What is net metering? And other solar terms explained

If you’re looking to get home solar panels, let us introduce you to the lingo, including net metering, solar-plus-storage and the Investment Tax Credit.

An owl sits on a slanted roof covered in solar panels.
(Eric Karits/Unsplash)
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Clean energy has its own vocabulary. That’s helpful when experts need precision to talk to each other, but it can make key concepts tougher for everyone else to understand. So the Canary Media team is breaking down the jargon. This article kicks off a series that will explain key terms people use when talking about clean energy.

This first installment is a companion to our helpful new guide, Ask these 10 questions if you want to get rooftop solar” by Julian Spector. Here, we offer up definitions of technical terms that will be helpful to know before you take the solar plunge.

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📏 net metering

Understanding this wonky term could help you pay off your solar panels more quickly. Net metering is a policy that pays homeowners and business owners to produce energy from solar and send it to the electrical grid. Also known as net energy metering (NEM), the policy has been adopted in several countries and U.S. states, albeit in different flavors.

Why is it called net metering? There’s a meter at your home that ticks forward as it measures how much electricity you’re pulling from the grid. The utility reads your meter on a regular basis to figure out how much to bill you. Under a net-metering policy, if you have solar panels producing more energy than you’re using, the surplus gets fed into the grid (the opposite direction of normal electricity flow), and your meter literally runs backward. The utility doesn’t just charge you for the total amount of energy you’ve drawn from the grid; instead, it measures both how much you’ve pulled in from the grid and how much you’ve fed back in order to charge you for the net amount, hence the term net metering.”

Net-metering policies have spurred the growth of rooftop solar in the U.S. because they cut electricity bills for solar-panel owners and help them more quickly recoup the costs of installing their systems. Customers like these policies — and, unsurprisingly, so do rooftop-solar companies, which are better positioned to push their products when net-metering policies are in place. Utilities are less enamored, however. Many have criticized net-metering policies for being too generous in their compensation for solar energy fed from consumers’ systems back into the grid, as well as for leading to solar customers paying less to cover the costs of maintaining the electrical grid and related infrastructure. As a result, heated battles are underway in some U.S. states over reforming or jettisoning net-metering policies. Controversy abounds over what an ideal system would look like.

More on net metering from Canary Media:

💰 Investment Tax Credit

The solar Investment Tax Credit is another financial incentive to sweeten a solar deal. The ITC is a U.S. federal tax break to entice homeowners, businesses and utilities to invest in (that is, buy) solar panels. Enacted in 2006, it has been a major driver for installing solar. As of 2022, it reduces your tax bill by 26 percent of the cost of installing solar. For homeowners, it’s essentially like a 26-percent-off coupon for a rooftop solar project. How does it work? Let’s walk through an example. 

  • You install a solar project that costs $26,924.
  • The amount of federal tax you owe, based on your income, is $8,000.
  • Then, because of the ITC, the federal government gives you a $7,000 break on your tax bill (26 percent of $26,924). So, what do you owe now? $8,000 minus $7,000, or just $1,000 in taxes.

If you have more credit than you can use, it rolls over, for up to five years.

The size of the tax credit has morphed over time, as has the intended expiration date. It started at 30 percent with a two-year duration. But Congress has extended and adjusted it several times since then. Most recently, this happened in the December 2020 budget package. Now, for residential projects, the ITC will shrink to 22 percent in 2023 and fall to nothing in 2024. Big projects (commercial and utility-scale), though, will get to keep a 10 percent tax credit in 2024.

More on the ITC:

🔋 solar-plus-storage

Will you be adding a battery to your solar installation to store your electricity for later use? Then it would be a solar-plus-storage project. It’s significantly more expensive than a solar-only installation — possibly up to 75 percent more — but a silver lining is that the federal Investment Tax Credit (see above!) also covers the cost of batteries installed at the same time as solar panels, as long as the batteries only charge up with solar power.

Battery storage means you have energy when you need it, and not just when the sun is shining. If you load up your battery during the sunny part of the day, you can then use that power in the evenings — which is especially valuable if your utility charges more for electricity during peak” periods in the evening when demand spikes. Or you can charge your electric vehicle overnight using your very own solar power. Batteries can also keep the lights on during blackouts. And, depending on where you live, batteries can enable you to participate in utility programs that reward customers for feeding stored solar power to the grid when energy is most coveted. 

More resources on solar-plus-storage:

More on solar-plus-storage from Canary Media:

🌊 inverter

Installing solar isn’t just about the panels. It also requires a device known as an inverter. Inverters come with standard solar installation packages and are sized to the project. Connecting the solar panels on a roof to a home’s electrical panel, an inverter acts as an electricity translator of sorts. 

When solar panels generate electricity, it’s in a form called direct current (DC). Direct current is like a river that flows in one direction. But your appliances and the grid use a different form of power: alternating current (AC). (Why AC instead of DC? AC travels across distances more efficiently.) AC is like an indecisive river. It flows forward, then backward, and keeps switching direction very quickly — 60 cycles per second in the U.S. and 50 cycles per second in most other countries. An inverter converts DC flow into AC flow by continuously flipping or inverting” the current at the right frequency. In this way, it makes the electricity from the solar panels usable. Smart” inverters can also fine-tune that power conversion to support the grid’s varying needs — and utilities may pay customers for providing that service. 

More on inverters from Canary Media:

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Stay tuned for more clean energy concepts demystified. 

Alison F. Takemura is staff writer at Canary Media.