region where it is sunny most of the time and there isn’t much rain or Cloud cover to interfere with your panels.- a buy all/sell all option may work better. While you’ll be selling at a wholesale rate, meaning it is a lower rate for you since you are acting as a provider, you’ll also be selling much more than you otherwise would. All of your solar power generation will be monetized, as opposed to just the excess.
You should also keep in mind other fees associated with net metering. For instance, you may have to pay a connection fee. This is a monthly expense that you pay for connecting to the utility company’s grid. It typically isn’t much, between 10-20 per month, but it is an expense to keep in mind.
No matter what arrangement ends up working best for you, net energy metering a great way to get the most out of your solar panels. Not only does it allow you to power your own house or pay for your full electricity use, but it also allows you to monetize your energy generation and let others make use of it.
Solar Basics: Electricity Meter
The analysis of your business’ electric utility bills is fundamental to assessing the potential value of a solar photovoltaic system. By understanding your company’s energy demand and consumption as measured by your electricity meter, you can determine the optimal solar system size for the maximum ROI. Read on to learn more about the importance of utility bill analysis when considering solar.
Electricity Meters
Every utility customer has an electricity meter at their facility for utilities to collect customer energy usage data to inform their electricity transmission and distribution grid. Many states have deployed solar incentives, which credit solar customers based on the amount of clean energy sent to the grid, as measured by the electricity meter.
Electric Meter Types
Solar customers can utilize three unique kinds of electricity meters, depending on the grid interconnection strategy and solar revenue streams: single-directional, bi-directional and dual meters.
A single-directional meter measures energy in one direction, either as an input or output relative to the facility and the grid. Using a single-directional meter, solar projects may be tied to the grid in a “front-of-meter” application, where the system feeds all production directly to the utility. In New York, solar production exports are credited at the determined Value of Distributed Energy Resources (VDER), which drives project revenues based on when and where the system feeds energy into the grid.
Conversely, many commercial and industrial (CI) solar projects are connected “behind-the-meter,” with solar production offsetting the on-site load. Clients may realize significant project value with this interconnection strategy if their utility territory charges high electricity rates.
Bi-directional meters are capable of displaying energy flow to and from the grid. A bi-directional meter is important for a solar project using a net-metering policy because it will simply display net energy flows. Net metering policy often drives lucrative project economics, as the project owner receives monetary credits for excess solar production exported to the grid. A customer’s meter “runs backwards” if the solar energy export exceeds on-site grid demand. Similarly in New York, a “remote” net-metering policy allows CI customers to allocate net metering credits generated from an offsite solar project to another meter at a property owned or leased by the customer, as long as both meters are located within the same utility territory and NYISO load zone.
Dual-metering refers to a two-meter system in which the meters are independent; that is, they do not communicate with each other. In this case, one meter displays energy demanded from the grid and the other meter reads kWh solar exports to the grid. Dual-metering is important to feed-in-tariff (FIT) markets, where the utility contracts solar exports at a fixed rate, e.g. Rhode Island’s Renewable Energy Growth (REG) Program.
The various state solar incentives require different types of meters, which ensure that the system owner or offtaker receives the appropriate compensation for the clean energy they generate. Electricity meters are therefore crucial components of a solar system that inform the ongoing project returns.
PowerFlex Experience
With over a decade of national experience, PowerFlex has become the preferred solar developer for CI clients seeking superior project execution and optimal financing solutions. PowerFlex continues to leverage metering policy across states to develop turnkey projects for clients that strive to be industry leaders in sustainability. To understand how your local metering policy may help to deliver highly lucrative project economics, please don’t hesitate to contact us!
What You Should Know About Residential Solar Systems
Going solar has many benefits. It harnesses Arizona’s abundant sunshine to produce energy and is a renewable resource that creates no emissions. It also reduces your carbon footprint to help combat climate change. It may even increase your home value and reduce your monthly energy bills, if you continue to use energy wisely and conserve.
Beware of Scammers
Beware of companies that call you or come to your home claiming to be a preferred or approved contractor for TEP. TEP does not endorse or have formal partnerships with any solar company. Please call us at 520-623-7711 to report this and provide the name of the company and the salesperson, if possible. Homeowners should check a company’s credentials carefully before signing a contract.
