Updated: Mar 10, 2021
When you buy a solar energy system, whether it be an entire home or just panels on the roof, the electric company becomes your partner. The utility company must sign a contract with you before you can break ground on your system. Then will pay you for any excess electricity that is generated by the panels. You can then use these proceeds to offset any future electric bills at your home. It's really all win-win when you think about it, both parties benefit from using solar power. Basically, if your panels are generating a surplus of solar power, you aren't just saving money. You're earning money too. This is called net metering, a great addition to your streams of passive income. In addition, read on to learn about Renewable Energy Credits (REC), a great way to make money while saving the world.
How Does Net Metering Work?
As mentioned above, net metering allows you to sell electricity back to your utility company if you produce more than you need at any given time for your home or business. Your local utility company will sign an agreement with you, the solar array owner, and based on the kilowatts of your solar system and its annual production capacity, will determine what exactly your monthly bill will be for this service.
For instance, if you produce more than your home consumes in one month, you can sell any surplus back to the utility and they will credit your account. The exact terms can vary from company to company; however, many companies today offer attractive deals to solar array owners such as low rates and even cash back incentives. If you decide to go solar through a local installer or contractor, they'll make these arrangements for you so all you have to do is enjoy the savings on your energy bills down the line. But if you'd rather install the panels yourself than hire an installer or contractor, then arranging net metering agreements directly with utility companies will be a must.
Net Metering Agreements for Solar Energy Consumers
Most people who purchase solar power systems and the equipment to use them will be eligible for net metering agreements with local utilities. Without getting too technical, net metering agreements are how solar power is sold back to utility companies. The selling of excess electricity to a utility company is called net metering, and most solar panel owners have these agreements in place with local electric companies.
If you're considering using solar energy for your home or business, then the first step will be finding out if your state has rules and regulations concerning net metering agreements; and if so, what they pertain to. For instance, in California any homeowner or business owner who buys a solar power system must be provided this service by the electric company. However, in New York there's no requirement for net metering collection through customer-sited PV systems; however, it's up to the individual utility agencies on whether or not they can provide such an agreement with their consumers.
Renewable Energy Credits and Net Metering Agreements with Local Utilities
The government has a program in place where they value solar energy uses which helps them make decisions concerning future clean energy legislation. To make these calculations, the government needs to determine how much electricity any given array of panels can produce at any given time during daylight hours throughout the year. This information is vital for anyone considering using solar power. This way, they'll know how much income they might receive from selling excess electricity generated by their panels back to the utility companies on an ongoing basis.
In essence, every ton of carbon pollution that is eliminated from the environment is awarded a Renewable Energy Credit (REC) which works like a commodity. These credits can be sold in the open market and will increase as demand for clean renewable energy increases.
Basically, these credits are used to prove that an agency has used green energy sources for their power consumption. The government has measures in place that use RECs to create a marketplace where consumers can invest in renewable energies and enjoy tax breaks or other incentives for doing so.
According to the Department of Energy (DOE), RECs are worth $200 each; however, this is subject to change based on supply and demand for this commodity as well as government regulation changes concerning this industry. The government sets aside RECs used in the production of electricity with green energy sources, such as solar power; however, they allow them to be traded in the open market if more RECs are demanded than can be supplied.
If the government has a program in place which awards RECs for every ton of carbon pollution eliminated from the environment, then solar power is actually a green energy source and there are many benefits for anyone deciding to go solar.
What is a SREC?
The Department of Energy (DOE) created the Solar Renewable Energy Certificate, also known as the SREC, as an incentive for people to invest in solar power. The DOE pays companies for every ton of carbon pollution that they eliminate through the sale of energy produced from renewable resources. In essence, you can invest in solar energy and become a seller of electricity while still being able to recoup your cost of investment plus something extra through selling SRECs to utility companies. And you'll never run out your supply either because these certificates can be traded in future years too.
Imagine that you are a homeowner who is thinking about going solar. If you install solar panels which produce 10 kilowatts of power from the sun; then there will be a maximum of 10 units of energy which are granted to your account each month, through net metering agreements, based on the system's energy production capacity. At night during periods when the sun has gone down; then your home or business will use electrical components which aren't supplied by the solar panels and generate electricity in order to supply this usage.
However, if your system produces 20 kilowatts of power – then there is no maximum limit on how much energy will be generated by any excess solar panel capacity that's installed; and therefore, so long as people living in homes or businesses with these types of systems receive enough SRECs from their local utility companies for every unit of electricity they produce; then they'll be able to sell all the surplus electrical energy produced back into the grid without limits or restrictions whatsoever.
There's no entity in place that sets aside RECs for hydro-electric dams or wind turbines, but this is about to change because as you know by now net metering agreements are soon going to be required when you buy a solar power system. The government has plans to make sure that solar energy is a respected part of the electric company's formula for pricing and billing customers.
The Benefits of Surplus Solar Power
Number one benefit of selling electricity back to the utility company is obvious: extra income. Many people decide to go solar simply for the benefit of saving money; however, there's another bonus in this situation, your bank account will grow too if you're a smart negotiator during the contracting process with major companies. Another big plus of selling electricity back to utilities is that it's 100% clean renewable energy which leaves little impact on our environment and creates no pollution or waste products thus reducing carbon footprints tremendously. Because solar energy is generated by the sun rather than electricity from a coal power plant, it doesn't produce any harmful emissions or pollutants that will damage our environment.