Net metering vs. Net billing explained
In the evolving landscape of renewable energy, understanding the financial mechanisms behind solar energy production and compensation is crucial for homeowners and businesses. Moreover, there are two predominant systems, Net Metering and Net Billing. Furthermore, they provide frameworks for managing and compensating the excess solar energy generated by private solar systems. This blog delves into the intricacies of both systems, offering a comprehensive guide to the net metering vs net billing battle.
Key Takeaways
| Net Metering (NEM) allows solar system owners to receive credits at retail electricity rates for excess energy produced and fed back into the grid. |
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| Net Billing compensates owners for excess electricity at the avoided cost rate, which is typically lower than retail rates. |
| NEM 3.0 Regulation in California represents a significant shift from traditional net metering to net billing. |
| Choice Between Net Metering and Net Billing significantly affects the financial benefits of owning a solar system. |
What is Net Metering?
Net energy metering (NEM) is a billing system allowing owners to earn credits from their utility provider for any excess solar energy they produce and send back to the grid. These credits can offset the cost of electricity from the grid when solar production is low, like at night. Additionally, NEM and similar programs allow homeowners to save money by harnessing solar power.
Which States use Net Metering?
- Alaska
- Arkansas
- Colorado
- Connecticut
- Delaware
- Florida
- Idaho
- Illinois
- Iowa
- Kansas
- Louisiana
- Maine
- Maryland
- Massachusetts
- Minnesota
- Missouri
- Montana
- Nebraska
- Nevada
- New Hampshire
- New Jersey
- New Mexico
- North Carolina
- North Dakota
- Ohio
- Oklahoma
- Oregon
- Pennsylvania
- Rhode Island
- South Carolina
- Texas
- Vermont
- Virginia
- Washington
- Washington D.C.
- West Virginia
- Wisconsin
- Wyoming
What is Net Billing
Net Billing is a billing system where a customer with an eligible renewable energy resource generator on their property gets a bill for the electricity they purchase at retail rates. At the same time, also receiving credits for any excess electricity they sell back to the utility at avoided cost. This system allows customers to offset their electricity consumption with the electricity produced by their renewable energy generators, such as solar panels or wind turbines. Basically, any excess electricity produced and unused by the customer is fed back into the grid. Furthermore, the customer receives credits on their bill for this excess electricity. Moreover, net billing incentivizes customers to invest in renewable energy resources and reduce their dependence on fossil fuels. It also helps to promote the growth of renewable energy generation, which in turn helps to reduce greenhouse gas emissions and combat climate change.
Which States use Net Billing?
- Arizona
- California
- Hawaii
- Illinois (transitioning)
- Indiana
- Kentucky
- Michigan
- Mississippi
- New York
- Utah
Net Billing vs. Net Metering
Net Metering vs. Net Billing for Solar
Although they are alike in some ways, net metering and net billing are not interchangeable terms. They compensate solar energy system owners for sending excess electricity to the grid, but the key distinction lies in reimbursement. Usually, net metering credits are equivalent to the retail electricity price (the amount consumers pay for electricity). In contrast, net billing credits match the wholesale rate (utility companies’ electricity costs).
What Happens if Your Solar Energy System Overproduces?
Many solar power systems generate excess electricity during the day when a household or business doesn’t use it all. You can save this surplus energy later. For example, at night when the system isn’t producing power.
However, you need to store this electricity until you can use it. Off-grid systems use costly and sizable battery storage, while most grid-tied systems send the excess power to the grid. The utility company then distributes this energy to other consumers and provides compensation through net metering or net billing.
NEM 3.0
California’s new NEM 3.0 regulation will alter how solar customers are paid for their extra energy. They will now qualify for net billing instead of the usual net metering system. Net billing is akin to net metering but has some distinctions. The excess energy solar customers generate will also be credited to the utility at set export rates. In NEM 3.0, this export credit will be determined by the avoided-cost rate per hour, which represents the amount the utility would have spent to produce the same energy or purchase it from a power plant.
Net billing determines the financial worth of solar energy fed back into the grid based on the wholesale electricity rate for that particular month and hour. In California, the avoided-cost rate is usually 75% lower than the average retail rate, amounting to over 30 cents/kWh in 2023. This makes sense as wholesale prices are typically lower than retail prices. The utility company plays a vital role in supplying electricity to homes that do not produce solar energy, so it is not feasible for them to provide credits for exported energy at retail rates.
Which Is Better—Solar Net Metering vs. Net Billing
With net metering, you earn credits to draw electricity from the grid on a cloudy day. These credits are not typically exchangeable for money, you may save them for future use. They can be carried over each month and are usually equal to the electricity generated by your solar panels. This simplifies your energy bill, as you are only charged for the difference between your energy consumption and production.
Instead of saving up credits from the extra energy produced by your solar panels, net billing programs allow you to “trade” that energy with the utility company, usually wholesale. Net billing involves a financial transaction where the electricity generated by your residential solar system is valued similarly to a commercial solar project. However, the compensation rate under net billing is generally less than that of net metering.
Net metering is generally more advantageous for solar energy producers. The surplus electricity generated by your solar panels has a higher value, allowing you to supply continuous power to your residence or company effectively. In contrast, with net billing, the electricity produced by your solar panels is sold to the utility at a reduced rate, resulting in extra costs for accessing energy from the grid.
Conclusion
The choice between Net Metering and Net Billing has profound implications for solar energy producers and the broader goal of encouraging renewable energy adoption. While both systems aim to compensate for excess solar production, they differ in their approach and the level of benefits provided to solar system owners. Understanding these differences is essential for making informed decisions about investing in solar energy and maximizing its financial and environmental benefits. Thus, knowing the difference between the two will save you in the long run, especially, when you are planning to start you solar systems.
Illuminate Your Life!
For homeowners and businesses considering solar energy, it’s vital to research and understand your state’s specific policies and regulations regarding Net Metering and Net Billing. Engage with local solar installers and energy advisors to navigate these systems effectively. By making informed decisions, you can maximize the benefits of your solar investment, contribute to a sustainable future, and ensure the most advantageous compensation for your renewable energy contribution. Get A Quote from us!
Frequently Asked Questions (FAQ)
How do solar panels produce electricity?
Solar panels convert sunlight into electricity through the photovoltaic effect, generating solar energy for homes or businesses.
What are the benefits of going solar?
Going solar can help reduce electricity bills, decrease reliance on utility companies, and contribute to a cleaner, more renewable energy future.
Can I get net metering credits for excess electricity?
Yes, many net metering programs offer credits for excess electricity your solar energy system generates.
What is the role of a solar installer?
A solar installer is responsible for designing, installing, and maintaining your solar power system to ensure optimal performance and efficiency.
How can solar owners benefit from net metering?
Solar owners can benefit from net metering by receiving credits for the excess energy they produce, ultimately reducing their electricity bills.
