Arizona Net Billing Guide [2024]

Key Takeaways

• Arizona no longer offers net metering, but has a net billing program instead
• Under net billing, excess solar energy is credited at a lower rate than retail electricity prices
• The excess generation credit rate varies by utility but is updated annually and cannot decrease more than 10% per year
• Homeowners lock in their credit rate for 10 years when they install solar
• Despite lower credit rates, solar can still provide significant savings for Arizona homeowners

You may have heard about net metering, a popular incentive that compensates solar owners for the excess energy they send to the grid. Under net metering, you can essentially use the grid as a free battery, sending excess solar energy to the grid during the day and drawing that energy back at night. This helps solar homes dramatically cut their electricity bills or even eliminate them entirely.

Unfortunately, Arizona no longer offers a traditional net metering program. In 2016, state regulators replaced net metering with a new solar compensation model called net billing. But don’t worry – going solar is still a fantastic investment for most Arizona homeowners! Net billing still allows you to get credited for your excess solar production, just at a lower rate than before.

In this article, we’ll get into the details of how net billing works and what it means for your solar savings. We’ll explain how the excess generation credit rate is calculated, how it differs from the old net metering policy, and most importantly, how much you can expect to save by going solar under net billing.

How Net Billing Works in Arizona

Under Arizona’s net billing program, when your solar panels generate more electricity than your home is using, that excess energy is sent to the grid. Your utility then credits you for that excess solar at a special rate called the “excess generation credit rate” or “Resource Comparison Proxy (RCP) rate”. This rate is lower than the normal retail electricity rate you pay when you draw energy from the grid.

Here’s a comparison of the current excess generation credit rates and retail electricity rates for Arizona’s major utilities:

 

As you can see, the excess generation credit rates are significantly lower than the retail electricity rates – about 50% lower for APS and UNSE, and 37% lower for TEP.

It’s important to note that these excess generation credit rates are updated annually based on utility calculations, but thanks to a key consumer protection, they can only decrease by a maximum of 10% per year. This provides solar homeowners with some certainty and predictability around their solar savings.

Even better, when you install solar panels, your excess generation credit rate is locked in for 10 years. So even if the credit rate declines for new solar customers in future years, you’ll keep the same rate you had when you installed your system for a full decade. This is a powerful incentive to go solar sooner rather than later.

While net billing credit rates are certainly lower than the old net metering rates, solar panels can still provide substantial savings for Arizona homeowners. This is especially true when you factor in other lucrative solar incentives like the 30% federal solar tax credit and Arizona’s $1,000 state solar tax credit. With these incentives and the state’s rich sunshine, most Arizonans will still see significant electricity bill savings over the 25+ year lifespan of their solar panels, even with net billing.

Example Savings Calculation

Let’s walk through an example savings calculation for a typical Arizona home to see how much you could save with solar under the net billing program.

Assume you install a 6 kilowatt (kW) solar panel system on your roof. Based on current Arizona solar prices, a system of this size would cost approximately $18,000 before incentives. However, thanks to the 30% federal solar tax credit and Arizona’s $1,000 state solar tax credit, your net cost would be much lower:

$18,000 – ($18,000 * 30%) – $1,000 = $11,600

So after incentives, your solar investment is just $11,600. Now let’s estimate your annual electricity bill savings.

Based on Arizona’s sunshine and average household electricity use, a 6 kW solar system would generate about 10,800 kilowatt-hours (kWh) of electricity per year. Let’s assume 50% of that solar energy is used directly at home and 50% is exported to the grid.

The 5,400 kWh of solar used at home offsets electricity you would have had to purchase from the utility at the retail rate, which averages about $0.15 per kWh in Arizona. So that portion of your solar generation saves you:

5,400 kWh * $0.15/kWh = $810 per year

The remaining 5,400 kWh of excess solar sent to the grid earns you credit at the lower excess generation credit rate, which is about $0.08 per kWh on average. So that exported solar earns you:

5,400 kWh * $0.08/kWh = $432 per year

Adding those two savings streams together, your 6 kW solar system would save you approximately:

$810 + $432 = $1,242 per year

That means your $11,600 net cost would be paid back in about:

$11,600 / $1,242 per year = 9.3 years

So in under 10 years, your solar panels would pay for themselves in electricity bill savings. Over the 25+ year lifespan of your panels, you’d enjoy well over a decade of free solar electricity!

