Net Metering: What Is It, and How Does It Work?

One of the biggest draws of going solar is the ability to produce enough power to run your business and your home. 

During daylight hours, this is more than possible, and you will find that your solar panels often produce more energy than you consume. Rather than waste that energy, you can send it to the grid. In exchange, you get credits that can be used when you need to draw power from the grid.

It seems like a win-win situation, but how does it actually work? And is there anything you need to watch out for?

In this article, we uncover everything you need to know about net metering, what alternatives are out there, and what you can expect as a Colorado resident.

In a Nutshell

  • Net metering allows you to send your excess power to the grid in exchange for credits 
  • True net metering operates on a kWh for a kWh basis
  • There are other less advantageous alternatives to net metering, such as “time of use” rates and net billing
  • Colorado has true net metering policies in place, making it one of the best states in the US to have a solar system

What Is Net Metering?

power lines in a field

While solar systems can be extremely effective when the sun is shining, we all know that this is not the case during the night or on very cloudy days. When the panels are exposed to sunlight, they are at their most efficient and often produce more energy than is required at that given moment.

There are two ways in which the excess power that solar installations produce can be dealt with. It can either flow into a battery to be used at a later date (ideal for off-grid solar installations) or if the installation is tied to the grid, the excess power will flow into it.

Net metering is when the grid receives excess power generated by a solar system, it records it, and applies it as a credit to the customer’s subsequent energy bills. Essentially, if the customer has to draw power from the grid rather than their solar system – at night or on a cloudy day, for example – the credit offsets the amount and results in a lower energy bill.

This practice has so far proved to be one of the most straightforward and uncomplicated ways to provide compensation for the excess energy produced by solar panels.

How Does Net Metering Work?

Electricity meters

On the surface, net metering is simple. However, utility companies and the laws surrounding net metering can complicate matters.

First of all, there is something called “true net metering” (AKA 1-for-1 net metering). This is where the utility company provides a credit for each kWh that gets delivered to the grid. The credit is then exchanged for the same number of kWh drawn from the grid.

For example, if your solar system produces 10 kWh of excess power, you can exchange it for 10 kWh worth of power from the grid.

How do the utility companies know the amount of excess power flowing into the grid?

Well, when you get a solar system installed, the utility company will come and replace your standard electricity meter with a new one. This new meter is “bi-directional,” meaning it can record the amount of energy flowing in as well as out of it. In other words, the meter knows how much power you are drawing from the grid, but it also knows how much power you are adding to it.

The reason why this type of setup is necessary is because a standard meter can’t tell the difference between incoming and outgoing power generation and would just assume all the power flowing through it was being drawn from the grid. The result? Extremely high energy bills!

A bi-directional meter separates the energy flows so it doesn’t get mistaken for grid-drawn power.

When your billing period rolls around, the utility company records how much power you took from the grid vs. how much power you added and adjusts your total amount owed accordingly. If you’re fortunate enough to have added more power to the grid than you took, the unused credit carries over to the following month.

Aggregate Net Metering

Multiple farm buildings

Aggregate net metering is something you will commonly see in farms and agricultural businesses that have installed solar. Most farms tend to have separate meters installed. One for the farmhouse, one for the workshop, one for the milking parlor, and so on. 

On an aggregate arrangement, all meters count toward the net energy use of the entire property. For example, you send 10 kWh of excess energy to the grid. The farmhouse requires 2 kWh from the grid, the workshop 5 kWh, and the milking parlor 2 kWh. These combined total 9 kWh, which your 10 kWh credit will cover with 1 kWh credit rolling over to next month.

Alternatives to Net Metering

There’s no doubt that net metering is a pretty decent arrangement. However, utility companies have realized that they don’t stand to benefit much from it and have pushed in recent years to change it to something that works more in their favor.

Unfortunately, many states are also on board with the changes since the economics of the whole setup are getting increasingly more complicated to deal with. In some instances, a state may not have had a decent solar/grid exchange policy to begin with.

Here are some alternatives to net metering that you may see:

Time of Use Rates

Alarm clock on table

Time-of-use rates have become commonplace in recent years and involve the practice of utility companies charging more for electricity during peak demand hours, such as during the evenings, and less during off-peak hours, which are usually during the day.

Time of use rates affect net metering because excess solar energy is created during off-peak hours (during the day when it’s sunny) and, therefore, is credited at a lower rate. When the time comes to draw from the grid – during peak hours – you are charged a higher rate for each kWh you consume. The outcome of this is that the amount of energy you produce does not match the energy you consume in cost.

Net Billing

pole mounted solar panels

Historically, net billing has been most prevalent where large-scale solar farms are concerned, but we are beginning to see it being used more and more for residential and business solar systems.

At first glance, net billing looks much like net metering because it follows the same principle. You send your excess power to the grid and use the grid’s power when you need it, but with one key difference – you’re selling the power to the grid rather than exchanging it.

But here’s the catch: the compensation rate under net billing is based on the wholesale rate, not the retail rate. And because wholesale is cheaper than retail, you don’t get as much back in exchange for the power you sell to the grid.

Obviously, this works more in the utility companies’ favor. They still get the same amount of excess power, but they don’t have to supply as much in return. 

This setup works by having two meters installed. One that counts the energy supplied to the grid, and the other that counts the energy being drawn from the grid. Each meter is billed at a different rate.

Net Billing in California

One very well-known example of net billing can be seen in California. In 2022, the California Public Utilities Commission decided to make the switch from net metering to net billing. 

Those with solar installations suddenly found they were subject to an extremely complicated wholesale tariff that changed depending on the hour of the day, the day of the week, and the time of the year. Many found that selling their solar energy at certain times meant the value per kWh was close to $0.

