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Net metering vs. net billing: what to know about solar production compensation

In a perfect world, your home’s solar system would precisely meet your electricity demands – nothing more and nothing less. In reality, there will be days when your panels produce more electricity than you use (sunny summer days), and days when they won’t produce enough (shorter, cloudier days and nights). When this happens, net metering and net billing allow you to essentially use the grid as storage; excess energy produced by your panels transfers to the grid in exchange for credits. In times when your solar system isn’t able to meet your energy needs and you need to pull electricity from the grid, you can use these credits to compensate.

In this article, we explain the difference between net metering and net billing compensation structures, different types of net metering and net billing, and where these programs are being offered across the country.


Key takeaways

  1. Net metering and net billing programs make use of overproduced electricity from home solar systems by transferring the excess energy to the grid. In exchange, you receive credits for this energy you send to the grid.

  2. Net metering transactions are usually one-to-one, so the credits are often equal to the retail rate of electricity (aka what you pay).

  3. Net billing credits are often equal to the wholesale rate of electricity (aka what your utility pays), which is less than the retail rate.

  4. Utilities tend to oppose net metering programs, so alternative compensation programs are becoming increasingly popular.

  5. Incentive and compensation programs like net metering and net billing increase the value of solar panel systems – use the EnergySage Marketplace to browse local installers and compare quotes today!

What’s in this article?

Net metering vs. net billing

While similar, net metering and net billing are not synonymous. Both programs compensate solar owners for transferring electricity to the grid when their panels overproduce, but the difference lies in how participants are compensated. Generally, net metering credits are equal to the retail rate of electricity (what you, as a utility customer, pay for electricity), whereas net billing credits are equal to the wholesale rate (what your utility company pays for electricity).

Net metering

You receive bill credits with net metering, but it’s not usually a monetary exchange. Rather, the credits you gain from net metering are “banked” and used when you need to pull electricity from the grid on a cloudy day. Net metering credits can be rolled over from month to month and are normally a one-to-one exchange; a kilowatt-hour (kWh) produced by your solar panels is worth the same as a grid-produced kWh. This simplifies your energy bill as you’re only billed for your net energy use, or your energy consumption less your energy production.

Net metering programs are a great way for solar owners to “store” energy produced by their solar panels. The one-to-one model of net metering makes home solar systems more valuable. However, utility companies argue that because retail prices reflect business expenses in addition to the value of electricity, net metering credits are equal to more than the value of electricity and delivery.

Net billing

Instead of “banking” the credits earned from the excess energy generated by your solar panels, net billing programs enable you to “sell” that energy to the utility, typically at the wholesale rate. Net billing is a monetary exchange in which the energy generated by your home solar system is treated like that of a large-scale solar project. However, with net billing, your compensation rate will typically be lower than with net metering.

Types of solar compensation programs

Net metering and net billing policies vary from state to state and from utility to utility. As the renewables industry continues to grow and mature, different types of net metering and net billing programs have developed.

Retail net metering

Retail net metering is the classic net metering model in which participants receive bill credits for the energy their solar panels produce at the retail rate of electricity. Generally, this increases the value of home solar systems but results in less revenue for utility companies. Retail rates often include more than just energy costs; utility staff, maintenance, and other expenses are typically covered at least in part by revenue generated by retail supply. So, many utility companies are pushing to shift net metering policies to compensate solar energy system owners at rates far below the retail rate.

Virtual net metering

Virtual net metering benefits those that participate in shared renewable energy projects, like community solar. It offers the same compensation as net metering but doesn’t require the solar system to be physically located on the participants’ properties. Community solar subscribers, for example, are typically allotted a portion of a large-scale solar array. When their portion of the array produces more energy than their home consumes, they’ll receive the same credit through virtual net metering that they would if those panels were installed on their roof.

Avoided-cost

Unlike most retail net metering programs, avoided-cost bill credits don’t translate to a one-to-one compensation setup. Instead, participants receive credits equal to the price the utility saved by not having to provide electricity to their homes. Since the transaction is monetary and not a one-to-one exchange, avoided-cost rates can be classified as net billing rather than net metering.


