metering

Net Metering: Pros and Cons For Your Bottom Line

VeloSolar • Updated on May 3, 2024 • [rt_reading_time postfix=”minute”] read

If you’re researching solar panels for your business, you’ve no doubt come across the term net metering and wondered what it was and if it can save you any money on your electric bills.

The answer to that question, in general, is yes. Net metering can reduce the size of your monthly utility bills, but as the saying goes, some restrictions may apply.

In this article we’ll outline how net metering works, some of the restrictions, and some of the benefits and disadvantages of enrolling in a net metering program.

Table of Contents

What is net metering?

Solar panels generate most of their electricity during the middle of the day when the sun is directly overhead. If your business doesn’t use all of that energy as it’s being produced, you have a couple of options.

First, if you have battery energy storage as a part of your solar system, you can store that energy to use at a later time – for example, you can use your own power to run operations when the sun goes down, or in the case of an outage.

If you don’t store it, that excess electricity is either lost, or in some cases it can be sold back to the grid through what’s called net metering.

Net metering, also called net energy metering (NEM), is a billing tool offered by some electric utilities in the US. Customers with on-site solar panels or wind power plants in certain states can send the excess energy generated by their renewable energy systems back to the electric grid. In exchange, the utility gives them credit for that energy on their next bill.

“Selling” excess electricity to the grid

Often, sending excess electricity back to the grid is referred to as “selling” it back to the grid, but that’s something of a misnomer – your utility won’t be cutting you a check. Instead, they will apply credit to your account. At the end of each billing cycle, they net how much electricity you took from the grid versus how much you sent to the grid, and use that number to calculate your bill. Thus the name net metering.

Think of it this way – if you send the grid 10,000 kWh of electricity in a month, and you use 30,000 kWh of grid power that same month, they subtract the price of 10,000 kWh off that month’s bill. The net result is that you only pay for 20,000 kWh.

Depending on the utility, your net metering credits may carry over to the next billing cycle if you don’t use them all each month. These utilities typically ‘true up’ the account at the end of the year.

By effectively reducing the amount of electricity you have to purchase from your utility, net metering is yet another way that installing solar panels can reduce your company’s energy costs.

Are there net energy metering programs in my state?

While that sounds like a great deal, it’s important to know that net metering programs are not available everywhere. The federal government legalized net metering nationwide to encourage solar adoption, but in practice, regulations are set at the state and local level. To further complicate things, each utility establishes its own polices that, at minimum, must meet the state and local requirements.

Full-retail rate vs. avoided cost

More than 30 states and the District of Columbia have net metering mandates and some utilities in states without mandates still offer programs. But, it’s important to know that not all net metering programs are alike. The scenario described above is what’s called full retail net metering – you’re credited with the same amount of money that you would have paid for that electricity had you purchased it from your utility provider.

The other way that utilities can compensate solar owners is with the avoided cost, or the avoided energy rate method. The avoided energy rate is the amount the utility would have to pay to purchase the equivalent amount of energy on the open market.

While we won’t get into the complexities of how your provider purchases electricity, let’s suffice it to say that utility companies have to buy every watt of electricity they don’t generate from another entity at wholesale. The price paid for that energy is established by contracts between wholesalers and the various utility companies, or is set by organized wholesale markets.

For our purposes, let’s say the utility pays $75 per megawatt hour (MWh). If your utility offers solar net metering through the avoided cost method, and your solar panels send 1 MWh to the grid in a month, you’ll get $75 worth of credit on your account.

So does your state have net metering? Let’s take a look:

States without net metering

Alabama, South Dakota and Tennessee do not have net metering, or any form of alternative net metering policies in place. Individual business owners in these state may be able to negotiate a net metering agreement with their local utility.

Experts expect the list of states without net metering to grow in the coming years as major utility companies attempt to cut programs to increase their profit margins. Changes have been made in recent years to limit the value of net metering in Louisiana, South Carolina, and even California, which is arguably the most solar-friendly state in the union. Your solar provider can ensure you have the most recent information.

