What is Net Metering

What is Net Metering and How Does It Work? [Full Guide and Analysis]

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Net metering is a bit of a complicated concept for most people not involved in renewable energy and the electrical grid system. Here we will help define what is net metering and how does it work. In addition, we’ve included a list of every state that qualifies for net metering and the corresponding requirements.

What is Net Metering and How Does It Work?

The majority of residential solar energy systems today are grid-tied, which simply means that they are connected to the local electrical grid. In most situations, grid-tied solar systems are more practical than off-grid systems for several reasons. 

The first is cost. Grid-tied systems generally do not require batteries like off-grid systems do, which not only reduces equipment costs but also helps to reduce installation and maintenance costs.

The second is reliability. With a grid-tied system, the solar system is not required to meet the entire electricity demand of the household and the home can draw energy from the grid if necessary.

For example, during the nighttime, when it’s cloudy, or in the event that something malfunctions with the solar system, the home will still have access to the electricity it needs through the grid.

The third is net metering. We’ll cover the ins and outs of net metering in this article.

What is net metering?

Put simply, net metering is a system that tracks and credits solar owners for the excess energy they send to the electric grid. 

How does net metering work?

During the day while the sun is out, most solar systems will produce more electricity than the household consumes, causing the meter to run backwards and send the extra electricity back to the power grid. 

At night when the solar system is no longer producing energy, or on cloudy days where the system may not be producing enough to cover the household’s electricity needs, the home will pull the power back from the grid.

With net metering, the surplus electricity the home’s solar system produces will help to cover the cost of electricity consumed during times of lesser production.

Solar customers are billed for their net energy use, meaning that they will only receive a bill if their solar system generates less energy than their household uses in a given month. Otherwise, they’ll receive a credit for their excess production that can be applied to future utility bills.

See Related: kW vs kWh, Including How to Calculate

What are the benefits of net metering?

Net metering allows solar customers to generate their own electricity on-site in a clean, efficient way.

It also ensures that solar owners have access to the energy their home needs at all times of the day without having to foot the cost of a solar battery.

Further, net metering gives solar customers more control over their electricity bills by crediting, and in some cases, compensating them for the electricity their system feeds to the grid.

From a broader perspective, net metering helps utilities to better manage their peak electricity loads, reduces strain on energy distribution systems, and prevents energy losses common in long-distance electricity transmission and distribution.

Net metering also increases demand for solar energy among consumers, which results in economic benefits such as job creation, income generation, and increased investment.

See Related: How to Calculate Electricity Usage Costs

Is net metering available to me?

Many states have passed net metering laws that utilities in that state are required to abide by. In other states that do not currently have statewide net metering policies, utilities will sometimes offer net metering programs voluntarily or as a result of regulatory decisions. Some states do not offer net metering at all. 

Due to differences in state legislation and regulations, net metering availability and policy varies widely across the country.

See Related: How to Test a Solar Panel System

List of Net Metering Credit States

Net metering is currently available in the following states:

