If you want to know the advantages and disadvantages of the solar incentive programs offered by your local utility, you have come to the right place.
In this article I will break down for you the top two solar incentive programs offered by most utilities and then you can see why going solar is always the best investment that you can make for your energy security and financial stability.
Solar panels are integrated with other key components that make up a solar system (I discuss the details of a solar system and the options in another article titled How Much Do Solar Panels Cost?). What we need to know for the topic of this article is that solar panels generate electricity by collecting the photons produced by the sun, then the solar panel cells break the electrons free, which flow through a circuit and generates electricity.
The amount of electricity that you produce is reliant on how many solar panels you have installed on either your rooftop or a ground mount. The more panels you have installed, the more electricity you generate. This is why it is so important to ensure that your solar panels are installed where they are exposed to the greatest amount of sunlight, preferably facing the South side of your home, since we are in the Northern hemisphere of the earth (#America!).
Now, if you have installed a solar system that produces less electricity than what you use in your home, then you have an underproduction. Underproduction means that you have offset a portion of your electricity use from solar production, but that you will still need to use the electricity delivered by your utility’s grid to keep the lights on. Underproduction means that even after you have paid and own your solar system, you will still have a utility bill at the end of every month (or year) to make up the difference. This is why when purchasing a solar system, you always want to purchase a large enough system to cover at a minimum 100% of your electricity demand (needs). At All Solar Texas, we always recommend purchasing a solar system that will cover 110%+ of your electricity capacity needs, so that you never have to pay the utility for their electricity again.
However, if you consulted the right energy expert and installed a solar system that generates more than the electricity that your home uses in month (or year), there is an overproduction of electricity. Overproduction of solar electricity for a homeowner is a good thing. This not only means that you will never pay the ever-rising costs of electricity provided by your utility, but that you will likely qualify for incentive programs they offer.
The Cost of Electricity Generation
Why would a utility offer an incentive program to homeowners that overproduce solar electricity? Great question! Utilities have limited options on how to provide enough electricity to support their customers. They can invest heavily in electricity generation by building and operating power plants (such as hydro, nuclear, solar, fossil fuel) or they can purchase electricity from other utilities and electric generation facilities. The costs associated with building and maintaining power plants is extensive. Not only will utilities need to finance the power plant construction and operations, but they will need to battle through regulatory red tape (like environmental permitting). There is a substantial cost to generating their own electricity and those costs are passed on to you, the customer. However, when utilities cannot generate enough electricity to meet their customer demand, they need to purchase the electricity from other generation facilities, typically across state lines. The transmission of electricity also has a hefty cost. All those transmission towers, wires and substations need to be built, repaired, operated, and maintained. Again, all costs that are passed on to you, the customer. The farther away utilities need to buy and transmit the electricity need to supply their customers, the more expensive it is to do it. There is an entire industry that has been created, called Electricity Trading, just to manage the procurement, transaction, transmission and future forecasts of electricity needs.
This is where homeowners see extreme value in their overproduction of solar electricity. It is much cheaper for a utility to buy or credit the excess electricity from their solar customers that are overproducing, than it is to get it from elsewhere in the country. This is such a convenient and low-cost option to them that utilities literally create incentive programs to encourage their solar customers to produce more electricity than the homeowner’s electricity demand requires.
The incentive programs will vary depending on which state you live in, and which utilities service your area. There are laws and regulations which limit or promote certain programs over others, but for most customers there are two primary options that exist:
- Net Metering
- Energy Buyback
What is Net Metering?
In certain states, such as California, customers are limited to only one utility. These are Investor-Owned Utilities (IOUs) and are considered “natural monopolies”. Meaning, customers have only one choice in utility, but that the government regulators have structured the arrangement and have a heavy had in regulated the cost, rates, and operations of the utility. These regulations are intended to protect customers from price gouging and service unreliability. This is where you see companies like Pacific Gas & Electric (PG&E), San Diego Gas & Electric (SDG&E) and Southern California Edison (SCE) operating. You can read more about California IOU net metering options via the California Public Utility Commission’s website.
