What is Net Metering? Benefits, How It Works, and Solar Savings

Net metering is a billing arrangement that allows solar panel owners to send excess electricity back to the utility grid in exchange for credits on their energy bill. This system essentially lets you use the grid as a virtual battery, storing the value of your surplus solar production for later use.

If you're considering a residential solar system or already have one installed, understanding net metering can help you maximize your savings. In this article, we'll explain how net metering works, who qualifies, its benefits and drawbacks, and how it compares to solar battery storage solutions.

How Net Metering Works

Net metering works on a simple principle. When your solar panels produce more electricity than your home needs, that excess energy flows to the utility grid, and you receive credits in return. Later, when your panels aren't generating enough power, you can use those credits to offset the electricity you draw from the grid.

Let's break down each step of the process:

Solar Panels Generate Electricity

The net metering process begins when sunlight hits your solar panels and converts into DC (direct current) electricity. Your solar inverter then transforms DC power into AC (alternating current) electricity that your home appliances can use.

During peak sunlight hours, which depend on your geographic location, your solar system often produces more electricity than your household consumes. This surplus energy is where net metering becomes valuable, rather than letting that excess power go to waste.

Excess Energy Flows to the Grid

When your solar array generates more power than you need, the surplus electricity automatically flows through your meter and onto the utility grid. This process happens seamlessly without any action required on your part.

Your inverter manages this energy flow, ensuring that excess production is safely exported to the grid. The electricity you send out helps power nearby homes and businesses, reducing overall demand on the utility's power plants and contributing to a cleaner energy mix in your community.

Meter "Spins Backward" or Credits Appear

Traditional analog meters would literally spin backward when you exported electricity, reducing your recorded consumption. Modern digital meters track energy flow in both directions, calculating the net difference between what you use and what you produce.

For every kilowatt-hour (kWh) you send to the grid, you receive a credit on your utility account. These credits typically equal the retail rate you would pay for electricity, though compensation structures vary by state and utility company.

Electricity Is Drawn From the Grid When Solar Isn't Sufficient

Your solar panels don't generate electricity at night or during heavy cloud cover. In these cases, your home automatically draws power from the grid. This is where your accumulated credits come into play.

Instead of paying full price for this grid electricity, your credits offset the cost. At the end of each billing period, your utility calculates the net difference—if you've produced more than you've consumed, you may carry credits forward or even receive payment, depending on your utility's policies.

Who Is Eligible for Net Metering?

Whether you’re eligible for net metering depends on several factors, including: 

• Location
• Utility provider
• System configuration

According to the National Conference of State Legislatures (NCSL), 38 states, Washington, D.C., and four territories in the U.S. offer full programs, while utilities in Idaho and Texas provide voluntary options. Some states use alternative compensation models instead, such as value-of-solar tariffs or buy-all, sell-all structures, which credit solar generation differently than traditional net metering.

Homeowners and small businesses with grid-connected solar systems are the primary beneficiaries of net metering programs. If you own your property and have installed solar panels, you likely qualify—though renters or those with community solar subscriptions may also be eligible in some areas.

Your utility company's policies play a significant role in determining eligibility. Most utilities have capacity caps that limit the total amount of net-metered solar in their service territory or restrict individual system sizes to a percentage of your annual electricity consumption. These net metering rules vary significantly between providers.

Also, state regulations influence program availability and terms. Some states mandate robust net metering programs with full retail rate compensation, while others have modified policies that offer reduced rates or alternative arrangements like feed-in tariffs.

For example, the general program net metering caps in Massachusetts limit participation through utility-specific caps based on each company’s highest historical peak electricity demand. Utilities maintain separate caps for private (7%) and public (8%) projects. Once a cap is reached, new customers cannot participate in net metering. This is why it’s important for homeowners and businesses to confirm local cap availability before installing solar.

From a technical standpoint, your system must include a grid-tied inverter approved by your utility and meet local electrical codes. You'll also need a bi-directional meter capable of measuring energy flow in both directions—most utilities provide this at no additional cost when you connect your solar system.

Benefits of Net Metering

Net metering offers compelling advantages that make solar energy more accessible and financially attractive. Here's why this billing arrangement has become a cornerstone of residential solar systems across the country:

#1. Lower Electricity Bills

The most immediate benefit of net metering is reduction in your monthly electricity costs. By offsetting your grid consumption with credits earned from excess solar production, you can decrease—or even eliminate—your utility bills.

For instance, your solar panels produce 30 kWh on a sunny day, but your home only uses 20 kWh. Without net metering, that extra 10 kWh would be lost. With net metering, you receive credits worth the retail electricity rate for those 10 kWh, which you can apply to evening or nighttime usage when your panels aren't producing.

Over the course of a year, these daily credits add up substantially. Many homeowners with properly sized solar systems reduce their electricity bills by 70% to 90%, with some achieving net-zero energy costs during high-production months.

#2. Maximized Solar Investment

Net metering ensures you extract full value from every kilowatt-hour your system produces. Without this arrangement, you'd either waste excess production or sell it back at wholesale rates far below what you pay for grid electricity.

With net metering, your solar kit essentially becomes more valuable because no energy goes to waste. Whether your panels produce power at noon or your home needs electricity at midnight, you receive fair compensation for your solar investment. This improved return makes switching to solar power more financially compelling and shortens your payback period.

