What is Net Metering and How Does it Work?

If you’ve considered going solar, you may have heard the term net metering. And if you have questions about what that is and how it works, we’re here to answer those questions. In many places throughout the US, net metering can be a big incentive for people to have solar panels installed, so we want to ensure you have plenty of information to make a decision about solar that’s right for your home. 

First, we’ll start with a definition of what net metering is and why it’s important, then get into how it works. Then we’ll talk about the various programs available here in New Mexico and answer a couple of FAQs.

What is Solar Net Metering?

Solar net metering is the term used to describe how a utility company compensates a solar panel owner for excess energy their solar panels produce. For a homeowner with residential solar panels, in most cases, they’re producing more energy than they’re able to use.

It doesn’t make sense for that energy to go to waste, but it also doesn’t quite seem fair to send that energy over to the grid and not be compensated for it. Enter net metering. Net metering works differently in different states and even from utility company to utility company in the same state. There are lots of different factors that we will explore later on in the blog. 

To get into the nitty gritty a bit, when solar customers have a solar power system installed on their home, they also have an inverter installed. This turns the energy from the DC collected into AC energy that your household appliances need.

Some households also choose to have a solar battery installed so they can store up the excess energy they collect to use when it’s cloudy or at night. In most states with good net metering programs, it’s more common to send your excess electricity to the grid and store up credits so you can use energy from the grid when you need more electricity than you’re generating. Whether your utility gives you energy credits on your bill or cuts you a check depends entirely on where you live.

How does net metering work in New Mexico?

We’re sure our New Mexico readers are really more concerned with how net metering works in New Mexico. You want to be sure that your solar panel cost will be worth it. Net metering is one way homeowners find more value in having a solar system in their home.

New Mexico does have good net metering programs. And while most utility companies here aren’t sending you a check for your excess energy generated, ideally, your utility bill could be little to nothing due to renewable energy credits.

The way it works in New Mexico is unless you’re off the electric grid, you’ll still have a relationship with your utility company, and you’ll still get a monthly bill. But, you’re only billed for the “net” energy used each month, so the energy used by the home over a monthly billing period minus the energy produced via your solar system.

If you create more power than you use, you’ll get a credit for that, which you’ll likely need to use over the winter when the sun doesn’t shine for as many hours per day and you need more electricity. For PNM customers, that averages between $0.16 to $0.165 per kWh.

How does the New Mexico net metering program compare to other states?

As we mentioned, net metering varies from state to state and even utility to utility. This is largely based on the state legislation and how much local governments prioritize promoting solar.

Compare our New Mexico net metering to California for example. They used to heavily subsidize solar by strong net metering laws. Californians were making about $0.30 kWh. But with recent (Dec ’22) changes with the NEM 3.O, now solar system owners will only make $0.08 kWh, an almost 75% reduction.

So, all things considered, we have it pretty good here! It’s reasonable with our current net metering that a solar owner can cover their utility bill entirely with the power produced by their solar panels.

Major Benefits of Net Metering

Besides the benefit of net metering for your utility bill, there are other major benefits. One of these is the major environmental impact. When you’re sending your excess solar energy to the electric grid, that’s solar energy that others can use that didn’t have to come from non-renewable sources.

More solar power collected from residential solar means more renewable energy used by everyone. It makes solar power accessible to those that might not be able to afford solar panels as well—and they don’t even have to do anything to get it. For non solar electricity customers, they continue to pay their utility as usual, yet some of the energy flowing back to their home is coming from a renewable source—overflow from residential solar panels.

How do electricity bills work with net metering?

You may still be wondering what your utility bill will look like throughout the year here in New Mexico. We’re lucky to have sun year-round. But we still have shorter days in the winter, meaning fewer sun collecting hours.

Net metering aside, in the summer, you would more than cover your utility bill with your own electricity, but in the winter, you may end up needing to pay for the energy you need to pull from the grid at night. With net metering, you earn credits for the net excess generation, and just like rollover minutes from the old cell phone days, you can use those credits when you need them.

Does New Mexico have a solar tax credit?

Along with the 30% federal tax credit for solar, New Mexico offers a 10% tax credit for homeowners installing solar systems. So, if your total solar install was $18,000, you’d get $1,800 back on your state taxes. And since most people’s state taxes are nowhere close to that high, that ends up looking like a check from the state when you do you taxes.

An additional state benefit is the Property Tax Exemption, meaning when your home is valued for tax purposes, you won’t have to pay additional taxes for the added value to your home from the solar system.

Does PNM offer net metering?

PNM does offer net metering. Like we mentioned before, with our experience with PNM customers, they’re earning on average $0.16 kWh. However, it’s important to know that this varies throughout the year, and the average is for the whole year. So in the summer, customers can see up to $0.19 kWh and in the winter, they’re only seeing $0.16 kWh.

Does PNM buy solar power?

The great thing about PNM buying solar power from residential customers is that the excess power that goes to the grid can be used by other PNM customers. This is better for the environment since the grid is being fueled by renewable energy sources. Another benefit to local renewable energy is less dependence on foreign oil, which just creates a more stable local economy overall. Xcel Energy and El Paso Electric Company also have net metering programs, so as you look into solar, make sure you ask your solar salesperson for more details about the net metering available at your utility company.

Net Metering Brings More Value to Solar

For those considering going solar, net metering is one factor that can play into your decision. Here in New Mexico, we have it pretty good compared to other states. Not only do we get a tremendous amount of sun, but our net metering programs and state tax incentives are excellent. If you have questions about net metering and what that could look like for your home and energy bill, please contact us at Always Sunny Solar.

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