IOUs are not just in California but are located throughout the country. Dominion Energy, Duke Energy, Xcel Energy, just to name a few, all operate in several states and are investor owned, with similar regulatory restrictions.
This is where net metering comes into the picture. Since customers have limited options with which utility can have serve them, those utilities are limited to crediting solar customers that overproduce electricity. These credits will apply towards the customer’s bill and, if a customer underproduces electricity during a given month or year, those credits will offset any additional charges that the utility would have applied towards the energy that they customer was then forced to pull from the grid. Credits are usually applied at the “market value” of the electricity being purchased at the time of purchase (e.g., peak hours, off-peak hours). The problem with this model is that customers are only credited towards their account and, if a customer never underproduces, those credits are of no value to them. In essence, if a customer overproduces, even slightly, year after year, they may never see any value, benefit, or compensation from the utility. Essentially, the customer is producing electricity for the utility to sell to other customers with no compensation.
There are other disadvantages to net metering. Many IOUs charge solar customers a service fee, which amounts to less money that what they would have been charged if they were taking their electricity from the grid, but enough money for the utility to “maintain the grid.” These service fees can be anywhere from $10+ per month. If you are a solar customer, overproducing electricity for the utility to sell to other customers, and then are charged a service fee for grid maintenance every month it can be a little frustrating.
This is not standard across all IOUs, but net metering is a popular program and utilities lobby their regulators to support, limiting customer options. To certain customers, net metering is a viable incentive program. If your solar system overproduces one month, then underproduces the next month, this may not be a bad deal. However, if your system is consistent and efficient in its energy production, net metering is not ideal. Just remember, even if you are on a net metering incentive program, you are still saving tens-of-thousands of dollars over the lifetime of your home by going solar, so you are always winning against the utility.
Read more about net metering programs by referencing the Solar Energy Industries Association (SEIA) article on the topic.
What are Buyback Programs?
This is just another reason why Texas is an amazing state. In Texas, you have several utility options when purchasing your power. This leads to a more competitive landscape when paying for electricity. However, even though Texas customers have more options than in other states, the concept is still the same. The utility charges more for electricity generation, transmission, and distribution than what it would cost you, a homeowner, to produce yourself by going solar. There is one advantage to this utility model that benefits you as the customer and solar electricity producer – buyback programs.
Unlike net metering programs which are based on utility credits back to the customer, under a buyback program model utilities compete against each other to buyback your excess electricity. Buybacks are a way for the utilities to compensate the solar customer’s overproduction using multiple buyback options. Some utilities offer credits (like net metering), others offer actual money back payments, month to month.
Now here is where it gets complicated, not all utilities pay the same amount for their buyback programs. Some utilities offer a 1-to-1 buyback, meaning they pay you 100% of the electricity’s values at the time it is pulled from your solar system, while others offer less than market value. For example, at the time of this article, Green Mountain, Reliant, ATG, REP and Chariot are offering buyback programs 1-to-1 (same as the kWh retail price). However, MP2 and TXU are offering buyback programs wholesale (lower than the kWh retail price). The differences in buyback programs are available online for each utility. It is good to do some research to compare pricing before selecting a program.
A great resource to reference for the top buyback programs in the Dallas and Houston areas, is the Texas Power Guide’s buyback program summary webpage. Additionally, the Solar United Neighbors organization published a video on YouTube that has a detailed breakdown of how buyback programs work.
Though there are differences between a net metering and buyback incentive program, you are always better off making the investment to go solar to take advantage of either program. These incentive programs and others, such as the Federal Tax Credit, exist to help homeowners gain more energy independence. Although buyback programs are typically the better incentive program, net metering is a valid alternative.
Remember, no matter what program you find yourself tied to as a solar electricity overproducer; rest assured that overproducing is always better for you than underproducing and going solar is always more cost effective than being reliant on the utility. Now has never been a better time for you to invest in your home by going solar.
Contact your energy experts at All Solar Texas. We will put together your Free Energy Savings report and we will even throw in a free electric utility bill calculator for you to use or share with a friend. Call/text us at (800) 707-2259, email us at firstname.lastname@example.org or check us out online at www.AllSolarTexas.com.