#3. Energy Independence

While net metering doesn't provide complete independence from the grid, it reduces your reliance on utility companies. You become a producer of electricity, not just a consumer, shifting the power dynamic in your favor. This partial energy independence offers protection against rising electricity rates. 

According to the U.S. Energy Information Administration’s Short-Term Energy Outlook, retail electricity prices have risen faster than inflation since 2022 and are expected to keep increasing through 2026. Areas that already have higher electricity prices are likely to see the largest increases, widening regional cost differences for consumers. So, as utility prices increase over time, your self-generated solar power maintains its value.

#4. Positive Impact on the Environment

Net metering encourages broader adoption of renewable energy by making solar more economically viable. With incentives, such as federal tax credit, more homeowners can afford to go solar, so the collective impact on carbon emissions and fossil fuel dependence becomes substantial.

The electricity you export to the grid displaces power that would otherwise come from conventional sources. During peak solar production hours, your excess energy helps meet neighborhood demand with clean power instead of electricity generated from coal or natural gas plants. This environmental benefit extends beyond your own household to your entire community.

#5. Easy Battery Integration

Net metering works well alongside solar battery backup systems, creating a flexible energy management strategy. You can choose to store some excess production in batteries for nighttime use while sending additional surplus to the grid for credits.

This hybrid approach offers the best of both worlds. Your solar battery provides backup power during outages—something net metering alone cannot offer—while net metering maximizes the value of production that exceeds both your immediate needs and battery capacity. Many homeowners with hybrid solar systems use batteries to cover evening peak rates, then rely on net metering credits for overnight and early morning consumption.

Are There Any Potential Drawbacks of Net Metering?

While net metering offers substantial benefits, it does have some drawbacks, such as:

• Policy changes. Utilities and state regulators periodically revise net metering programs, sometimes reducing compensation rates or imposing new fees. California's transition to Net Billing in 2023, for example, significantly reduced the value of exported solar electricity for new customers. So, your current favorable terms might not last indefinitely.
• Excess credits don't always carry full value. Some utilities reset credit balances annually, paying you a reduced wholesale rate for any remaining surplus. Others cap the amount of credits you can accumulate. This means oversizing your system doesn't necessarily translate to proportionally greater savings.
• No backup power during grid outages. When the utility grid goes down, your solar system must shut off for safety reasons—even if the sun is shining. This limitation surprises many who assumed their panels would keep their lights on during blackouts. Only an off-grid solar system or battery-equipped hybrid solar system can provide true backup capability.

Net Metering vs. Solar Battery Storage

Understanding the differences between net metering and battery storage helps you make informed decisions about your solar kits and overall energy strategy.

Net metering uses the grid as virtual storage, crediting you for excess production that you can draw against later. You're not physically storing electricity—you're participating in a financial arrangement with your utility. This approach requires no additional equipment beyond your grid-tied system and involves no energy storage benefits like backup power.

On the other hand, batteries physically store excess electricity in your home for later use. With hybrid inverters, you can store surplus production during the day and use it at night, reducing grid dependence even further than net metering alone. Also, batteries provide backup power during outages—a capability net metering simply cannot match.

Each approach has its pros and cons. The table below compares net metering vs. battery storage, so you can see which trade-offs you get with each option:

Overall, combining net metering with battery storage delivers the best of both worlds, i.e. savings, protection from policy changes, lower energy costs, and reliable backup power when you need it most.

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Final Thoughts

Net metering transforms how solar panel owners interact with the electricity grid, turning excess production into valuable credits that offset future consumption. This billing arrangement makes solar energy more financially attractive by ensuring no kilowatt-hour goes to waste.

While net metering offers compelling benefits—lower bills, maximized solar investment, and environmental impact—it's wise to understand its limitations and consider complementing it with battery storage for complete energy resilience. As solar technology continues advancing and policies evolve, staying informed helps you make the best decisions for your home's energy future.

What Is Net Metering? FAQ

#1. Can I use net metering if I have a solar battery?

Yes, net metering and solar batteries work together effectively. Your battery stores electricity for backup power and evening use, while net metering captures value from any excess production beyond your storage capacity, maximizing overall savings from your solar investment.

#2. How are net metering credits calculated?

Net metering credits are typically calculated at your utility's retail electricity rate per kilowatt-hour exported. However, some utilities use time-of-use rates or reduced compensation structures, so credits may vary based on when you export power and your specific utility's policies.

#3. Are all states in the U.S. offering net metering?

No, net metering availability and terms vary significantly by state. While most states have some form of net metering, policies differ in compensation rates, system size limits, and eligibility requirements. Check your state's regulations and utility policies for specific details.

#4. Can small businesses take advantage of net metering programs?

Yes, many net metering programs include commercial customers alongside residential participants. Small businesses with commercial solar systems can offset operational electricity costs and benefit from the same credit structures available to homeowners, subject to utility-specific capacity limits.

Disclaimer: The content on Portable Sun is for informational purposes only. Electrical work can be dangerous—always consult a qualified professional. We are not liable for any injuries, damages, or losses from installation or use. Always follow local regulations and safety guidelines when handling electrical components.