States with net metering

The vast majority of states (33) have some form of net metering framework in place. Here are some examples:

North Carolina

North Carolina currently has a net metering mandate that offers a 1:1 credit for solar energy sent to the grid. This is one of the best net metering policies in the country. However Duke Energy and its affiliate Duke Energy Progress, the largest providers in the state, have proposed switching to a time of use (TOU) rate. This method places different values on your energy consumption and your solar panels’ production based on the time, day, and month of the year, rather than crediting at a flat rate.

Georgia

Georgia does not have a net metering mandate, though Georgia Power, the state’s largest electric utility, does have a program. Unfortunately, it’s only available to 5,000 rooftop solar customers, or up to 32 MW of capacity. The program reached its capacity shortly after it was announced and was closed to new applications in 2021.

Velo Solar, in partnership with the GA Solar Energy Industries Association and the US Solar Energy Industry Association (SEIA) are engaged with the GA Public Service Commission to extend and expand net metering. Stay tuned in early January for an update on our progress.

In transition

Utilities in Illinois, Indiana, Kentucky, and Michigan currently offer net metering, but these states are each in the process of redesigning their programs.

States with alternative programs

Minnesota uses a value of solar (VOS) method to account for some of the utilities’ variable and fixed costs when calculating the monthly credit.

Utilities in Idaho and Texas have approval from their respective Public Utilities Commissions to offer either tariffs or other net metering programs.

The Bottom Line

Each state may have a different net metering policy for residential and nonresidential (commercial) customers. You should check with your local utility or a reputable solar energy installer, or EPC company like Velo Solar, to understand what is and isn’t possible in your area.

You should also know that smaller electric co-ops that don’t fall under the jurisdiction of the state’s utility commission set their own rules in alignment with state policies and mandates.

holding a metering

Benefits of net metering

Here are just a few of the many benefits of net metering:

It’s another way your solar panels can save you money

As we’ve noted above, participating in net metering can help you save money by reducing your electricity bills.

Net metering reduces your solar payback period

Those lower utility bills could mean more cash on hand that could be used to reduce the payback period of your solar power system.

Your solar panels can alleviate pressure on the grid

It’s no secret that our electric grid is under stress and in desperate need of some upgrades. As the country continues on its path to electrification, those stresses will only increase.

But, solar energy generated by your commercial solar system can help alleviate some of that pressure. First, your on-site solar energy system reduces your demand for electricity. Second, by sending your excess solar electricity back to the grid through net metering schemes like we’ve discussed, your solar array helps to power others in your community with clean energy – further reducing demand. This allows the utility company to supply electricity to other customers.

Solar energy reduces emissions from your business

Solar panels provide clean, renewable energy to your business, and that means you’re reducing your carbon emissions. Likewise, when you share your excess electricity with the wider grid, you’re helping to reduce the overall emissions of the entire community – and that’s good for everyone.

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Disadvantages of net metering

While this section is labeled disadvantages, perhaps it would be better to refer to these as challenges with net metering:

No one’s writing you a check

We’ve covered this above, but it bears repeating because it’s a common misconception. Enrolling in your utility’s net metering program doesn’t mean they’ll cut you a check each month. Of course, you will have extra cash in the bank because your energy bill is lower, and most would say that’s just as good.

You must be connected to the grid

At the risk of stating the obvious, in order to send excess electricity to the grid, you must actually be connected to the grid. That means net metering is not a viable solution if your goal is to go completely off-grid and power 100% of your operations with on-site renewable energy and battery storage.

Some restrictions may apply…but so may other opportunities

If net metering is not available to you, there are a number of other ways to reduce the initial cost of solar power. A reputable solar provider like Velo Solar can help you navigate any available tax credits, accelerated depreciation opportunities, and financing options. They can also work with you to design a system that meets your energy needs and fits in your budget.