  • Alaska
    • Applicable to customers of utilities with annual retail sales of 5,000,000 kWh or more
    • Excess generation is credited to the customer’s next bill at the non-firm power rate and carries over indefinitely
    • 25 kW system capacity limit
  • Arizona 
    • Applicable to customers of investor-owned utilities and electric cooperatives
    • Excess generation is credited at the avoided cost rate
    • No capacity limit specified
  • Arkansas
    • Applicable to customers of investor-owned utilities and electric cooperatives
    • Excess generation is credited to the customer’s next bill at the retail rate and carried over indefinitely with compensation after two years of accumulation at annual average wholesale avoided cost
    • 25 kW system capacity limit for residential customers
  • California
    • Applicable to customers of all utilities except LADWP*
    • Excess generation is credited to the customer’s next bill at the retail rate; after a 12-month cycle, the customer may opt to roll over their credit indefinitely or to receive payment for their credit at a rate equal to the 12-month average spot market price for the hours of 7 am to 5 pm for the year in which the surplus power was generated
    • Capacity limit of 100% of customer’s annual load
  • Colorado
    • Applicable to customers of all utilities except for municipal utilities with less than 5,000 customers
    • Excess generation is credited to the customer’s next bill at the retail rate; after a 12-month cycle, IOU customers may opt to roll over their credit indefinitely or to receive payment at IOU’s average hourly incremental cost, while municipality and co-ops provide annual reconciliation at a rate they deem appropriate
    • Capacity limit of 120% of customer’s average annual consumption for IOU customers and 10 kW for municipality and co-op customers
  • Connecticut
    • Applicable to customers of investor-owned utilities
    • Excess generation is carried over as a kWh credit for one year and reimbursed to the customer at the avoided cost of wholesale power at the end of the year (March 31)
    • Capacity limit of 2 MW for standard net metering and 3 MW for virtual net metering
  • Delaware
    • Applicable to customers of all utilities
    • Excess generation is credited to the customer’s next bill at retail rate, except for certain community-owned facilities; after a 12-month cycle, the customer may opt to roll over their credit indefinitely or to receive payment for credit at the energy supply rate
    • Capacity limit of up to 110% of customer’s 12 months of historical energy consumption up to 25 kW for residential customers
  • Florida
    • Applicable to customers of all utilities
    • Excess generation is credited to the customer’s next bill at the retail rate and is reconciled annually at the avoided-cost rate
    • Capacity limit of 2 MW
  • Hawaii
    • Applicable to customers of all utilities
    • Excess generation is credited to the customer’s next bill at a specified rate, which varies by utility and tariff
    • Capacity limit of 100 kW for HECO, MECO, and HELCO customers and 50 kW for KIUC customers
  • Georgia
    • Applicable to customers of all utilities
    • Excess generation is credited to the customer’s next bill at a predetermined rate filed with the PSC
    • Capacity limit of 10 kW for residential customers
  • Idaho
    • Applicable to customers of Avista Utilities, Idaho Power, and Rocky Mountain Power
    • For Rocky Mountain Power customers, excess generation is credited to the customer’s next bill at retail rate for residential customers; for Idaho Power customers, excess generation is credited to the customer’s next bill as a per kWh credit and carried forward indefinitely; for Avista Utilities customers, excess generation is credited to the customer’s next bill and granted to the utility at the end of a 12-month billing cycle
    • Capacity limit of 25 kW for residential customers
  • Illinois
    • Applicable to customers of investor-owned utilities and alternative retail electric suppliers
    • For non-competitive customers, excess generation is credited to the customer’s next bill as a kWh credit at the retail rate and granted to the utility at the end of a 12-month billing cycle; for competitive customers, excess generation is credited to the customer’s next bill as a kWh credit at the electricity provider’s avoided cost of electricity supply over the monthly period
    • Capacity limit of 2 MW
  • Indiana
    • Applicable to customers of investor-owned utilities
    • Excess generation is credited to the customer’s next bill as a kWh credit and carried over indefinitely
    • Capacity limit of 1 MW
  • Iowa
    • Applicable to customers of investor-owned utilities
    • Excess generation is credited to the customer’s next bill at the retail rate and cashed out annually at the avoided cost rate
    • Capacity limit of 1 MW
  • Kansas
    • Applicable to customers of investor-owned utilities
