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What is net metering and how does it work?

Last updated 11/30/2022

Net metering is an electric billing tool that uses the electric grid to store excess energy produced by your solar panel system. Under net metering, energy your solar panels produce and you don’t use is credited back to you. On a cloudy or rainy day when your panels aren’t producing enough energy, the utility grid will feed your home energy, and count that energy against the credits you’ve banked over time. As a solar customer, you will only be billed for your “net” energy usage. Also known as net energy metering or NEM, net metering is the solar industry’s foundational policy.

net metering

How does net metering work?

Say you install a net metered solar panel system. When your solar panels are producing more electricity than you are using at any point during the day, the electricity is sent back to the grid, running your electric meter in reverse. When you use more electricity than your solar panels are producing, either at night or on cloudy days, you pull electricity back from the grid, running your meter forwards. At the end of the month or year, you are billed the net amount of what you put onto the grid and what you took off the grid: hence “net metering”.

With a correctly sized solar energy system, you can produce enough electricity to match your home’s electricity use for the entire year. However, the amount of electricity your solar panels produce will vary throughout the year: more in sunnier summer months, and less when the sun is lower in the sky and sets earlier in the winter. Net metering helps you to account for these seasonal differences in solar production by crediting you for the excess electricity your panels produce so that you can use it at a later date.

“Net metering can give you a new monthly paycheck” Fact or Fiction? 

With net metering, you can receive utility bill credits for the electricity that your solar panels produce. However, in most cases, you won’t receive a cash payment from your utility for your excess solar electricity. If you do generate more electricity than you use in a year, utilities in some states will let you carry credits over into future years, while others will reduce your credits. With that in mind, it’s important to size your solar panel system to be large enough to offset as close to 100 percent of your electricity needs as possible, but not to produce significantly more than you use. 

Why does net metering exist?

Net metering is designed for two primary purposes: first, to encourage the greater adoption of solar throughout the country; and second, because utilities–and the electricity grid as a whole–can benefit from the influx of low- to no-cost solar energy onto the grid. Solar energy can help balance the cost of purchasing electricity from other resources, especially during summer months when electricity is often the most expensive on the hottest–and sunniest!–days of the year. 

How do electricity bills work with net metering?

In general, most homes will produce excess electricity in the summer months and will use more electricity from the grid in the winter. Because these variations in production are fairly predictable, your utility won’t send you a monthly check when you produce more than you need. Instead, you will build up extra credits during the summer months so that you can draw from them at night and during the winter months when you need them. With the right design, your system can generate enough power to match your total electricity use for a year, even if you produce much more than you need in some months and much less in others.

When your solar power system generates more electricity than you use over the course of a month, you will receive a credit based on the net number of kilowatt-hours you gave back to the grid. If you produce less electricity than you use in a given month, you must buy electricity from your utility to make up the difference. In these instances, you would pay for the electricity you use, minus any excess electricity your solar panels generated.

Other types of net metering

While traditional net metering is the most popular way to receive credits back from solar energy generated, there are other ways depending on where you live and what your state and utility provider have available.

Buy all/Sell all

As opposed to other models of metering, the buy all/sell all model works by allowing users to sell 100% of the energy generated by their panels to the utility company. In return, they get 100% of their home’s energy from their utility at the retail rate. Two separate meters are required for this type of net metering and means that the user will pay the difference between the amount generated and amount consumed. With buy all/sell all net metering, you don’t directly consume any of the energy generated by your solar panels.

Net billing

More common in commercial applications, this type of net metering allows you to actually use the electricity generated by your solar panels with the excess electricity sold to utility companies. However, with this type of net metering, you can’t use credits on future billing cycles.

What about going off the grid?

In essence, net metering is like having the grid serve as a giant solar battery. If you install an "off-grid" solar panel system, you don’t receive the benefits of net metering, as you won’t be able to rely on the grid as a massive battery: you’ll need your own batteries to keep the lights on once the sun goes down. For nearly all residential (and commercial) applications, staying connected to the grid is your best bet.

Use net metering to save by going solar

Net metering is the best solar policy, since it allows you to store every unit of energy you produce with solar to be used at a later date from the grid. In fact, thanks to net metering, you can save tens of thousands of dollars over the lifetime of their solar panel system by offsetting your need for electricity from the grid.

While net metering is not the only way that utilities compensate homeowners for going solar, it is by far the most common and effective solar policy. Keep reading to see if your state offers net metering, and be sure to check out the Database of State Incentives for Renewables and Efficiency (DSIRE®), which tracks net metering and other policies

To see how much you can save with solar, check out the EnergySage solar calculator, or register for a free account on EnergySage to see custom solar quotes from local installers today.

net metering during the day

net metering at night

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