Are Solar Feed-in Tariffs and Net Metering the Same?
20 October 2020
When solar power systems are installed in buildings, there may be times when their generation is higher than consumption. Surplus electricity is normally exported to the power grid, and it can be compensated through net metering or a solar feed-in tariff. These two concepts are sometimes confused, but there are important differences between them.
There are many cases in which generation from solar panels may exceed the consumption of the property where they are used. For example, if a company only operates from Monday to Friday, most of the electricity generated on the weekend is not used. There may be a small consumption if there are devices that operate 24/7, such as computer servers hosting critical applications for business. However, most of the electricity produced at this time will be exported to the local power network.
This article will describe the differences between net metering and feed-in tariffs, and the best strategy to maximise solar power savings in each case.
What Is Net Metering?
With net metering, all surplus generation from solar panels is credited at the retail electricity price. In other words, you only pay for the difference between net consumption and surplus production. To visualize this concept, assume that a property with solar panels consumes 1,000 kWh from the local electric service in a month, with an electricity price of 35 cents/kWh. However ,the solar power system has a surplus production of 400 kWh.
- Normally, the power bill for 1,000 kWh would be $350.
- However, the 400 kWh are subtracted at 35 cents each, equivalent to $140.
- The net energy charge is $210 ($350 minus $140).
- In this case, you could simply multiply the net energy consumption of 600 kWh by the electricity price, also getting the $210 result.
Net metering is beneficial for homeowners and businesses, since each kWh from solar panels subtracts the same amount from your power bill – it doesn’t matter if electricity was consumed locally or exported. When net metering is available, solar power savings are determined only by the total electricity generated, regardless of usage.
Unfortunately, net metering is no longer available for new solar power systems in Australia. The Northern Territory offered it until April 2020, but the benefit was removed for solar installations completed after that date.
What Is a Solar Feed-in Tariff?
When your electric company applies a feed-in tariff (FIT) for solar power, surplus electricity is credited at a rate different from the retail price. This FIT is normally lower, under the argument that transmission and distribution costs are still assumed by the local electric company. In other words,
- Your electricity tariff includes generation costs, delivery costs, and profits.
- Your solar FIT is only based on the avoided generation costs.
In Australia, most solar feed-in tariffs are 2-4 times lower than retail electricity prices. Therefore, consuming electricity from solar panels gives you higher savings than selling it. When the difference between the retail kWh price and the FIT is too large, installing battery systems can become a viable option. In this case, kilowatt-hours that are stored for later use become more valuable than those exported to the grid.
To illustrate how feed-in tariffs work, we will repeat the simplified example from the previous section. The property uses 1,000 kWh at 35 cents/kWh, but the 400 kWh of surplus generation are credited at only 15 cents.
- The energy charge for 1,000 kWh is still $350.
- However, the 400 kWh are only credited at 15 cents each, equivalent to $60.
- In this case, the net payment increases to $290
The net consumption is 600 kWh in both cases. However, the property with net metering pays less, since the extra generation from solar panels is credited higher. When a feed-in tariff is applied, you can increase savings by consuming as much solar generation as possible, and minimising exports to the local network.
When solar power was starting in Australia, some feed-in tariffs were actually higher than retail electricity prices. In these cases, it made sense to export the full output of solar panels, and get all the electricity needed from the grid. However, these favourable tariffs are no longer available. Before 2010, some owners of solar power systems could get solar FITs as high as 60 cents/kWh. For an electricity consumer paying 35 cents/kWh, a solar panel output of 1,000 kWh would be worth $350 if consumed, but $600 if exported.