    • Excess generation is credited to the customer’s next bill at the average cost rate and expires on March 31 each year
    • Capacity limit of 15 kW for residential customers
  • Kentucky
    • Applicable to customers of investor-owned utilities and electric cooperatives with the exception of TVA distribution utilities
    • Excess generation is credited to the customer’s next bill at the retail rate and carried over indefinitely
    • Capacity limit of 30 kW
  • Louisiana
    • Applicable to customers of all utilities
    • Excess generation is credited to the customer’s next bill at the avoided cost rate
    • Capacity limit of 25 kW for residential customers
  • Maine
    • Applicable to customers of all utilities
    • Excess generation is carried forward to the next billing period and granted to the utility at the end of a 12-month billing cycle
    • Capacity limit of 660 kW for IOU customers and 100 kW for municipal and co-op customers
  • Maryland
    • Applicable to customers of all utilities
    • Excess generation is credited to the customer’s next bill at the retail rate and reconciled annually in April at the commodity energy supply rate
    • Capacity limit of 2 MW
  • Massachusetts
    • Applicable to customers of investor-owned utilities
    • Excess generation credits vary by system type and customer class
    • Capacity limit of 2 MW for Class III systems, 1 MW for Class II systems, and 60 kW for Class I systems
  • Michigan
    • Applicable to customers of investor-owned utilities, MPSC rate-regulated electric cooperatives, and alternative electric suppliers
    • Excess generation is credited to the customer’s next bill at the retail rate for systems under 20 kW and carried over indefinitely
    • Capacity limit of 150 kW
  • Minnesota
    • Applicable to customers of all utilities
    • Excess generation for systems under 40 kW is reconciled monthly and customers may opt to receive payment or a credit on their next bill at the retail rate
    • Capacity limit of 1 MW
  • Mississippi
    • Applicable to customers of all investor-owned electric utilities with limited applicability over cooperatives (TVA co-ops can opt out of state net metering rules if they participate in TVA’s net metering program)
    • Excess generation is sold to the utility at the avoided cost rate plus DG benefits adder (2.5 c/kWh); the credit value may be carried over indefinitely
    • Capacity limit of 20 kW for residential customers
  • Missouri
    • Applicable to customers of investor-owned utilities, municipal utilities, and electric cooperatives
    • Excess generation is credited to the customer’s next bill at the avoided-cost rate and expires after 12 months or upon service termination
    • Capacity limit of 100 kW
  • Montana
    • Applicable to customers of investor-owned utilities
    • Excess generation is credited to the customer’s next bill at the retail rate and granted to the utility at the end of a 12-month period
    • Capacity limit of 50 kW
  • Nebraska
    • Applicable to customers of all utilities
    • Excess generation is credited to the customer’s next bill at the avoided-cost rate and reconciled annually at the avoided-cost rate
    • Capacity limit of 25 kW
  • Nevada
    • Applicable to customers of investor-owned utilities
    • Excess generation is credited monthly at a rate equal to 95% of the retail rate for systems up to 25 kW
    • Capacity limit of 80 MW
  • New Hampshire
    • Applicable to customers of all utilities
    • Excess generation is credited to the customer’s next bill as a kWh credit and carried forward indefinitely; customers may elect to receive payment at the avoided-cost rate for any excess credit remaining at the end of an annual period
    • Capacity limit of 1 MW
  • New Jersey
    • Applicable to customers of investor-owned utilities and electric suppliers
    • Excess generation is credited to the customer’s next bill at the retail rate and reconciled annually at the avoided-cost rate
    • Capacity limit of 100% of the customer’s annual on-site energy consumption
  • New Mexico
    • Applicable to customers of investor-owned utilities and electric cooperatives
    • Excess generation is either credited to the customer’s next bill at the avoided-cost rate or credited to the account and rolled over indefinitely at the retail rate; if the customer terminates service with the utility, unused credits are paid out at the avoided-cost rate
    • Capacity limit of 80 MW
  • New York
    • Applicable to customers of investor-owned utilities
    • Excess generation is credited to the customer’s next bill and carried over until the end of the contract, at which point any unused credit will be forfeited
    • Capacity limit of 25 kW for residential customers
  • North Carolina
    • Applicable to customers of investor-owned utilities
    • Excess generation is credited to the customer’s next bill at the retail rate and granted to the utility at the beginning of the summer billing season