Understandably fed up with the situation, solar owners have started heavily investing in solar battery storage so they get maximum value from the energy they produce rather than selling it to the grid for a pittance.

Buy All Sell All

Solar panel against the sky

This is the least common and least favorable way for solar energy to be sold to the grid. Thankfully, it isn’t mandated by any state, though some utility companies may adopt this practice.

The buy-all-sell-all model involves 100% of ALL energy generated by a solar installation being sold to the grid – usually at wholesale rates. Then, 100% of all electricity needs are drawn from the grid – at retail rates.

This setup benefits no one but the utility company and doesn’t provide any kind of incentive for anyone to switch to solar energy. 

Net Metering in Colorado

Colorado farm landscape

You will be delighted to hear that Colorado has some of the best laws for net metering in the whole of the United States.

In 2004, the Colorado Public Utilities Commission (PUC) had to adopt standards for net metering. This was the result of a public ballot that allowed the first renewable energy standard to be passed in the USA. Additionally, in 2008, Colorado passed more legislation that required any cooperatives and municipal utilities with over 5,000 customers to provide net metering.

Colorado operates on a true net metering basis, meaning you get one kWh from the grid in exchange for each kWh your solar system produces at the same rate that you are charged for your electricity.

The amount you can exchange, however, differs depending on who your utility company is:

  • For the two investor-owned utility companies (Xcel and Black Hills Energy), you can exchange up to 120% of your electricity needs.
  • For residential, cooperative, or municipal utilities, the daily amount you can exchange is capped at 10 kWh for residential systems and 25 kWh for industrial systems.

If you produce an excess over what you draw from the grid, your credits roll over month on month for a year. If, at the end of the year, you still have an excess in what you produce, the amount either gets reimbursed to you or continues to roll over.

Whether you get reimbursed or your credit rolls over depends on your utility company as they are free to decide what happens. Each utility company is slightly different, so be sure to check yours to see what they do.

The Pros of Net Metering

Before we move on, let’s take a quick look at the overall benefits of net metering:

  • You get the best rate of return for your excess energy.
  • In some cases, your energy bills can be reduced by 96%.
  • It’s the simplest way to exchange excess solar power for grid power.
  • Encourages more businesses and homeowners to switch to solar.
  • Reduces our reliance on fossil fuels.
  • Removes the requirement for utility companies to invest in new power plants and infrastructure.

The Cons of Net Metering

No system is perfect, and while net metering is a great solution for dealing with excess energy, it’s not without some drawbacks:

  • If you get a lot of net-metered solar systems within a small area, sometimes the distribution grid cannot handle all the excess power. This creates increased costs through infrastructure upgrades.
  • There are some arguments to suggest that it is wealthier people who can afford solar installations and can, therefore, reduce their energy bills to almost nothing Those who are less affluent are left paying more for their energy bills and also more fixing and maintaining the grid (this is less the case for agricultural businesses who can take advantage of tax credits and incentives to offset the cost of a solar installation). 
  • Net-metered installations will lessen the demand on the grid during daylight hours but won’t alleviate demand during peak hours, such as the evening.

Net Metering Vs. Battery Storage (Solar Self-Consumption)

Solar battery

In addition to all the different setups we’ve outlined above, there is a final alternative called the “non-export system,” which operates on a “use it or lose it” basis. Essentially, you must use or store any of the excess power yourself, or it gets lost. In this case, the power does not get sent to the grid.

Most people who use this setup invest in solar batteries that store the energy for when they need it. As we’ve seen in California, where the grid exchange terms are less favorable, battery storage is becoming the go-to option.

The advantage of solar batteries is that they remove your reliance on the grid and also give you the ability to run off-grid power systems such as cabins or irrigation units. The disadvantage is that they cost a lot and require more maintenance than a solar system without a battery.

Final Thoughts

We love that Colorado is leading the way for businesses and homeowners to get a fair deal for the excess energy they produce from their solar installations. And it’s another great reason to make the switch.

At 8760 Solar, we can help you determine what type of solar setup will be best for your farm or agricultural business. We will also run a full analysis of your farm to see what kind of ROI you can expect and the ongoing savings you can make, including net metering.

If you’re ready to step into solar, we would love to hear from you. Text “READY” to 719 470-0254 or get in touch via email: sales@8760solar.com

Frequently Asked Questions

How Do You Make Money From Net Metering?

You can’t make money from net metering. Instead, you can significantly lower your energy bills by transferring the excess power you produce from your solar system into credits. These credits are then exchanged for any power drawn from the grid.

What Happens If You Produce More Electricity Than You Use?

There are three things that can happen to excess power produced from your solar system. You can either invest in a solar battery for storage, send the power to the grid in exchange for credits (net metering), or you can just lose it.

Why Is Net Metering Bad for Insurance?

Some insurances won’t cover net metering because they see it as an increased potential for liability and claims. If you find this is the case for your insurer, you will need to find an alternative that will insure you for net metering.

Unfortunately, this can often come at a higher cost, which can negate any savings made through your net metering setup.

Is Solar Worth It Without Net Metering?

Solar is absolutely worth it without net metering. The installation will still provide you with enough power during daylight hours and will significantly reduce your energy bills. Additionally, you can always invest in a solar battery so you can still enjoy and profit from the excess energy you produce.

Is Net Energy Metering Going Away?

Net energy metering isn’t going away, but governments and utility companies are changing the setup so it works more in their favor. For example, introducing time-of-use rates or reducing the number of times you can roll your credits over.

Contact Us Today

Learn how solar can help you

Take Advantage
Solar At-Cost

Start saving on your electric bill. Our competitive pricing gives you the best deal possible. Save your wallet and the environment!