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Solar Analysis tool can help customers determine if installing a PV system makes sense for them. The tool helps you evaluate all of your solar options – whether to rent or own – so that you can determine if a PV system will meet your financial and sustainable goals. This tool estimates the upfront and long-term costs, the size of the system needed and the payback period for your residence.
Payback Period
The actual payback period for investing in a PV system depends on your energy usage, system size, PV technology, tax credits available, installed system cost, and electric rate changes, among other factors. Any payback projection should reflect TEP’s history of stable electric rates, which have increased less than 1 percent per year, on average, over the past two decades.
Use TEP’s Solar Analysis tool to estimate your payback period or follow these steps:
- Calculate your system cost after any federal and state tax credits. Check with a tax professional to verify if you are eligible for these credits.
- Estimate the amount of electricity your system will produce, which is the amount of energy you won’t buy from TEP. This estimate is calculated by multiplying your system size in kilowatts by 1,900.
- Multiply your annual system production by your electricity rate. This is your annual savings.
- Divide your system cost – calculated in step 1 – by your annual savings – calculated in step 3 to get the number of years for your payback period.
Choosing a Solar Company
It is critical for customers to choose an experienced, reputable solar company that will meet their needs and expectations. Here are some helpful tips for selecting a solar company:
- Only hire a licensed contractor qualified to do the project. Solar installers must be licensed by the Arizona Registrar of Contractors (AZROC) and possess an Arizona business license that is active and in good standing.
- Verify the company’s license status by calling 877-692-9762 or visiting the AZROC website.
- Check to see if the installer is bonded and insured and ask for proof.
- Use a local installer, if possible. Tucson area installers are familiar with TEP’s requirements and the application process to help ensure project approval and a successful installation.
- Obtain detailed proposals and estimates from several installers and meet with each of them. Prices, project specifications and warranties vary significantly. Compare each of the proposals to make sure the system will meet your goals and expectations.
- Check references. Request at least three (3) references from customers whose projects are similar to yours. Consider the company’s experience and find out if they have any unresolved complaints, judgments or liens. Check their Better Business Bureau
- Get everything in writing. Any material changes to the system design, performance, equipment or estimate should be documented in writing.
Read all documents carefully before signing. You need to understand the terms and conditions before you sign. This helps prevents disagreements during and after installation. TEP advises against signing an agreement or making payments on leased systems until a DG meter is installed and a Permission to Operate is issued.
Questions to ask solar companies:
- Are you licensed, insured and bonded? Can you provide proof?
- How many other PV systems have you installed that are similar to mine?
- Can you provide several references?
- How much energy will my system produce?
- What will be my cost savings by having solar and what is the estimated payback period?
- What are the benefits of purchasing rather than leasing?
- Can the contract be renegotiated and under what circumstances?
- Is the contract transferrable to new owners if we sell our home?
- How long will the equipment last before it needs to be replaced?
- What are the warranties on the equipment, and can I purchase extended warranties?
- Should the age and condition of my roof affect my decision?
Selecting a TOU Pricing Plan
Solar customers may choose from any of our time-of-use (TOU) pricing plans. These plans can reduce your energy bills if you avoid using a lot of energy or operating several large appliances during times of peak demand. For the greatest cost savings, learn to shift your energy usage to off-peak hours, such as mid-day or later in the evening. Customers on TOU plans should reduce energy usage from 3-7 p.m. during the summer and from 6-9 a.m. and 6-9 p.m. in the winter.
Customers with PV systems sometimes make the mistake of actually using more energy and could see their TEP bills increase. It is important to remain as energy efficient as possible and continue to make every-saving upgrades even after a PV system is installed to keep energy costs low.
Billing Credits
Even after you install your PV system, you will still be connected to TEP’s grid and will rely on us to provide safe, reliable power when the sun isn’t shining and your system isn’t generating electricity. Even if you have stored energy from a battery system, it may not meet your power needs. That means you will still get a bill from TEP every month, although it should be lower if you keep your energy usage in check.
All TEP customers, including those with solar systems, have monthly service charges that cover our costs associated with operating and maintaining our electrical grid.
Excess Energy Credits
Once your PV system is installed, TEP will replace your existing meter with billing and production meters to measure your energy usage and the amount of energy your system exports to our grid. The excess energy and credits will appear as “KBH” – kilowatt banked hours – on your monthly TEP bill.
