What is net metering?

Net metering is a billing policy that lets home or business owners with solar panels (or other small renewable systems) get credit for the extra electricity they generate. In simple terms, any solar energy your home doesn’t use is sent to the utility grid, earning bill credits for it 1 2. Those credits can then offset the electricity you draw from the grid at other times (like at night, cloudy days, or when you are consuming a lot of power) 1 2. Some people describe this as “making the meter run backward,” since the old physical power meters would only spin in one direction (consumption) 2. Net metering exists in most U.S. states as a way to encourage clean energy use, but its value to consumers varies state to state based on regulations 4.

How Net Metering Works

Net metering uses a bi-directional metering scheme that can track electricity flowing into your house from the grid and out of your house to the grid 3. When your home needs more electricity than your solar panels produce (for example, at night or on a cloudy day), you buy electricity from the utility and a debit is recorded. When your panels produce surplus power (for example, midday when production is high), the extra flows to the grid and you get a credit 3 5.

At the end of the billing period (usually monthly), the utility looks at debits and credits and calculates the net usage:

• If you produced more than you used: you are a net producer for that period. You will have a credit for the surplus you supplied to the grid. For example, if your building used 500 kWh but your solar sent 700 kWh to the grid, you’d have a 200 kWh credit (700 − 500). This credit would appear on your bill (often as –200 kWh) and carry over to offset future electricity use 6 7.
• If you used more electricity than you produced: you are a net consumer. You pay for the net electricity you pulled from the grid. For instance, if you consumed 500 kWh from the grid but exported 200 kWh from your solar, you would be billed for the net 300 kWh (500 − 200) at the agreed rate 6.

Example month

In the example below, more electricity is used than generated for the month. Solar has lowered the bill for this month but not eliminated it. This scenario assumes no credits rolled over from previous months.

In most net metering arrangements, any excess credits roll forward to future months’ bills if you generate more than you use 7. This means if you built up credits during sunny months, you can use them later when your solar panels produce less. However, many utilities have an annual "true-up" or reset. For example, at the end of a 12‑month period, any leftover credit might be paid out at a lower rate or simply reset (forfeited) if not used 3. Net metering helps you get value from all the solar energy you produce, even if you don’t use it personally. This significantly reduces electric bills for solar owners, as they only pay for their net energy consumption.

Variations in Net Metering Policies

While the core idea of net metering is the same, specific rules vary by state and utility. Net metering policies are set by state laws and utility regulations, so not everyone in the U.S. has identical terms 6. Here are some major variations across different regions:

• Availability: Most states (over thirty as of 2023) have mandatory net metering programs for utilities, but a few states do not. In some states without official net metering laws, certain utilities voluntarily offer it 5. A handful of states (e.g. Arizona, Hawaii, Nevada) ended or replaced their net metering programs with different systems 6. These alternative programs still credit solar customers for excess power, but often not at the full retail rate.
• Credit Rate: The value of the credits can differ. In many places, excess solar energy is credited at the full retail electricity rate (the same rate you pay for power) 7. This is classic net metering and gives one-to‑one credit (1 kWh sent to the grid cancels 1 kWh used later). However, some utilities credit excess generation at a lower rate. For example, a utility might credit your extra solar power at their avoided cost or wholesale rate, which is what it costs them to buy or produce power (this rate is lower than the retail price) 5. A few states use special pricing formulas like a “value of solar” tariff or time-of‑use rates, where credits are higher during peak demand times and lower at others 5.
• Monthly vs Annual Settlement: Nearly all net metering programs allow month‑to‑month rollover of kWh credits 7. Differences arise in how and when any remaining credits are settled. Some utilities perform an annual settlement (or true‑up) where at a set time each year any unused credits are handled according to their policy. In some cases, leftover credits at year’s end are paid out at a modest rate or converted to a monetary credit; in other cases, they expire with no payout (encouraging customers to size systems so generation roughly matches annual use) 4.
• System Size Limits and Eligibility: Net metering rules often set a cap on how large your solar system can be to qualify (for example, a common limit for residential systems is around 10 kW to 25 kW). They may also cap total enrollment (the total capacity of all net-metered systems on a utility’s grid). Additionally, some states extend net metering to other renewable sources (like small wind turbines) and even to community solar projects, while others restrict it to certain customer classes or technologies 4.
• Additional Fees or Charges: In some areas, utilities have introduced small fixed fees or minimum monthly charges for net‑metered customers to help cover grid maintenance costs. These fees vary widely. For instance, a state might allow a utility to charge solar homes a few dollars per month as a grid connection fee. Similarly, some states have considered or adopted requirements like switching net‑metered customers to time‑of‑use billing or demand charges to ensure fairness between solar and non‑solar customers 7.

Overall, the core principle across net metering policies is that solar homeowners are credited for the power they supply to the grid, reducing their bills. The differences usually involve how generous those credits are and how long they last. Always check your state and utility’s specific net metering rules, since the exact terms (credit rates, limits, and payout rules) can be quite different from one place to another 6. Despite the variations, net metering remains a key driver for residential solar adoption by making renewable energy a financially attractive choice for many families.

References

1. Public Utilities Commission of Nevada - What is Net Metering?:
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2. U.S. Department of Energy - Grid-Connected Renewable Energy Systems (Net Metering):
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3. Southern California Edison - Solar Net Metering Fact Sheet:
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4. Public Utilities Commission of Nevada - What is Net Metering?:
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5. N.C. Clean Energy Technology Center (DSIRE) - Net Metering Policies (2023):
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6. National Conference of State Legislatures - State Net Metering Policies:
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7. Congressional Research Service - Net Metering: In Brief:
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