Understanding Net Metering: How It Can Save You Money on Your Electric Bill
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Net metering is among the most popular programs for homeowners and businesses investing in solar power systems. This innovative policy allows the owners of solar panels to produce electricity for personal consumption and send back excess power to the grid. To this end, it provides credits to offset their electric bills, making solar power more affordable and appealing to residential and commercial customers. With continually rising electricity prices, understanding how net metering works can help you drastically cut your energy costs and improve the return on your solar investment. The idea of net metering is relatively simple yet powerful.
When your solar panels generate more electricity than you are using, that excess energy is fed back into the utility grid. Your electric meter runs backward, crediting your account for the excess power. By drawing off the grid, if your solar panels are not producing enough energy, for instance, at night or on overcast days, you can pull electricity from the grid. The credits you build up from any extra energy you export decrease or eliminate your electric bill. This process works its way out in a circle; the generation of electricity is consumed and further exported throughout the year so that you can enjoy lower electricity costs. Adopting net metering policies in the United States is taking place highly state-by-state. Nevertheless, it has become a significant driver for residential solar power systems.
SEIA reported that over 40 states have taken some form of net metering policy by the start of 2023, each based on their own rules and compensation rates. For instance, California was one of the very first states in the country to offer a statewide net metering program. Through this program, solar users realized considerable savings, particularly during peak demand for electricity and escalating utility rates. Let's see how net metering works and how much it can save in practice. Consider the family in Arizona, which is the sunniest of all states. An example is the 7-kW solar panel system installed in this family's house, which generates around 11,000 kWh per year. With an average household usage of about 9,500 kWh annually, this solar system produces more than it uses.
This is because, during summer, when the panels produce more electricity than the family needs, this excess energy is fed back into the grid, thus allowing it to gain valuable credits. After a year, they had enough credits to offset their electric bills from an average of $150 to $200 per month before installing solar panels. With net metering, the family pays hardly anything for electricity throughout the year, rolling over credits often to the next several months. Another example is a small business in New Jersey that installed a 20-kW solar panel system on the rooftop of its office building.
Businesses consume approximately 24,000 kWh of electricity per year. The system produces approximately 25,000 kWh per year, while usage is approximately below that, producing more energy than they use. According to the net metering policy in New Jersey, they get full retail rate credit for excess electricity they feed on the grid, reducing operating costs further. As a result of installing solar panels, net metering has saved this business nearly $3,000 a year in energy bills. The savings from net metering go over and above mere reductions in monthly utility bills.
These savings can add up substantially over time, especially with other incentives such as the 30% federal Investment Tax Credit available on the cost of solar installation, effective since the start of 2024. With the tax credit, the upfront investment in a $15,000 solar system is reduced by $4,500. Long-term savings from net metering mean recovering the cost within six to ten years for most homeowners, depending on location and energy use. One of the best examples of the money-saving benefits of net metering is what has transpired in California, where electricity prices have climbed to unprecedented levels.
Because of the high rates of energy in the state, plus a very generous net metering program, solar power can be cost-effective for many residents. Additional solar energies produced under the NEM 2.0 program are credited at nearly the total retail rate, which can be as high as $0.25 per kWh in some regions. For instance, this might be a Southern California homeowner with a 6-kW solar system that generates approximately 9,000 kWh a year, adequate to meet the total consumption. Considering that electric rates in this region are between $0.15 and $0.30 per kWh, savings could easily top $2,000 yearly, mainly if they utilize most of the peak generation in summer. Equally salient is that not all states treat net metering policies the same.
For instance, the NEM 2.0 program in California provides very little compensation for excess energy produced, but other states have implemented ruleless-friendly net metering. Rulesouisiana recently slashed the compensation for excess solar power and now pays homeowners a much lower wholesale rate instead of retail on its system. Thus, net metering's monetary benefits are less appealing in Louisiana than in states like California or New Jersey. In addition, some utilities have started their pushback against net metering by requesting changes in how solar users are compensated.
Utilities argue that the programs can result in losses in revenue while presenting an operational challenge to the grid. Because of these issues, many states have revised their net metering policies. For example, in 2015, Nevada briefly reduced the net metering credits, which resulted in a drastic decline in solar installations. This was met with enormous public outcry, and so in 2017, Nevada reinstated a better rate of net metering, and solar installations have resumed to previous numbers. As solar becomes mainstream, net metering will doubtless evolve.
While some states are moving to time-of-use net metering, which means the value of electricity credits is based upon the time of day, electricity rates tend to be higher during periods of peak demand, generally in the late afternoon or early evening. Energy credits could translate into more considerable benefits by exporting energy to the grid at those times. Conversely, it could work against them during off-peak hours when less credit is received for low energy demands. By the end of 2019, all the solar systems were shifted to TOU net metering. This transition to TOU net metering incentivizes the owners of solar panels to maximize their energy production during peak hours for an extra increase in savings. The State of Hawaii provides the best example of the effectiveness of TOU net metering.
During the recent past, high infiltration of solar power forced the state to move to a TOU system. Homeowners who have installed solar panels can now sell back into the grid at premium rates from 4 p.m. to 9 p.m. The system incentivizes homeowners whose solar panels create energy in the middle of the day to store their power with a solar battery, such as Tesla's Powerwall, and then discharge that stored energy as consumption peaks. Hawaii solar users maximize their savings while contributing to grid stability. How much you will save: remember, net metering can drastically cut your electric bill; however, your overall savings will rely on the size of your solar panel system, energy use, and your local net metering policy.
Homeowners should also consider their utility's stance on net metering. Additional fees from several utilities defray the cost of maintaining the integrity of the grid for solar users. With all these misfortunes, the financial benefits of long-term net metering are beautiful, considering the betterment of solar technology and increasing electricity prices. In conclusion, net metering is a game-changer for anyone looking to save money on their electric bills while helping to reduce their environmental footprint.
It allows the owners, under net metering, to export the excess electricity into the grid and get credit in turn. As such, they ensure a win-win situation: a win for the homeowner and the utility. The program would mean the adoption of renewable energy, hence reducing dependence on fossil fuels, and would also stabilize the grid during periods of peak demand. Along with the right solar system and an understanding of your state's net metering policy, huge savings can be tapped into while being a good friend to the environment. More and more homeowners across the country are taking advantage of solar power with net metering as the future of energy keeps getting brighter.