The buyback rate for excess, unused energy is specified in TEP’s Rider-14 Resource Comparison Proxy (RCP) Export Rate. Customers’ bill credit is based on the RCP rate in effect when their interconnection application was submitted. This rate is fixed for 10 years.
After the initial 10-year period, the bill credit is based on the current export purchase rate, and may change from year to year. The RCP rate for new applications received before Oct. 1, 2022, is adjusted each year.
Each month if the customer’s RCP credit balance exceeds their TEP bill for electricity, the credit is applied to their next month’s bill. In October of each year, TEP will pay the customer any remaining RCP credits if the balance is more than 10.
Customers with grandfathered rates for PV systems installed before 2018 should refer to TEP’s Rider – 4 Net Metering for Certain Partial Requirements Service (NM-PRS).
Power Outages
If a power outage occurs, your PV system is required to shut down automatically for safety reasons. This prevents excess energy generated by your system from flowing back to our circuits while our crews are repairing equipment, which must be de-energized to prevent an electrical hazard.
Your system will not generate energy during a power outage unless you have a PV system with a battery storage system. Once power is restored, you can resume operation of your PV system, which may require a manual reset.
Maintenance Repairs
If your system requires maintenance or repairs, contact your solar company. If the existing DG meter needs to be pulled for repairs, a DG clearance from your Authority Having Jurisdiction (AHJ) will most likely be required. If the inverter(s) or modules are being replaced an application will need to be submitted to TEP.
Working with TEP
TEP’s role is to assist installers and customers through every step of the application and approval process and ensure that projects meet all safety and electrical requirements. At different stages of the application process, customers and your installers may work with up to four different departments at TEP: Energy Programs, Energy Services (engineering), Design Services and Metering.
Customers and installers can expect regular communications from TEP to help keep projects on track. Customers can do their part to advance their project and prevent delays by providing TEP with their correct address and email address, signing the Interconnection Agreement in a timely manner and ensuring there are no access issues – such as pets in the yard or locked gates – at their home.
TEP will review the Notice of Completion submitted by the installer once installation is complete and, if approved, the project will be released to TEP Metering for a meter exchange. Once TEP issues a Permission to Operate, the installer may energize the PV system.
Steps to Installing a Residential Solar System
- The solar company completes and submits the Interconnection Application and required documents to TEP on their customer’s behalf.
- TEP conducts an administrative review of the application and documents within 7 days of receipt to ensure they comply with program requirements.
- TEP completes an Interconnection Review of the project’s technical specifications within 14 days and notifies the customer and installer if the project is approved or needs corrections. For PV systems greater than 20 kWac, TEP has 21 days to complete its Interconnection Review.
- The solar company pick-ups TEP-supplied equipment and materials for the project from our designated vendor.
- The solar company installs the equipment and then notifies TEP when the installation is complete by submitting electronically a Notice of Installation Completion (NIC) along with “as-built” photos of the project. TEP may require a system inspection.
- TEP reviews the NIC and coordinates with our Metering Department to install billing and solar production meters and complete a revenue meter exchange.
- Upon receiving Permission to Operate from TEP, the solar company may energize the customer’s PV system.
Your Installer’s Role Responsibilities
Solar companies are responsible for designing a PV system tailored to the customer’s home and energy needs, and calculating its size, configuration and energy production. The installer should provide a detailed cost estimate, the manufacturer and model numbers for your equipment and a project timeline.
The installer will complete and submit the Interconnection Application and project drawings to TEP on your behalf, obtain the necessary permits, schedule inspections and secure the required approvals. They’ll also need to contact TEP if there are any major modifications to a project. Installers must adhere to TEP’s Distributed Generation Interconnection Requirements and our Electrical Requirements.
If a power kills is needed for installation, the installer needs to schedule this with TEP Design Services and notify the customer of that appointment.
When a PV system is completed, the installer must submit a Notice of Completion with TEP along with “as-built” photos of the PV system. After TEP installs new billing and production meters and issues a Permission to Operate, the installer will complete a walk-through with the customer and energize the system.
Changes to your PV System after Installation
Customers who want to expand their system by adding an inverter or more modules need to have their installer submit an application to TEP. They will keep their initial net metering rate for the duration of the 20-year contact if the addition to a grandfathered system does not require utility distribution upgrades.
Customers with an RCP rate can find more information about expanding their system and retaining their original rate.