It is common knowledge that we can save money with solar installation. And, we have often heard about exporting surplus solar energy generated to the main grid with a net-metering mechanism. So, is a residential solar installation a potential income generator?
Let us examine the facts and find out the answer to this question.
What is net-metering?
Net metering is an electricity billing mechanism that compensates homeowners with a solar power system for the electricity exported. This arrangement with utility companies is allowed for both residential and commercial consumers.
Utility consumers who have installed solar energy systems for their own energy needs are authorized to transfer the extra energy generated by the system to the grid. A bi-directional meter connected to the main switchboard keeps track of the inflow and outflow of electricity.
While many states have passed laws on net metering, some others have it as a regulatory decision. In many states where net metering is not enacted, utility companies offer the arrangement voluntarily. All these mean that the compensation for the energy exported varies from state to state.
How are you compensated for exported solar energy?
When the sun is shining bright during the daytime and the solar power system is generating electricity close to its potential, it may be generating more than your energy demand. This will leave you with some surplus energy. Instead of bringing down the energy production, the net-metering mechanism allows you to upload the surplus energy generated to the main grid.
By exporting the surplus energy, you are not losing out on the electricity uploaded or giving it away for free. The utility companies will compensate you for the energy uploaded. The bi-directional meter attached to the main switchboard keeps track of the influx and efflux of electricity from your home.
As mentioned earlier, the compensation for the energy exported varies from state to state. Most states offer credits for the exported energy that can be used against the electricity used from the grid.
When the sun is not shining, such as at nighttime or when it is cloudy or rainy, or when the solar energy generation is below par due to the unavailability of direct sunlight, the consumers can draw energy from the grid to bridge the gap.
In fact, the net metering mechanism acts more like community storage rather than a money-making arrangement. You are not selling electricity to the utility, rather juggling the energy inflow and outflow to ensure uninterrupted electricity supply for your home.
If you are lucky enough to receive sufficient sunshine during the daytime to cover your power demand for the entire day, your energy bill will be zero. Else, you may have to pay for the electricity that is not offset by the credits.
How much money can you make selling solar energy?
The net metering mechanism compensates you for the electricity exported at the retail rate. This means the prices of power consumed and exported are the same. However, this is not the case in all the states because not all states have a net metering mechanism in place.
In those states where there is no arrangement for net metering, solar system owners are typically compensated at a wholesale rate that may include only the production cost and not transmission and distribution costs. This means you will be compensated at a lower rate for the exported energy than for the energy drawn from the grid.
States like New York have their own program to deal with such arrangements. This program assigns a different value to the solar energy exported to the grid and compensates accordingly.
Why isn’t the net metering mechanism an income-generating arrangement?
The incentives for domestic solar installations are designed to promote solar energy generation in homes to meet their own demand. They are not meant as a money-making arrangement for solar owners.
To enforce this, many utility companies limit the size of domestic solar installation to 100% of their average usage. This means you cannot generate surplus solar energy on purpose to qualify for the net-metering arrangement.
Besides the compensation for exported power offered by utility companies, the price of the solar system itself is a big deterrent to its money-making potential.
If you are considering installing a solar power system that can generate power more than your average requirement, be warned that it is not a financially viable proposition. The cost of the solar system goes up exponentially as its power generation capacity increases.
In addition to the initial investment, you need to factor in the space required for a larger system and the availability of sunshine for producing more electricity.
In short, a domestic solar energy system can help you save money but not make money by selling electricity.
What is an SREC?
Solar renewable energy certificate or SREC is a certificate given to solar owners on generating 1,000 kW-h, i.e., 1 megawatt-hour. Solar owners can register these certificates and sell them in the SREC market to make some money.
SREC is part of a program called Renewable Portfolio Standards or RPS. This program is designed to promote clean energy, strengthen the green portfolios of utility companies, and help the states reach their clean energy goals.
When you sell your SREC, you are not actually selling the electricity generated by your solar system. The electricity for which you get your SREC is either used or exported to the grid by you.
SREC is a special incentive offered for your commitment to the green cause.
How much money can you make selling SRECs?
The selling price of SRECs varies vastly from state to state and time to time. The value of SREC is decided by the SREC market based on demand and supply. This means in those states with high levels of solar awareness and a high density of solar installations, the price of SREC will be lower.
In the states with low solar installations, SRECs will be high in demand. As these states scramble to meet their clean energy goals, the higher price of the SRECs is designed as a motivation for more and more consumers to switch to solar power.
Again, just like in the case of the net metering mechanism, installing a larger solar system to earn more SRECs is not a good idea from an economical point of view. The money earned by selling SRECs will be a pittance when compared to the substantial upfront investment required for a solar system.
Are solar installations assets?
The domestic solar installation is meant to help homeowners switch to clean energy and gain energy independence among other benefits. It is not intended as an income-generating opportunity for homeowners. In fact, rules and regulations are in place to prevent such endeavors.
Indeed, you cannot make money with your solar system by selling surplus energy or SRECs. This makes us wonder whether the solar installation is an asset or a liability? And, if it is an asset, how is its return on investment?
Solar systems are assets, as they produce an essential commodity. The electricity generated has value and it can save you money even if it cannot help you make money. By using the net metering mechanism, you can bring down your electricity bill which is an unavoidable expense otherwise.
You may be able to recover a big chunk of the price of your domestic solar installation by availing of the array of federal, state, and local incentives offered for them. Along with the savings in the electricity bills, it is estimated that the cost of installation can be recovered in 7-8 years.
With the average lifespan of a solar system being 20-25 years and the maintenance cost being minimal, the energy generated by the system for the remaining years may be treated as free. This is a better return on investment than any other home appliance or device.
Bottom line
A domestic solar system helps in reducing the electricity bill and saves money. SRECs and other incentives can lessen the burden from its high upfront cost. The simple truth is that it is not an income-generating investment.