How net metering works in solar energy

Key takeaways

• Net metering gives you credits for extra solar energy sent to the grid.

• You need solar panels and a special meter to use net metering in a state that allows it.

• Some states are replacing net metering with lower-paying alternatives.

You probably know that a solar energy system can save you money on your power bill, but did you know it can potentially get you money back from your energy provider, too? Net metering allows homeowners to return excess energy to the grid for credits.

In this article, we go over what net metering is and how it affects overall solar panel costs. We also cover the potential future of net metering policies and how that could impact you and your finances.

What is net metering in solar energy?

Net metering allows homeowners who generate excess energy to return power to the grid. Energy providers typically pay market rates—or the same amount they charge users—for the energy that is returned to the grid through bill credits.

How does net metering for solar energy work?

To give an example, let’s say you use 900 kWh in your home in a given month at 14 cents per kWh. If you get all of your power from the grid, this would result in a bill of around $119.

Under a net metering system, if your panels generate 950 kWh one month, the additional 50 kWh will be credited to your account. If you only generated 850 kWh the next month but still used 900 kWh, the credit for the 50 kWh you returned to the grid in the previous month would apply to your account and bring your balance down to zero.

Keep in mind that utilities often charge minimum rates for power delivery, so a bill of exactly $0 might not be possible.

Net metering system components

In effect, net metering is a working agreement between the homeowner and the traditional energy provider. Under these programs, both parties can serve as suppliers and customers. To make this system work, there are three main components involved.

Solar PV system

The first component in a net metering setup is the solar photovoltaic (PV) system installed at your home. You do not need specialized solar panels to take part in net metering. Your system only needs to do the regular job of solar panels: converting sunlight into DC energy and transforming that DC energy into AC energy via an inverter.

Bidirectional meter

Where you do need specialized equipment is in the energy meter you use. Homes using energy from the grid typically use a one-way system to track the energy that flows into the home. To participate in net metering, you will need what’s known as a bidirectional meter. This meter tracks both the energy going into your home from the grid and the energy going out from your home to the grid.

Utility grid

The last component in a net metering system is the energy grid itself. You can think of the grid as your sole customer and as a source of backup energy. When your solar PV system generates more energy than you use in your home, you can sell that energy back to the grid. 

If your system doesn’t generate enough energy to cover your needs, such as when there are extended periods of cloud cover or if you have high rates of usage at night, you can buy it from the grid just as you would if you didn’t have solar panels. In that sense, you can also think of the utility grid as a kind of virtual energy storage.

Net metering vs net billing policy structures

Net billing is an alternative to net metering systems. While these two function similar to each other, they are not synonymous.

Net metering gives you a full 1:1 credit for each kWh of electricity you send back to the grid. If it costs 14 cents, you get 14 cents. By contrast, net billing gives you a wholesale rate for your excess energy. If the residential rate is 14 cents, you might get 7 cents back as an example. Some net billing rates can be very low compared to the residential rate.

Benefits of net metering for users and utilities

Net metering has potential advantages for both energy users and utility providers. There are several ways in which these policies can be mutually beneficial.

Net metering benefits for energy customers

As an energy customer, net metering helps you by:

• Providing access to low-cost or free energy, depending on how much you send back

• Maintaining grid access as a source of backup or supplemental power

• Helping to offset the cost of solar panels through energy savings

• Shortening the payback period for solar equipment

Net metering benefits for energy providers

There are also some advantages of net metering for utility companies:

• Increasing grid capacity without increasing production

• Reducing energy demands on the power grid

• Maintaining customer base while encouraging renewable energy adoption

Is net metering going away?

It’s easy to understand why many utility companies aren’t big supporters of net metering. While there are some benefits for providers—like grid stability and reduced need for new infrastructure—net metering ultimately lowers demand for traditional energy sources such as coal, natural gas, and nuclear power. That can eat into the profits of major energy providers like Duke Energy, Pacific Gas & Electric, and others.

Partly for this reason, several states—including California, Florida, and Nevada—are starting to scale back or replace net metering policies. They’re shifting to alternatives like net billing, adjusting compensation rates for excess solar generation, or in some cases, ending the programs altogether. Unless new federal or state legislation steps in to protect net metering, you’ll likely see this trend of policy rollbacks continue across the United States.

Net metering policies by state

In the table below, we’ve provided a list of net metering and other power billing policies in each state. These policies are current and accurate at the time of publication, but may have changed since. Be sure to check state policies to confirm the information listed below.

Other financial considerations of solar power

Net metering is great to have, but there are other financial considerations for solar. When evaluating the cost of going solar, it's important to factor in additional incentives and payment options that can impact your total investment:

• Solar energy rebates: Offered by states, municipalities, or utilities, these rebates provide cash incentives for installing qualifying solar equipment. They can reduce your upfront installation costs by hundreds or even thousands of dollars.

• Solar panel financing: Solar loans help homeowners spread out the cost of their system over time. Many loans offer low or zero down payments, with fixed monthly installments that may be offset by energy savings.

• Solar panel leasing: With a lease or power purchase agreement (PPA), you don’t own the system—your solar provider does. You pay a monthly fee or per-kWh rate, often lower than your current utility rate, with little or no upfront cost. However, we typically recommend avoiding this type of option since you don’t benefit from tax credits or other incentives.

Bottom line on net metering

Net metering enables homeowners with solar energy equipment to get credit for energy they generate but don’t use. Policies vary by state, but where available, net metering can help further lower your power bill and shorten the payback period for your solar panels. However, net metering is just one component to consider. Take a detailed look at your expected savings and solar panel cost, since solar panels aren’t best for everyone.

FAQ about net metering

Below are a few frequently asked questions about net metering:

What is net metering and how does it work?

Net metering lets solar users send excess electricity to the grid in exchange for bill credits, usually at the retail rate. These credits reduce future electricity bills, offsetting costs when solar production is low.

What are the disadvantages of net metering?

Utility companies may reduce compensation rates, and not all states offer it. Some programs cap system size or limit eligibility, and changes in policy can affect long-term savings.

Is net energy metering worth it?

In states with full retail-rate credits, net metering can significantly lower electricity bills and speed up solar payback. It’s less valuable in areas with reduced or wholesale-rate compensation.

How much do I get for selling electricity back to the grid?

It depends on your state and utility. Some pay the full retail rate per kilowatt-hour, while others offer lower wholesale or avoided-cost rates. Compensation ranges from about $0.03 to $0.15/kWh.