How Does the Solar Buyback Program Work?

Solar buyback programs, also known as net metering or feed-in tariffs, compensate homeowners for surplus electricity their solar system generates. This excess energy is sent back to the main power grid, contributing to the overall electricity supply. These programs incentivize renewable energy adoption by providing a financial benefit for energy produced beyond a home’s immediate consumption.

The Core Process of Sending Energy to the Grid

A residential solar system generates direct current (DC) electricity when sunlight strikes its photovoltaic (PV) panels. A solar inverter then converts this DC power into alternating current (AC) electricity, the standard form used by household appliances and the broader electrical grid.

Once converted, the AC electricity first serves the home’s immediate power needs. If solar panels generate more electricity than the home currently consumes, the surplus AC power is automatically exported to the utility grid.

A bi-directional or net meter is fundamental to this process. Unlike traditional meters that only measure electricity drawn from the grid, a bi-directional meter accurately records the flow of electricity in two directions. It measures both the kilowatt-hours (kWh) supplied by the utility to the home and the kWh of excess solar electricity sent back to the grid. This dual measurement is crucial for calculating the net energy exchange over a billing period, forming the basis for any credits or payments.

Common Solar Buyback Program Models

The compensation for electricity generated by a residential solar system and exported to the grid falls under various program models.

Net Metering

This billing mechanism credits solar energy system owners for excess electricity sent to the grid. Under this model, the electricity meter effectively runs backward when excess power is exported, providing a credit against electricity consumed from the grid at other times. Homeowners are then billed only for their “net” energy usage, which is the difference between electricity consumed and electricity generated over a billing period.

Feed-in Tariff (FIT)

With a FIT, solar owners are paid a fixed rate for every unit of electricity their system produces and sends to the grid, regardless of their own consumption. This compensation rate is often higher than the retail rate at which consumers purchase electricity. Under this system, homeowners typically buy all the electricity they consume from the grid at standard retail rates, while receiving separate payments for their solar generation. Implementing a FIT program usually requires two separate meters: one to measure consumed electricity and another for exported solar electricity. Payment rates are often guaranteed for an extended period, such as 10 to 20 years, to encourage investment in renewable energy technologies.

Buy-All-Sell-All (Gross Metering)

In this arrangement, all electricity generated by the solar system is sold directly to the utility at a predetermined rate. Simultaneously, the homeowner purchases all the electricity they need for their home from the utility at standard retail rates. This model typically employs two separate meters to track both the power exported from the solar system and the power imported for household use. The compensation rate for exported power can differ from the retail rate, sometimes aligning with a lower wholesale or “avoided cost” rate.

Factors Influencing Your Credits or Payments

The value of credits or payments received for exported solar energy is determined by several factors.

Compensation Rate

One primary factor is whether compensation is based on the retail rate or a lower wholesale or avoided cost rate. The retail rate is what consumers pay for electricity, encompassing not only the cost of generating power but also expenses for transmission, distribution, and utility administration. In contrast, the wholesale rate is the price at which electricity is traded in bulk, primarily reflecting generation costs and generally being considerably lower than the retail price. Many net metering programs provide credits at the full retail rate, meaning each kilowatt-hour (kWh) exported offsets a kWh imported at the same price. However, some programs, particularly those transitioning away from traditional net metering or those structured as buy-all-sell-all, may compensate at an avoided cost rate. An avoided cost rate represents the expense a utility avoids by not having to generate or purchase that electricity from another source, which is typically a few cents per kWh and substantially less than the retail rate.

Time-of-Use (TOU) Rates

Under TOU structures, the price of electricity varies throughout the day and season, with higher rates during peak demand periods (e.g., late afternoons and evenings) and lower rates during off-peak hours. If a solar system exports power during these peak times, the credits or payments earned can be higher, maximizing the financial benefit. Conversely, exporting during low-value, off-peak hours will yield less compensation.

Excess Generation Rules

When a solar system produces more energy than the home consumes over a billing cycle, utilities handle these surplus credits in various ways. Many programs allow these credits to roll over to subsequent months, sometimes indefinitely, to offset future consumption. However, some policies may cap the amount of rollover, or stipulate that credits expire after a certain period, such as annually, if unused. In some instances, particularly at an annual true-up period, any accumulated, unused credits might be paid out to the homeowner. These payouts are frequently at a reduced rate, often the avoided cost rate, rather than the full retail value.

Understanding Your Utility Bill and Compensation

The financial impact of a solar buyback program becomes evident on your monthly utility bill, reflecting the dynamic exchange of electricity with the grid. Credits for exported energy typically appear as a distinct line item, reducing the total “net usage” amount. In months where your solar system produces more electricity than your home consumes, your bill might display a negative balance or an accumulated “Banked KWH Credit,” indicating a surplus of energy sent to the grid. These earned credits are then used to offset the cost of electricity drawn from the grid during periods when solar production is lower, such as at night or on cloudy days.

The concept of “netting” is central to this billing process, where your consumption from the grid and your production exported to the grid are balanced over the billing period. You are effectively billed only for the net difference between the electricity you used and the electricity your system generated. This balancing act can lead to significantly reduced monthly charges, or in some cases, a zero-dollar energy charge, though minimum service fees for grid connection typically still apply.

Most programs feature an annual true-up or reconciliation period, often occurring on the anniversary of your system’s activation. During this annual review, the utility assesses all cumulative energy charges and credits over the preceding 12 months. If, after this reconciliation, your system has generated more electricity than your household has consumed over the entire year, you may be entitled to compensation for the net surplus.

Any payout for annual excess generation is typically at a reduced rate, often aligning with the utility’s avoided cost, which can range from approximately $0.02 to $0.05 per kilowatt-hour. In many programs, if you have a remaining credit balance at the annual true-up, these credits may be reset to zero or expire, rather than being carried forward indefinitely. While some utilities may issue a check for significant surplus credits, usually exceeding a certain threshold like $50, the most common form of compensation is a credit applied to future utility bills. Payments received for excess generation that go beyond offsetting your electricity bill could be considered taxable income; however, most residential solar users primarily benefit from bill reductions rather than direct cash payments.