I get asked a lot about net metering, and how it works, so here are some things to think about around net metering and solar power generation.

When you use electricity, it spins your power meter forward.  You pay on this meter based on how many kilowatt hours you use during a measured period (usually a month).

If you install a grid-tied solar photovoltaic PV system, it will generate electricity.  When this electricity flow through the system, it runs the meter backwards, or unwinds the usage that spins it forward.

During sunny days when nobody is home and electrical use is minimal, the meter flys backwards.  Then you come home, after dark and start using the electricity and the meter goes forward again.

The key concept to grasp here is that you are essentially using the power companies grid (the lines that brings electricity to your home) as your storage mechanism, instead of having to have batteris to store the power you generate during the day to use at night.

From the utility company perspective:

Net metering is an agreement between the utility company and the system owner allowing for ‘banking’ excess power produced by a solar system in the electric grid and ‘drawing’ from the electric grid when more power is needed.

Wikipedia defines net metering as follows:

Net metering is an electricity policy for consumers who own (generally small) renewable energy facilities, such as wind, solar power or home fuel cells. “Net”, in this context, is used in the sense of meaning “what remains after deductions” — in this case, the deduction of any energy outflows from metered energy inflows. Under net metering, a system owner receives retail credit for at least a portion of the electricity they generate. Most electricity meters accurately record in both directions, allowing a no-cost method of effectively banking excess electricity production for future credit. However, the rules vary significantly by country and possibly state/province; if net metering is available, if and how long you can keep your banked credits, and how much the credits are worth (retail/wholesale). Most net metering laws involve monthly roll over of kWh credits, a small monthly connection fee, require monthly payment of deficits (i.e. normal electric bill), and annual settlement of any residual credit. Unlike a Feed-in Tariff or time of use metering (TOU), net metering can be implemented solely as an accounting procedure, and requires no special metering, or even any prior arrangement or notification.

Net Metering is generally a consumer-based renewable energy incentive. While it is important to have Net Metering available for any consumer that interconnects their renewable generator to the grid, this form of renewable incentive places the burdens of pioneering renewable energy primarily upon fragmented consumers. Often over-burdened energy agencies are not providing incentives on a consistent basis and it is difficult for individuals to negotiate with large institutions to recover their Net Metering credits and/or rebates for using renewable energy.

Net metering is all a residential customer generally gets from teh power company.  Businesses, on the other hand, get to apply their solar generation to their usage ala Net Metering, but also reap the benefit of getting paid a productio nrate on every kilowatt hour generated, but only on solar system sizes larger than 10 kilowatts.

Read more about solar business investments here.

A Residential Solar System is many thing to many people.  If it is installed on a house in your neighborhood, is it residential?  The electric utility companies generally define residential grid tied solar photovoltaic PV systems as anything less than 10 kilowatts of power generation capacity, anything larger is considered a commercial solar production system for electricity.

From the end user point of view, residential generally implies net metering, another confusing term to be defined on more detail later.  At the end of the year, when youare net metered, you either pay to, or get paid by, the electric company based on your usage for the year less your generation for the year. Most utility companies limit your generation to 120% of your usage.

The good news: the electric power company generally pays you more up front to offset the cost of your solar system; the bad news is that in the long run, since all you can ever do is balance the meter, you cannot make solar a revenue producing income stream.

So how does the savvy homeowner get around this problem? Assuming this homeowner is affluent, there is a good chance they may be consuming enough of the electic juice to need a system larger than 10K.  If you have a pool, or sauna or hot tub, lots of square feet and use a couple hundred bucks in electricity each month, then you could become what is known as a commercial elecricity producer.  More on that later.

So, you can have a larger than 10K solar photovoltaic grid tied system installed in a residential setting, and gain all the benefits of a commercial electric production system.

If you claim the cost of the solar system on your personal taxes, you may qualify for a 30% tax credit, but this credit is against your tax liability, so if you generally do not pay tax, then this may not help the home owner.  On the other hand, if you do this as part of a business, and have a basis in that business, then you can claim that 30% as a solar tax rebate and get a check from uncle Sam generally in 60-90 days of connecting to the utility company.

For many, though, all that is needed is a little 5K system, and at today’s prevailing prices of $8 per watt, although the initial sticker shock of a system costing $40,000 may be alarming, after you get the $17,500 back from the utility company and claim the $12,000 tax rebate you are only out about $13,000 for a system that lets you own your electricity instead of renting it.

In today’s rough economic times, it is often difficult to see your way to spending money. But if you have $20,000 in a 401(k) that has just lost half its value, what is the point in saving if you are not sure of the outcome? By investing in Solar Electric Systems, you are reducing risk and locking in your rate of return. For home systems with large utility rebates, Solar Electric Systems can be installed for as little as $3.50 per watt final cost to the landlord .

The average retail cost of a Home Solar Electric System in Colorado is somewhere between $8 and $9 per watt. Most people cannot afford this type of cost, and it is still much more expensive then what they get from the grid now. In order to make solar feasible, the initial costs must be offset. This is done in many ways. For the individual landlord there is a federal tax credit of 30% of whatever was spent on the system. For many Americans, this credit is larger than the total tax they owe, so anything they paid to the IRS for that year will be returned to them when they file their income taxes.

Another major subsidy comes from the power companies, assuming they are big enough to be regulated. For those living in rural areas, many of these types of subsidies are much smaller in amount, or do not exist at all. For major carriers, such as XCEL or Black Hills, there are two types of incentives that are paid to the landlord . The first is usually about $2 per watt and is supposed to offset the cost of equipment purchase and installation.

The second incentive offered by the power companies is the purchase of your “green tags”, which you earn because you have installed a renewable source of energy . This is directly related to the issues of cap and trade and forcing companies to pay tax on carbons, making your green tags worth more money. Generally, the power companies like to purchase the green tags from the landlord at installation, thus getting the assumed lower price.

Is a Residential Solar System right for you? With today’s rebates, the uncertainty of the stock market and continuous utility price increases, you would be crazy not to spend money you have saved on a Home Solar Electric System.