After installing solar panels on a building, there may be times when the amount of electricity generated exceeds consumption. Unless the building with the photovoltaic panel has a battery system or other form of energy storage, excess energy is sent to the grid. Typically, you receive credit for sending your extra kilowatt-hours to the grid and it appears on your next electric bill. However, the way this credit is calculated may vary.
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Depending on local regulations and how your electricity supplier decides to manage surplus solar energy, there are three possibilities:
- Internet metering, where you get the total value of each kilowatt-hour as credit.
- Solar buyback, where the electricity supplier uses different prices for kilowatt-hours consumed and solar generation sent to the grid.
- In states without a net metering or solar buyback policy, you may not receive any credit unless your electricity supplier voluntarily offers the benefit.
Here we will discuss the differences between net metering and solar buyback programs, and how they affect the savings achieved by a solar panel system.
Net metering: total credit for each kilowatt-hour
Net metering is exactly what its name implies: every kilowatt-hour consumed from the grid is added to your monthly energy bill, and every kilowatt-hour generated by solar panels and supplied to the grid is subtracted from the total retail price.
- For example, if your building consumes 10,000 kWh from the grid during a billing period and your solar energy system has a surplus of 2,500 kWh, you only pay the difference of 7,500 kWh.
- For a building located in New York with an electricity rate of 20 cents/kWh, this represents a reduction in the energy bill from $2,000 to $1,500.
- In other words, you save the full value of each kWh generated by solar panels, even when this electricity is not used directly by your building and exported.
Your building may have billing periods in which solar generation exceeds consumption and you end up with a positive balance. When this happens, how the credits are handled depends on your electric company.
In many parts of the US, electric companies provide net metering up to the point where generation equals consumption. Any excess generation beyond this point is credited at a lower price, generally the “avoided cost rate”. For example, if your electricity provider buys power from local plants at 8 cents/kWh, you will also receive that rate for any solar kilowatt-hours that exceed your monthly consumption.
There are very few energy companies that actually pay when on-site solar generation exceeds consumption. Typically, your credit will be rolled over to the following month, until the building's consumption exceeds solar generation and you have a chance to use it. Some electric companies will allow you to accumulate unlimited credit, others will reset your balance once a year, and some may offer an annual payment for the avoided cost per kWh.
Solar Buyback: Different Prices for Consumption and Surplus Solar Energy
Not all electricity suppliers offer net metering at full retail price. Many of them offer a solar buyback program, where excess electricity from solar panels is measured independently of consumption. In this case, the retail price is charged for consumption and a reduced rate for surplus generation. Solar buy-back tariffs are also known as feed-in tariffs.
The difference can be demonstrated using the same example above, where a building has a network consumption of 10,000 kWh and an excess generation of 2,500 kWh. With net metering, you are charged for net consumption of 7,500 kWh, but the calculation procedure changes with a solar buyback fee:
- You will be charged per 10,000 kWh of consumption, at the full retail price.
- You get separate credit for 2,500 kWh of excess generation, at the solar buyback price.
For example, if the price per kWh is 20 cents/kWh and the solar buyback rate is 12 cents/kWh, you will be charged US$2,000 and you will receive a credit of US$300. In this case your energy bill drops to $1,700, and you're not saving the full value of the 2,500 kWh exported to the grid.
Even with a reduced feed-in tariff, there may be cases where the credit on the energy bill is greater than the consumption charge. As with net metering, how this credit is managed depends on the electricity supplier, but cash payments are very rare. Generally, credits are rolled over to the following month until you use them up. Some companies offer unlimited rollover, while others reset your balance once a year.
Solar power systems have a higher ROI when you have access to net metering, as all kilowatt-hours are credited at their full value. On the other hand, when you have a lower solar buyback rate, your monthly savings decrease. However, this will only affect you if a large fraction of your solar generation is exported to the grid. Regardless of how surplus energy is credited, you always save the full value of the solar kilowatt-hours used on site.
