Net Metering: Everything You Need to Know

Smart Electric meter with solar energy panel
Solar energy and smart meters make net metering possible. onurdongel/Getty Images.

Net metering is the way that owners of solar panels get credit for the electricity that they send into the grid. An electricity meter can measure the amount of electrons moving in both directions. Net metering is the difference between the amount of electricity the utility sends to a customer and the amount of electricity the customer sends to the utility.

States have set up net metering programs in order to incentivize the adoption of solar energy. Earning money from the excess electricity they generate allows solar customers to recoup the cost of their investment rather fast. Over the lifetime of a system, those savings can run into the tens of thousands of dollars. Without net metering, the price of solar systems would be beyond the budgets of most homeowners. Bernadette Del Chiaro, Executive Director of the California Solar and Storage Association, calls net metering “the foundation of the…local rooftop solar market,” and warns that its removal would lead the solar industry to shut down in 18 months.

How Net Metering Works

Rooftop solar panels don't need to be connected to the grid, and with batteries large enough to store excess energy, living off-grid is entirely possible. But most homeowners with rooftop solar systems rely on the grid for electricity during times when the sun isn't shining. Solar panels are most productive during the middle of the day, but the average home owner's peak electricity demand is in the early morning and in the evening. (This is known as the "duck curve.") With net metering, home owners can use the grid as their battery storage device, which is much less expensive than installing home batteries that can run into the thousands of dollars. 

There is no national standard for net metering, and how it is implemented varies widely from state to state. Federal regulations under the Public Utility Policies Act require utilities to purchase electricity from renewable energy sources at the “avoided cost rate,” the rate they would pay to purchase electricity from power plants. Net metering policies developed by states require utilities to compensate renewable energy sources at retail rates — the rate utilities charge customers — which is much more beneficial to solar owners.

The Benefits of Net Metering

While net metering benefits solar owners financially, it also benefits the electric grid and the utilities that maintain it. When solar owners supply electricity to the grid, the electricity is redistributed to other, nearby customers, usually served by the same substation. This is less costly to utilities than electricity that is distributed from power plants located miles away. The more solar customers contribute power to the grid, the more that the grid looks like interconnected “microgrids,” supplying more and more of their own energy within a single substation. This allows utilities to spend less money purchasing fossil fuels, maintaining existing grid infrastructure, and retrofitting older power plants to maintain energy output. And the more decentralized power generation becomes, the more resilient the grid is to large-scale power outages due to failure at a central power plant. When the state of Texas suffered widespread blackouts in February 2021, homes with solar panels and battery storage were able to keep their lights on.

The Future of Net Metering

As of 2021, nearly every U.S. state has some sort of net metering program, some more robust than others. Net metering policies, written by state legislatures and regulated by public utility commissions, need to consider the sometimes competing interests of solar energy owners, utility customers, the utilities and their investors, and society at large. How a state gives weight to those different interests has led to great variety in net metering programs across the country — and great debates between those competing interests. Investor-owned utilities, represented by the Edison Electric Institute, have fought net metering in many states, arguing that net metering shifts the burden to non-solar customers to maintain the overall electricity system. A study by the Brookings Institution, however, concluded that “[n]et metering…frequently benefits all ratepayers when all costs and benefits are accounted for,” noting, for example, that solar installations add power to and increase the stability of the electricity grid without the utility incurring the cost of development of new energy sources.

At its most basic, net metering is simple: solar customers get paid for the electricity they generate. But net metering gets complicated when state policies determine who is covered, which types of utilities are required to honor net metering, the rate at which solar customers are compensated, the maximum size for a solar system to qualify for net metering, varying electricity delivery and other fixed charges, time-of-use charges, rollover policies, rates for offsite community solar farms, and a number of other factors. The future of net metering relies on public utility commissions and state legislators.

Frequently Asked Questions
  • How is net metering calculated?

    Net metering is calculated by subtracting the energy you produce with your home solar system from the energy you take from the grid. The end result is the energy you owe the utility company for.

  • What is the advantage of net metering?

    With net metering, any energy you produce with your solar panels is deducted from the energy you take from the grid. Without net metering, you could be charged for the energy you produce and send out on the utility company's meters in addition to being charged for the energy you actually use.

  • What's the difference between net metering and gross metering?

    In a gross metering arrangement, the utility company compensates the consumer for the total amount of energy generated through solar and sent to the grid. In a net metering arrangement, the consumer is billed for the energy they used minus the energy they supplied to the grid.

  • What's the difference between net metering and net billing?

    Unlike with net metering, in which consumers offset the energy they use with the energy they generate, net billing allows consumers to use their own supply of solar energy instead of sending it all to the grid. Net billing generally works out to be a more expensive arrangement because the consumer pays the full retail rate for grid-supplied energy.

View Article Sources
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  2. Could a Change in California Net Metering Policy Cripple Residential Solar?The Freeing Energy Podcast, March 2, 2021.

  3. "Qualifying Facility Rates and Requirements Implementation Issues Under the Public Utility Regulatory Policies Act of 1978." Federal Register.

  4. Distributed Generation Valuation and Compensation.” Pacific Northwest National Laboratory, U.S. Department of Energy, 2018.

  5. Lambert, Fred. “Tesla Powerwalls and other home battery packs proving more than useful in Texas blackouts.” Electrek, February 18, 2021.

  6. Database of State Incentives for Renewables & Efficiency. North Carolina Clean Energy Technology Center.

  7. "Edison Electric Institute Campaign Against Distributed Solar." Energy and Policy Institute.

  8. Muro, Mark and Devashree, Saha. “Rooftop solar: Net Metering Is a Net Benefit.Brookings Institution, 2016.