With a home solar energy system, you become not just a private producer of your own electricity but a one-house power company too, thanks to net metering. You sell your excess electricity to the public utility. One additional piece of equipment in your system, a bidirectional meter, tracks how much energy you import from the grid as well as export to it, and you pay only for your net usage. A well-designed solar energy system can get net usage down to zero or close to it.

In this article we explain how a home solar energy system both imports and exports energy in a daily cycle, how net metering laws make it feasible to profit from your system's output, and where such laws exist.

Before net metering laws, homeowners weren't guaranteed to be paid for their excess energy production.

Your Daily Energy Cycle

Think of your household waking up in the morning. While everyone slept, the home's minimal power needs were met with electricity from the grid. Now the sun rises and the solar panels wake up too. Soon the panels are producing enough power to meet the household's daytime needs and then some. The grid absorbs the excess. As evening comes, the flow of energy reverses and the home starts pulling from the grid again. For a good visual, check out this video, How do grid-tied solar systems work?

Before net metering, the excess energy produced by a home's solar panels would be siphoned off by the public utility and that's the last the homeowner would hear about it. No laws required compensation.

On average, 20%-40% of a solar energy system’s output is excess that gets absorbed by the grid, which the utility then sells to other customers.

How Net Metering Makes You Money

Net metering laws require that the owner of the solar energy system be paid for excess energy at the going rate—in other words, you get paid for your electricity at the same rate the power company charges you to buy its electricity. Think of yourself as running a one-home power company, earning the same rate for your power as the big guys get.

Payments take the form of credits on your monthly energy bill. The credits can roll over month to month. The power you sell at peak sunshine offsets the power you must buy at other times, putting $0 energy bills in the realm of possibility.

Let's look at the month of May for a solar success story that garnered wide coverage this year, the Neumann family in Northern California. The family made news partly because they were early adopters of the Tesla Roof but also because the solar energy system was a bona fide sde55cuccess right away. In the third month of operation, May 2020, the family earned $76.64 for excess electricity sold to the grid, while they bought $0.39 in electricity from the grid. Their bill, therefore, was a credit of $76.25. The previous May they had paid $143 (one month's usage is best compared to the same month in a previous year). That's a swing of $219.25.

The odds are in your favor: 38 states plus D.C. have mandatory rules for certain utilities.

The benefits aren't just for homeowners but also their local economy. "Net metering provides substantial economic benefits in terms of jobs, income and investment," points out the Solar Energy Industries Association (SEIA). "Net metering increases demand for solar energy, which in turn creates jobs for the installers, electricians, and manufacturers who work in the solar supply chain. Today, the solar industry employs more than 250,000 American workers in large part due to strong state net metering policies which have allowed the solar industry to thrive."

Does My State Have Net Metering?

The odds are in your favor. Thirty-eight states plus Washington, D.C., have state-developed, mandatory rules for certain utilities. Two states (Idaho and Texas) have no mandatory rules, but some utilities there allow net metering. Seven states offer compensation plans other than net metering. That leaves just three states with nothing (Alabama, South Dakota, and Tennessee).

Look up your state's incentives at EnergyBillCruncher.com.

Not all net metering is alike. Unfortunately the term has been diluted to include compensation plans whereby the homeowners are not paid the market rate for their excess electricity. Rather, the utility compensates them in credits worth much less. Those states have what we categorize as weak net metering.

Takeaways

  • Net metering allows home producers of solar energy to sell their excess to the grid.
  • Many states have passed net metering laws.
  • Ways of compensating solar customers varies widely across the country.