Buying a solar energy system is like buying any other product: in order to make an educated purchase, you’ve got to understand a bit of the lingo. So let's review net metering -- a concept that lies at the very center of how and why solar energy can make financial sense.
To begin, what you buy from your utility is best thought of as an electric current. The AC current flows from the point of generation, along the grid and to the final point of use - say a flat screen TV. A meter measures the amount of electricity that flows into your house and, at the end of each month, you pay your utility for each kilowatt-hour used. In a conventional setup, the flow of electricity is uni-directional. That is, it only flows from the grid to your home.
In a net-metering arrangement, the flow of electricity is bi-directional. The DC current generated by your solar panels flows into the inverter, where it’s converted into usable AC current. Any of the AC power that’s not consumed flows back into the grid, running the meter backward. This portion of electricity that flows into the grid is sometimes referred to as net excess generation, or NEG. Many states require utilities to purchase any NEG from you, usually at the going retail rate for electricity. In this way, solar panels derive value by enabling you to offset monthly electricity charges.
Going a step further, net metering is even more helpful when you’re able to combine it with something called time of use (TOU) billing. In many states, electricity is priced according to the basic rules of supply and demand: when demand is low, power is cheap; when demand is high, power is relatively more expensive. In general, demand for electricity is highest during the day. As a result, utilities may charge more for power during so-called "peak demand hours." Individuals who want to avoid fluctuating prices may opt to pay an average per-kWh price. Indeed, chances are this is how you’re currently set up to buy electricity.
On a time of use (TOU) pricing schedule, however, you pay whatever the going rate is when you actually use the electricity - at the time of use. As it turns out, solar energy systems generate the most electricity during peak demand hours - that is, during the middle part of the day. It also turns out that many homes draw very little electricity during these hours, as most individuals are away at work. The result is close to an ideal scenario: armed with solar panels and a TOU schedule, you can buy electricity when it’s relatively cheap (in the evenings) and sell electricity back to the utility when it’s relatively expensive (during the day).
To get started, call your utility to see if they offer (1) net metering, and (2) time of use billing. A number of state governments have taken steps to require investor owned utilities (IOUs) to provide net metering to their customers. Arizona, for one, updated its net metering rules in October to include all IOUs and electricity cooperatives. This comes on the heels of Florida lawmakers’ efforts to strengthen net-metering rules in that state. These outcomes reflect a nationwide trend towards a very simple, yet important, principle: that individuals who invest in solar panels and other forms of renewables should be entitled to fair compensation for the electricity they pipe back into the grid.
What is Net Metering?