Behind-the-meter solar

The short version

Behind-the-meter (BTM) solar is a solar system installed on the customer's side of the utility meter — typically rooftop, carport, or ground-mount at a commercial or industrial facility. Every kWh the system produces is consumed on-site first, offsetting a kWh that would otherwise be purchased from the grid at full retail rates. Excess generation flows back through the meter to the grid under net metering, net billing, or a value-of-solar tariff — depending on the jurisdiction. The economics stack four streams: energy offset, demand charge reduction, export credits, and tax incentives.

Net metering, net billing, and value-of-solar tariffs

Net metering (NEM) credits exported solar at the full retail electricity rate. For every kWh exported, the customer's bill is reduced by one kWh at retail — effectively making the grid a perfect battery at retail prices. Traditional NEM is still in place in many states but is being phased out as solar penetration grows.

Net billing compensates exports at a lower rate, usually based on utility avoided cost or a separately calculated export rate. California's NEM 3.0 (which took effect April 2023) cut export credits to roughly 25% of historical NEM levels, fundamentally changing the economics of new California commercial solar — and significantly increasing the value of pairing solar with battery storage to self-consume more output.

Value-of-solar tariffs attempt to calculate a full societal value of solar exports — including avoided generation, transmission and distribution capacity, environmental benefits, and grid services. These can be higher or lower than retail depending on methodology. New York's Value of Distributed Energy Resources (VDER) tariff is the leading US example.

Demand charges — the underappreciated value driver

Commercial electricity bills typically have two main components: an energy charge ($/kWh) and a demand charge ($/kW based on peak 15-minute or hourly demand during the month). Demand charges can represent 30–50% of a commercial bill, particularly for facilities with peaky load profiles. Solar that produces during the demand interval reduces the metered peak, lowering the demand charge directly.

The effectiveness depends on load shape. Office buildings, schools, and retail with strong daytime peaks see substantial demand charge reduction from solar. Facilities with evening peaks (restaurants, fitness centers) or 24/7 baseloads (data centers, manufacturing) see less demand charge value from solar alone — which is where pairing solar with battery storage becomes economically critical.

Federal and state incentives

The federal Investment Tax Credit under Section 48E provides 30% of installed cost as a non-refundable tax credit. Domestic content (10 percentage points) and energy community siting (10 percentage points) bonuses can push the effective credit to 50%. MACRS depreciation allows the project to be depreciated over 5 years on an accelerated schedule, providing additional after-tax cash flow. Project owners can also transfer the ITC to a third-party buyer for cash, simplifying capital structure for tax-disadvantaged owners (nonprofits, municipalities, businesses without tax appetite). The One Big Beautiful Bill Act, signed July 4, 2025, terminated the 48E ITC for solar facilities placed in service after December 31, 2027, with an exception for projects that begin construction within 12 months of enactment (before July 4, 2026). Commercial BTM solar projects in development through mid-2026 race to qualify; later projects face a hard PIS deadline.

State and utility incentives vary widely. California's Self-Generation Incentive Program (SGIP) primarily targets storage; Massachusetts SMART provides a per-kWh production incentive; New York's NY-Sun program offers MW-block rebates for commercial systems. Some utility territories also offer interconnection cost rebates or fast-track approvals for systems under a defined size threshold.