What Is Net Billing?
Many solar homeowners, or potential solar homeowners, have heard of net metering. It’s a relatively simple concept that helps form the bedrock of your potential solar savings. However, net billing is something that isn’t discussed nearly as much. It is similar to net metering in many ways, but also differs in a couple of important ways as well.
To help homeowners understand the difference between net metering and net billing, we’ll do a quick breakdown of net metering. Following that, we’ll dive into how net billing differs and which one homeowners should aim for.
The Basics of Net Metering
Net metering is one of the main ways in which going solar will save you money, though there are others. While solar panels will get rid of your power bill during the day, when your panels are receiving sunlight and producing electricity, it has trouble at night. Cloudy days and other forms of bad weather can also impact your installation’s electricity production. During these periods, you will need energy from the grid (unless you get battery backup).
How Net Metering Works
During the day, your solar panels are going to produce more electricity than your home will use. The excess electricity is then exported to the grid in exchange for credits to your power bill. This is where the “meter” part comes in. Your home will have a bidirectional meter which will keep track of both electricity coming into your home, but also out of your home.
The credits you receive from the extra electricity are used to cover the energy you use at night or during bad weather. Depending on how much power your installation is producing, you can completely eliminate your monthly power bill. You could, theoretically, even end up making some extra money each month.
How Much Can Net Metering Save You?
Net metering credits will almost universally roll over, so if you can bank some during one month, they can cover your excess usage in another month. If they roll over for too long, many companies will cut you a check for the amount credited to your account, then start the process over. If you play your cards right, you can avoid paying a cent for electricity. Even when you do need to pay, it will likely only be a few dollars.
The Basics of Net Billing
Net billing is a similar concept, but with different execution. With net billing, your solar panels will produce electricity for your home. The excess energy can then be sold to the utility company. However, instead of receiving credits on your bill, you will simply be paid for the electricity sold. The rate you’re paid is usually the avoided cost for electricity production.
What Is the Avoided Cost?
Avoided cost is a term that you will often see in discussions about renewable energy. It can mean different amounts, depending on who is offering the avoided cost rate, but always means the same thing. The avoided cost is the amount of money a utility company would pay to generate their own electricity or purchase the electricity from another source.
When a utility says that they offer the avoided rate for electricity production, what they mean is that they will pay you the amount of money that it would take for them to make it themselves. This amount is lower than the amount of money you would pay to purchase electricity from them, as all energy utilities mark up their prices to make a profit.
How Does Avoided Cost Play Into Net Billing?
For example, if you pay $0.10 for a single kilowatt hour (kwh) of electricity, the avoided rate is likely to be less than half of that, likely around $0.04 or $0.03. So, for 20 kwh of electricity, you would pay $2.00. However, for 20 kwh of electricity that you sell back to your utility, you’re only making $0.60 to $0.80 back.
Over a long period of time, you’re likely to pay more for net billing. This is because you’re not getting credits for a better rate, but actual cash — for a worse rate in almost all circumstances.
Which Is Better: Net Metering or Net Billing?
For the majority of homeowners, net metering is going to be superior to net billing. While both are ways to help mitigate the costs of electricity after you install solar, they are not quite equal.
Net metering generally has more favorable policies and can save you money on your power bill across multiple months. Net metering is often regulated by state or municipal authorities, which leads to more generous policies. As noted by the Department of Energy, you can often get the full retail rate for your electricity with net metering. The ability of net metering to roll over is a big plus.
Net billing is generally inferior to net metering. You receive money rather than credits on your power bill. However, the amount of money you receive is almost always less than the value of the energy bill savings that you get with net metering. Because you have to spend money on your power bill anyways, it’s better to get higher value credits than smaller amounts of cash.
Both can be useful to solar homeowners. Most homeowners will have multiple incentives available to them, with net metering or net billing being just one of them. It’s worth it to look at all of your incentives before letting one make or break your purchase.