Net Metering for Dummies

by William Yeatman on March 4, 2015

in Blog

There are four primary components to your electricity bill: Generation, Transmission, Distribution, and Retail*.


When the wealthy greens among us install a solar panel system on their roofs, this power production represents only one of four components of your electricity bill: Generation.


Under “net-metering” billing regimes, solar power producers can sell their excess electricity (i.e., that which exceeds their demand) back to the utility, for which they [the rooftop solar owners] usually are credited the full-retail rate of electricity. So the value of the credit received by the solar panel owner is based on:

Value of what net-metering awards solar panel owners

Value of what net-metering awards solar panel owners

However, the owner of the solar panel only contributed one of the four components of your electricity bill (Generation). Remember:

What solar panel owners contribute under net-metering

What solar panel owners contribute under net-metering

Because they are credited for far more than they contribute, the solar panel owners, in practice, are receiving three major components of your electricity bill (Transmission, Distribution, and Retail) for free.


Of course, there’s no such thing as a free lunch. So who pays for the free ride afforded solar panel owners by unfair net-metering policies? Of course:



*Three of the four components are self-explanatory. “Generation” is the power plants. “Transmission” are the big metal lattices with a bunch of wires that you see periodically on the highway. “Distribution” entails the wooden poles in your neighborhood. “Retail” is the only one that might not be familiar to the reader. The “retail” component of your electricity bill is primarily administrative. Someone has to read your meter, create your bill, and cash your check. That’s “retail.”

Ralph March 5, 2015 at 5:25 pm

The solar panel doesn’t even replace the generation component. It only replaces the cost of fuel for the generation. The generator is still needed to supply the energy when the solar panel is dead. In fact, the tax credit for solar is usually greater than the cost of fuel for the power plant on a kwh basis. Heck of a deal if you can find a politician dumb enough to provide it.

William Yeatman March 5, 2015 at 6:31 pm

Hi Ralph, Thank you for commenting. I stand corrected: Net metering is even worse a deal than I’d originally thought. What a sham. Best, w

Mark March 6, 2015 at 2:59 am

Have a look at the Australian experience. We instituted policies to make solar power a very good personal option as outlined above.
Govt backtracked very fast as less people paying but still need the generator to supply when solar not available such as evenings.
Total failure.

Joe March 6, 2015 at 6:31 am

Do you consider crediting rooftop solar owners a wholesale rate (rather than full-retail rate) to be a fair solution?

William Yeatman March 6, 2015 at 8:47 am

Hi Joe, Thank you for posting. I think that’s less unfair, especially if such a rate takes into account full costs. I’d like it all to be based on voluntary contract, ideally, although i understand that the reality of utility regulation renders this idea impossible. As long as it’s illegal for anyone but the franchise holder to string a wire, the system stinks. So I’m for a fundamental overhaul of that. And I think this utopia-system–the one I have in mind–almost assuredly has a place for distributed generation, where it makes sense. Best ,w

A March 17, 2015 at 11:04 pm

There is no obvious answer here, but it seems to me that payment to the owner of the solar panels is a wonderful incentive for other people following in their footsteps, and shouldn’t we be celebrating that fact? Instead of complaining we should be jumping onboard. More people making money means more people then wanting to get one themselves, and that makes our world a tiny bit greener.

William Yeatman March 18, 2015 at 7:13 am

Hi A, Thanks for reading/posting. Going green is fine, but I object to regressive subsidies (And subsidies in general), be they imposed on the taxpayer, the ratepayer, or (as is the case with solar panels) both. Also, it’s true that if everyone had solar panels, the whole system would collapse (indeed, it would collapse well before everyone got a solar panel installation). This is due to the reasons I talk about in the post. Best w

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