What Is Net Billing and How Does It Affect Your Bill?
Demystify net billing for your home's energy. Discover how your solar exports are valued differently and what it means for your utility bill.
Net billing accounts for electricity flow between a consumer with a renewable energy system, such as solar panels, and the utility grid. It determines how much a customer pays for grid electricity and how much credit they receive for excess electricity sent back. This mechanism is increasingly prevalent.
How Net Billing Functions
Net billing measures electricity consumed from and exported to the grid, valuing these flows differently. Solar panels first power the home directly, reducing the need to draw from the utility. This self-consumption lowers electricity purchases.
Excess electricity is exported to the utility grid. A bi-directional meter records this energy, which the utility purchases at a lower wholesale or avoided cost rate. This rate represents the cost the utility avoids by not generating or purchasing that electricity.
When the solar system does not meet demand (e.g., at night or on cloudy days), the customer draws power from the utility grid. This imported electricity is charged at the standard retail rate. The final bill is based on net consumption, subtracting exported electricity value from imported electricity cost, plus fixed charges.
Key Differences from Net Metering
Net billing differs from net metering, another compensation mechanism. Net metering credits exported electricity at the full retail rate, where each kilowatt-hour (kWh) sent to the grid offsets one kWh consumed. This allows the grid to act as a virtual battery, storing excess energy without value change.
The primary distinction with net billing is the valuation of exported electricity. Under net billing, exported electricity is valued significantly lower than the retail rate for consumed electricity. This compensation rate often aligns with the utility’s wholesale or avoided cost, which can be less than half the retail price. For instance, if the retail rate is $0.15 per kWh, the export rate might be $0.05 to $0.07 per kWh.
This difference means customers receive less financial credit for excess energy exported. While net metering maximizes savings by treating exported energy as equally valuable as imported energy, net billing reduces the financial benefit of overproduction. This can result in less favorable bill impacts, encouraging greater self-consumption.
Understanding Your Net Billing Statement
A net billing statement details electricity transactions. It features separate line items for electricity consumed from and exported to the grid. These quantities are multiplied by their respective rates: retail for consumed energy and lower wholesale or avoided cost for exported energy.
Credits for exported energy are applied against charges for imported energy. For example, if a customer imports 500 kWh at $0.15/kWh and exports 300 kWh at $0.05/kWh, the imported energy charge would be $75.00, and the exported energy credit would be $15.00. The net energy charge before other fees would then be $60.00.
Net billing statements also include fixed charges that apply regardless of electricity consumed or exported. These charges can include customer service fees, meter charges, or fees for grid maintenance. Even with substantial solar production, these fixed charges ensure a minimum monthly bill, as they cannot be offset by exported energy credits.
Variables Influencing Net Billing Charges
Several factors influence net billing charges. Time-of-use (TOU) rates are one variable, where electricity cost changes throughout the day based on demand. Under TOU rates, electricity consumed during peak hours (e.g., late afternoon and evening) is more expensive than off-peak hours. This also affects exported electricity, as its value can vary by time of day.
Many net billing programs operate with “true-up” periods, typically monthly or annual cycles where energy flows are reconciled. Accumulated credits for exported energy are applied to offset charges for imported energy. At the end of the true-up period, any remaining excess credits may be rolled over, paid out at a very low rate, or may expire.
The size of the solar system relative to consumption also plays a role. A system that significantly overproduces will export more energy, but the lower compensation rate limits overall savings. Changes in utility rates, including retail consumption and wholesale export rates, also impact financial outcomes. These elements determine the economic viability and savings potential of a renewable energy system under net billing.