Of course, your exact savings will depend on your specific home, electricity use, and solar system design. But this example illustrates how, even with net billing instead of net metering, solar panels remain an excellent investment for Arizona homeowners. Most systems will still pay for themselves in under 10 years and provide substantial long-term savings on electricity costs.

The History of Net Metering in Arizona

Net metering in Arizona

Public policy and political issue regarding solar energy rates in Arizona

 

Arizona once had a full retail rate net metering policy, which credited solar customers for their excess energy sent to the grid at the same price they paid for electricity from the utility. However, utilities like Arizona Public Service (APS) argued that this net metering structure resulted in a “cost shift” to non-solar customers. They claimed solar customers weren’t paying their fair share to maintain the grid, leading to higher rates for everyone else.

In 2016, the Arizona Corporation Commission (ACC) ended retail rate net metering in response to these utility concerns. Regulators adopted a new “net billing” compensation structure. Under net billing, excess solar energy exported to the grid is credited at a lower rate, called the Resource Comparison Proxy (RCP), rather than the full retail electricity rate.

Solar advocates pushed back against this change, arguing that the utilities’ cost shift argument was overblown. They warned that slashing the compensation rate for solar exports would hurt Arizona’s growing solar industry by making solar savings less attractive for homeowners.

So far, Arizona’s solar industry has proven resilient and continues to grow, even with the switch to net billing. However, the RCP rate has declined each year since net billing was implemented.

In 2017, the RCP was around 12 cents per kilowatt-hour – close to the retail electricity rate. But by 2023, it had fallen to just 7.6 cents per kWh, about half the average retail price of power.

As credit rates keep dropping, it could make the economics of going solar more challenging. Solar advocates worry that without the more generous compensation provided by net metering, Arizonans will have less incentive to adopt solar. But for now, solar installations remain strong thanks to Arizona’s abundant sunshine and solar-friendly policies like the state tax credit.

The Future of Net Billing

In late 2023, Arizona’s net billing policy faced a major challenge. Utility APS proposed slashing the RCP credit rate by over 30%, from $0.07619 per kWh to just $0.05161 per kWh. Even more concerning, APS suggested eliminating key consumer protections like the 10% annual cap on RCP decreases and the 10-year lock-in period for solar customers.

These changes would have significantly reduced solar savings for new customers and introduced much more uncertainty into the solar value proposition. Solar advocates sounded the alarm, arguing the proposal would stifle Arizona’s solar growth and make it harder for families to afford solar.

In response, over 3,000 public comments were submitted to the ACC in opposition to the proposed changes. Homeowners, solar companies, and clean energy supporters all urged regulators to reject APS’s proposal and maintain the current net billing structure.

In a win for solar, the ACC ultimately decided in December 2023 to leave the existing net billing policy in place, with no changes to the RCP methodology, 10% annual cap, or 10-year lock-in. However, the future of net billing remains uncertain, as utilities continue to push for further reductions to solar compensation.

This ongoing battle over net billing underscores the importance of going solar sooner rather than later. Homeowners who install solar now can lock in today’s RCP credit rates for a full 10 years, protecting them against any potential future changes. The longer you wait, the more risk you face of lower credit rates or the loss of key protections like the lock-in period.

In other words, delaying your solar decision could mean missing out on substantial savings down the road. By acting now, you secure your solar savings for the next decade and ensure you maximize the financial benefits of your clean energy investment. Don’t let uncertainty over net billing stop you from taking advantage of solar. The best time to go solar is today!

Final Recap

Here’s a roundup of what we were discussing:

• Arizona no longer offers net metering, but has a net billing program instead
• However, under net billing (which Arizona switched to in 2016), excess solar energy is credited at a lower rate called the “Resource Comparison Proxy” or “avoided cost” rate. This is significantly less than the retail electricity rate.
• Currently, the avoided cost rate ranges from about 7-10 cents per kWh for Arizona utilities, while the average retail electricity price is around 13-15 cents per kWh. So net billing credits are roughly 50% lower than what they would be under net metering
• The RCP rate can only decrease 10% per year and is locked in for 10 years when you go solar, providing certainty
• Solar still provides major savings for Arizona homeowners, especially with the federal and state tax credits
• Regulators considered reducing RCP rates and protections in 2023 but left the current policy in place after public opposition
• To secure the most savings, homeowners should go solar soon to lock in today’s RCP rates before potential changes