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What is Net Metering and How Does It Work?

In the ever-expanding realm of solar energy, net metering stands as a revolutionary mechanism for how we perceive and interact with electricity. It empowers individuals and businesses utilizing solar energy to not only generate their own clean energy, but also actively participate in a dynamic energy exchange with utility providers. This transformative process not only reduces reliance on traditional power sources, but also encourages a more sustainable and eco-friendly approach to meeting our electricity needs.

If the concept of net metering is totally new for you, don’t worry; you’re in the right place! This article will give you all the information on net metering for solar energy you didn’t know you needed.

Understanding Net Metering: How it Works

As homeowners and businesses alike increasingly pursue sustainable energy solutions, solar energy installation has emerged as a frontrunner choice. One crucial component of solar energy systems is net metering; something you are soon to recognize as a profound mechanism that plays a pivotal role in optimizing energy consumption and generation.

Net metering is a billing arrangement that allows both homeowners and businesses with solar panels to receive credit for any excess electricity they generate and feed back into the grid. Pretty amazing, right?

Differences Between Net Metering and Net Billing

But what exactly is the difference between net metering and net billing?

While net metering involves crediting solar panel owners for excess energy they contribute to the grid, net billing typically refers to a billing arrangement where customers are billed only for their “net” energy usage. This accounts for both energy consumed from the grid and any surplus energy sent back.

Both concepts involve a balance between energy consumption and production. Where they differ is in the specific mechanisms and financial arrangements.

How Net Metering Works

In a scenario where the utility company trues up the net difference of consumption vs. overproduction each billing period, here’s how net metering works:

  • Electricity Generation and Consumption

Net metering begins with the solar panels on a property converting sunlight into electricity. When your solar panels generate electricity, it is first used to power your home’s electrical needs. If the solar system generates more electricity than you’re using at any given moment, the excess energy is sent back to the grid.

  • Netting Energy Usage

The key principle of net metering is the ability to offset the electricity consumed from the grid with the excess energy produced by the solar system. The utility company tracks both the electricity you consume from the grid and the excess electricity you supply to the grid. These values are measured over a defined billing period, typically within a given month.

  • Calculating Net Difference

At the end of the billing period, the utility company calculates the net difference between the electricity you consumed from the grid and the excess electricity you supplied to the grid. This is done by subtracting the energy you exported (excess generation) from the energy you imported (consumption) during that period. This real-time monitoring ensures accurate measurements of consumption and overproduction.

  • Billing and Credit

The utility company then performs a “truing up” process during each billing period. If the property has overproduced more energy than consumed, primarily two different scenarios can occur:

  • Positive Net Difference (Overproduction) what is it and how is it calculated?

If you generated more electricity than you consumed during the billing period, you’ll receive a credit of either energy (kWh) or the cash value of excess generation on your electricity bill. The utility company can apply the excess generation as a credit against future bills, effectively rolling over the surplus value of this overproduction to offset future consumption. Some utilities such as El Paso Electric may even send you a check in the mail if the excess credit exceeds a predetermined amount.

  • Negative Net Difference (Consumption) what is it and how is it calculated?

If you consumed more electricity than you generated, you’ll be billed for the net consumption as usual. In this case, your excess generation from previous periods could help balance out your costs.

Homeowners and businesses can benefit financially from net metering through generation of electricity through solar panels. In the case of El Paso Electric, the dollar value assigned to the excess energy produced is credited to their customer’s accounts, ultimately offsetting costs during periods of low solar production. Net Metering programs allow users to essentially “sell” surplus energy back to the grid at either retail rates or wholesale rates, depending on the specifics of the program.  

Despite upfront costs, the long-term return on investment is enhanced by reduced energy bills, potential earnings, and environmental incentives.

  • Carrying Forward Credits

A notable and very attractive aspect of some net metering programs is the ability to carry forward energy credits at a one-to-one ratio,this is the case for PNM customers in New Mexico. The credits accumulated from overproduction can be carried forward to future billing periods, depending on the specific net metering policies of your utility and jurisdiction. This type of net metering arrangement allows you to use your excess generation during sunnier months to offset higher consumption during less sunny periods, fostering a more balanced and sustainable energy profile.

  • Periodic Settlement

To provide a comprehensive overview, some utility companies include a periodic settlement where cash credits are reconciled each month or at the end of the year. Depending on the utilitiy’s specific policies, you will be reimbursed for any remaining credits at the end of this period.  In the case of El Paso Electric, they will roll over any credit less than $50 and will provide payment if the credit exceeds $50. This process ensures a fair and accurate representation of the energy exchange between the consumer and the utility company over this period.

Disadvantages of Net Metering

While net metering is largely beneficial, there are a few potential drawbacks to consider.

Impact on utility companies: Net metering encourages renewable energy adoption, which is a beneficial outcome for many reasons. That being said, it can sometimes pose financial challenges for utility companies. The traditional utility business model relies on a centralized system where electricity is generated and distributed. With net metering, utilities may need to compensate solar users at retail rates, which could cut into their revenue and create a shortfall. In turn, it could impact their ability to cover fixed costs.

Potential system costs: System costs, related to grid management and stability, can arise with net metering. Because solar energy production is dependent on weather conditions, there is often a fluctuation in energy supply. When many solar users simultaneously feed excess energy into the grid during peak sunlight hours and days, it can strain the grid’s capacity and result in additional infrastructure investments. Costs associated with adapting and upgrading systems to maintain grid reliability can be a concern and impact both utility companies and consumers. 

Net Metering Benefits: A Favorable Solar Incentive

Overall, net metering provides an incentive for solar system owners to generate clean energy and contribute to the grid while receiving compensation for their excess production. It encourages the adoption of renewable energy sources and can lead to lower electricity bills for those who invest in solar energy installation, paving the way for a sustainable future and symbiotic relationship between consumers and utility companies.

To learn more about solar energy installation and net metering in your jurisdiction, contact our experienced and knowledgeable team at Organ Mountain Solar & Electric today!