The true value of distributed solar to the grid

Much like retail electricity rates include costs beyond just that of electricity, rooftop solar and the distribution of its energy to the grid provides more value than just kilowatt-hours. Solar energy in general creates jobs, drives economic growth, and provides public health benefits for the entire community. Furthermore, solar energy can actually reduce the cost of electricity for everyone. By lessening their reliance on the grid, solar owners contribute to peak reduction and help utilities avoid tapping into costly (and high fossil fuel emissions) backup power plants which, ultimately, increase electricity rates.

How solar compensation programs impact solar savings

In addition to the energy savings you receive from producing your own electricity with a home solar panel system, net metering and net billing boost the savings potential for solar panels. Instead of “losing” the excess electricity your system produces on a sunny day, you’re able to “store” that energy and use it when you need it on, say, a cloudy day or at night. The one-to-one exchange of net metering usually translates to lower electricity bills, a shorter payback period, and a more favorable return on investment.

Net billing can also contribute to a shorter payback period and boost overall savings, but it’s less valuable for solar owners than net metering. To maximize your savings regardless of your local compensation program, you can always adjust your consumption habits and consider installing a solar battery to store your excess energy instead of relying on your utility.

Where are net metering and net billing programs available?

Utilities tend to push back on net metering programs, and state and local policies change frequently. As previously mentioned, policies for these compensation structures not only vary from state to state, but also from utility to utility. For example, Idaho and Texas don’t mandate net metering, but some utilities still offer it. To understand the programs currently available based on your location and utility, it’s best to consult a trusted installer in your area.

Solar compensation programs by state STATECOMPENSATION POLICY AlabamaNo compensation AlaskaNet metering ArizonaNet billing ArkansasNet metering CaliforniaTransitioning to net billing – learn more ColoradoNet metering ConnecticutNet metering DelawareNet metering FloridaNet metering GeorgiaOnly Georgia Power is required to offer net metering until it reaches a certain capacity HawaiiNet billing IdahoNet metering isn’t required, but some utilities offer it IllinoisTransitioning to net billing IndianaNet billing IowaNet metering KansasNet metering KentuckyNet billing LouisianaNet metering until the cap is met MaineNet metering MarylandNet metering MassachusettsNet metering – learn more MichiganNet billing MinnesotaNet metering MississippiNet billing MissouriNet metering MontanaNet metering NebraskaNet metering NevadaNet metering New HampshireNet metering New JerseyNet metering New MexicoNet metering New YorkNet billing – learn more North CarolinaNet metering North DakotaNet metering OhioNet metering OklahomaNet metering OregonNet metering PennsylvaniaNet metering Rhode IslandNet metering South CarolinaNet metering South DakotaNo compensation TennesseeNo compensation TexasNet metering isn’t required, but some utilities offer it UtahNet billing VermontNet metering VirginiaNet metering WashingtonNet metering Washington D.C.Net metering West VirginiaNet metering WisconsinNet metering WyomingNet metering


California NEM 3.0: what it means for net metering

California enacted its first net metering policy in 1996 and has since grown to be one of the largest solar markets in the country. Despite the Golden State’s history of strong solar policy to expand access to renewable energy, the newest version of California’s net energy metering (NEM) policy would significantly reduce the value of net metering bill credits. Instead of the one-to-one exchange currently in place, the value of solar exports under NEM 3.0 would be based on avoided-cost rates determined by the time of day.

Explore solar options on EnergySage

Solar energy is a long-lasting, cost-cutting, emission-free electricity solution that continues to evolve to meet the needs of ratepayers and the natural environment. With incentives and compensation programs like net metering in place across the country, an investment in solar is even more valuable. The EnergySage Marketplace provides qualified quote comparisons from local installers to help you find a solar system that fits both your energy and budget needs. Sign up to receive free quotes from qualified, pre-vetted installers so you can start the process of going solar today!


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