    • Capacity limit of 1 MW for customer-owned systems and the lesser of 20 kW or 100% of estimated demand for leased residential systems
  • North Dakota
    • Applicable to customers of investor-owned utilities
    • Excess generation is reconciled monthly at the avoided-cost rate
    • Capacity limit of 100 kW
  • Ohio
    • Applicable to customers of investor-owned utilities
    • Excess generation is credited to the customer’s next bill at the unbundled generation rate; customers may request payment for excess credits at the end of a 12-month billing period
    • No capacity limit specified
  • Oklahoma
    • Applicable to customers of investor-owned utilities and regulated electric cooperatives
    • Excess generation may not be credited, as utilities and co-ops are not required to purchase excess generation from customers
    • Capacity limit of 100 kW
  • Oregon
    • Applicable to customers of all utilities except for Idaho Power
    • Excess generation is credited to the customer’s next bill at the retail rate for IOU customers and varies for municipal, cooperative, and PUD customers
    • Capacity limit of 25 kW for residential customers
  • Pennsylvania
    • Applicable to customers of investor-owned utilities
    • Excess generation is credited to the customer’s next bill at the full retail rate and reconciled annually at the price-to-compare rate
    • Capacity limit of 50 kW for residential customers
  • Rhode Island
    • Applicable to customers of investor-owned utilities
    • Excess generation is credited at the avoided-cost rate and either rolled over to the customer’s next bill or purchased by the utility
    • Capacity limit of 10 MW
  • South Carolina
    • Applicable to customers of all utilities with more than 100,000 customers (excluding cooperatives)
    • Excess generation is credited to the customer’s next bill on a monthly basis and paid out annually at the avoided-cost rate
    • Capacity limit of 20 kW for residential customers
  • Texas
    • Applicable to customers of CPS Energy, Austin Energy, and El Paso Electric Company
    • Excess generation is reimbursed at the avoided-cost rate for CPS Energy customers, credited to the customer’s next bill at the avoided-cost rate for Austin Energy customers, and credited to the customer at the avoided-cost rate with a refund check for credit exceeding $50 for El Paso Electric Co customers
    • No capacity limit for CPS Energy customers; capacity limit of 20 kW for Austin Energy customers and the lesser of 50 kW or 100% of electricity consumption for El Paso Electric Co customers
  • Utah
    • Applicable to customers of Rocky Mountain Power
    • Excess generation is netted in 15-minute intervals and credited to the customer according to a rate schedule that ranges from 3.4 c/kWh and 9.2 c/kWh; any excess credits at the end of an annual billing period will expire with no compensation to the customer
    • Capacity limit of 25 kW for residential customers
  • Vermont
    • Applicable to customers of all utilities
    • Excess generation is credited to the customer’s next bill at the blended residential rate and granted to the utility at the end of a 12-month billing cycle
    • Capacity limit of 20 kW for residential customers
  • Virginia
    • Applicable to customers of investor-owned utilities and electric cooperatives
    • Excess generation is credited to the customer’s next bill at the retail rate and either rolled over or paid out at the end of a 12-month billing cycle
    • Capacity limit of 20 kW for residential customers
  • Washington
    • Applicable to customers of all utilities
    • Excess generation is credited to the customer’s next bill at the retail rate and granted to the utility at the end of a 12-month billing cycle
    • Capacity limit of 100 kW
  • West Virginia
    • Applicable to customers of all utilities
    • Excess generation is credited to the customer’s next bill at the retail rate with no annual true-up
    • Capacity limit of 25 kW for residential customers
  • Wisconsin
    • Applicable to customers of investor-owned utilities and municipal utilities
    • Excess generation credits vary by utility, but excess generation is generally credited at the full retail rate
    • Capacity limit of 20 kW
  • Wyoming
    • Applicable to customers of investor-owned utilities, electric cooperatives, and irrigation districts
    • Excess generation is credited to the customer’s next bill as a kWh credit and reconciled annually at the seasonal avoided-cost rate
    • Capacity limit of 25 kW

*LADWP customers can take advantage of net metering for systems up to 1 MW; excess generation is credited to the customer’s next bill at the retail rate.

Can you define what is net metering? Let us know in the comments below of any question or comments.

Author bio: Sarah Hancock is passionate about green living and sustainability. She frequently writes about renewable energy and manages the Solar blog at BestCompany.com. You can also find her work on Twitter.

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