Everything you ever wanted to know about net metering
Dear Consumer Advisor,
I’m considering solar panels. I don’t use a huge amount of electricity, but I’ve heard I can sell power back to the grid, so shouldn’t I buy the biggest system my roof can handle, so that I can make back my investment selling the excess back to my utility company?
Though you can sell excess to the utility, NO, you should not buy the “biggest” system your roof can handle. The ideal thing is to size your solar system so it will produce as much as you use over the course of the year.
That is because what the utility pays you for any excess at the end of the year, beyond the credits you get under “net metering” will be based on the “generation” rate only, not the retail rate.
It used to be that if you produced more than you used over the course of an entire year, you would essentially give the excess to the utility for free. In 2009, TURN and the solar industry collaborated on a law that requires your utility to pay you for any excess you produce annually.
However, the utility will pay you only the “generation” rate for your annual excess solar, about 7 cents per kilowatt-hour.
The excess energy you sell back is different from the billing credits you receive monthly for your solar output under net metering Net metering allows you to credit excess solar production against months with less sun and higher usage. Excess generation can be carried over from month to month for up to a year.
The monthly bill credit for any solar you generate but don’t use is at the “full retail rate,” which consists of generation, transmission and distribution. In other words, it includes the costs of electricity as well as the cost of all the poles and wires and equipment necessary to transport that electricity to your home or business.
The full retail rate varies from about 13 cents per kilowatt-hour for Tier 1 to over 30 cents per kilowatt-hour for Tier 4. The average retail rate of most solar customers is about 20 cents per kilowatt-hour.
Remember, excess solar generation beyond what can be credited against usage will be paid at the generation rate, not the full retail rate.
TURN supported paying only the generation component for the excess you produce annually. You might ask why not maximize solar production on a residential roof by paying more?
The problem is that paying homeowners the full retail rate for solar is much more expensive than paying for large utility solar or wind projects, which cost between 8 and 15 cents per kilowatt-hour. In other words, it would cost ratepayers much more to buy your excess solar at the full retail rate (about 20 cents per kilowatt-hour) than to buy the same solar from a large solar project. The simple reason is that it costs much more to install a small system on a single roof than to build an equivalent one as part of a large commercial solar project.
Net energy metering is designed to provide you with credits, but only for the amount of electricity that you use each year. That’s why it makes sense to get a system sized to your actual use.
Consumer Alert: Changes Coming
- If you are planning to buy a solar system now, be aware that there are significant rate changes coming in the next one to two years due to the passage of AB 327 (see Legislative update, page 6). The utilities want to reduce the number of rate tiers and lower the highest tiers. Make sure you ask your solar developer how potential rate changes might impact the economics of your solar lease or purchase.
A recent report by the CPUC estimated that net metering will shift about $359 million in costs annually from customers who have solar panels to those who don’t.
The CPUC reached that conclusion after conducting the first detailed income analysis of residential solar. The study found that the average median income of households with home solar is $91,210, compared with the state’s median income of $54,283. That means subsidies are flowing from lower income customers to wealthier ones.
TURN supports a clean, sustainable energy future and a fair price for home solar. We thus support net metering, but we must balance the interests of all ratepayers so that we do not reward only those who can afford to install expensive solar panels. All solar customers should be paid the same fair, wholesale price for the electricity they generate but don’t need to use.