What is net metering? [Simplified]

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Solar net metering is the process of being credited for any extra energy your solar system sends back to the grid. Your utility company will recompensate you on your future energy bills.


Solar power has been on the rise in recent years. In 2017, more than half of all new electricity-generating capacity came from solar panels.

One of the most commonly asked questions about this form of renewable energy is whether or not it’s worth it financially to go solar.

Some people have found success with going green by installing a residential photovoltaic (PV) system and having a net metering agreement in place with their local utility company.

What is net metering?

Net energy metering (NEM), also known as net metering or solar net metering, is the process of being credited by your utility company for the extra energy your solar system generates and sends back to the grid.

Net metering helps utility customers to offset any power they draw from the grid during periods of low solar output such as when the sun isn’t shining. 

How does net metering work?

The utility monitors the meter on your property to track how much energy you use. This process entails looking at how much electricity in kWh (kilowatt hours) you used for that month.

They then compare that to how much energy your solar panels produce. Any excess energy you produce is sent back into the grid for others to use. If you withdraw more than you produce, you pay the utility for any extra usage.

If you produce more power than you use in a given month, your account is credited and rolled over to future months. These credits can be “banked” for periods of low output, depending on your energy supplier. For example, credits you earn in August can be used in December when the days are shorter and the weather worsens.

Under most net metering agreements, the utility will reimburse you for excess electricity through energy credits toward your future bill. Your utility company pays retail rates for your excess energy.

A net meter only requires only one meter to measure the surplus energy generated.

Let’s breakdown how your solar panels earn you a credit:

1) Your solar panels receive sunlight and power your home’s appliances

2) The extra electricity your solar panels produce is sent to the power grid

3) When your solar energy system produces low/no power, your home will draw energy from the utility grid to power your appliances

4) Utility companies monitor this every month. If your solar panels produce more energy than you have consumed, you will receive an energy credit that you can use in future months

How long do net metering credits last?

For net excess generation, several systems have been put into place to ensure reconciliation and compensation of consumers. The two most common approaches are cyclic and perpetual rollover.


Cyclic net metering is when the utility compensates the solar energy that a homeowner produces for excess generation after a certain period. This approach is usually over a fixed period such as monthly or annually (annualized net metering has become the most common process). 

However, some utility providers do not compensate for net excess generation. Any unused credits are reset at the end of the cycle. However, this approach has been criticized as it can force customers to size their facilities at much less than their annual consumption.

Perpetual Rollover

The other option that is increasingly being adopted in net metering programs worldwide is the allowance for the perpetual rollover of net excess generation. This approach allows for the net excess generation to be carried over indefinitely. 

This system of compensation has been promoted for two main reasons. Firstly it assures that there is no incentive for customers to oversize their facility. Secondly, it removes the complication of year-end accounting and allows utilities to avoid paying out physical remuneration for excess kWh generated.

Allowing for the perpetual rollover of excess generation has also been promoted due to its ability to allow for differences in the seasonal effects of renewable energy technologies. For example, a solar energy system will generate most electricity during the day in the summer months. As such, if a customer-generator wishes to generate as much electricity as can be consumed, then they would need to overproduce in summer and roll over the excess generation to the other months, this approach is not possible if a cyclic net metering approach is adopted.

What are Time-of-Use rates, and how does it work?

To incentivize customers to use less energy during these peak periods, many utilities are implementing “Time of Use” rates (also known as TOU or Time-Based rates).

Under TOU rates, utilities charge customers based on how much and when they use power from the utility.

In the simplest cases, your utility will offer different rates depending on the time, whether it is a weekend or weekday. In some cases, the season: off-peak during hours of low demand and on-peak when demand is usually highest. They may offer a mid-peak rate for times of average use or even a super-peak rate when electricity demand is traditionally very high. Super-peak will typically be scheduled for the late afternoon and early evening in the hottest months of summer.

Seasonal rates occur for many reasons, but air conditioning is a big reason for high demand in the summer. Also, the electric grid can become strained during bitter cold snaps in winter, as furnaces and heat pumps crank up to keep homes and businesses warm.

Benefits of Net Metering

The benefits of net metering are many, but the main benefits are that it aids the solar industry by giving utility customers an incentive to go solar.

Another important benefit is that these systems allow for improved grid management as they can help meet peaks in demand which usually occur during the day.

Net metering reduces pressure on the grid

Net metering helps decrease the grid strain during peak demand periods when utility customers consume significant resources.

Shorter payback periods for system owners

Solar customers who take advantage of net metering programs will shorten their payback period. A lower payback period is a direct result of reducing your electricity bills with net metering credits.

Will I receive cash payments for net metering?

No, utility companies will not compensate you in cash for the excess solar electricity you generate. However, depending on your net metering policy, you will be given net metering credits towards future bills.

What is virtual net metering (VNM)?

Virtual net metering is a billing system for community solar. Solar power generated at the solar farm location is shared amongst subscribers who have purchased a share of the energy. You will receive credits on your utility bill for the solar energy that your share of the solar array produces.

Is net metering a federal law?

No, net metering is a policy permitting residents to sell excess electricity from their solar installation back to the grid. These standards vary by state and utility, so be sure you understand your local regulations.

Some states, such as Washington D.C, have mandatory net metering rules that all utilities must follow.

Is net metering available in all states and cities?

Net metering is not available in all states. If it is available in your state, the net metering policies are dictated by your utility company. To view if net metering is available in your state, head over to the database on DSIRE for more information.

How is net metering different from battery storage?

Battery storage is a physical device used for storing energy, whereas net metering allows you to draw as much or as little energy from the power grid as you would like.

Can I use solar storage with net metering?

Yes, net metering is often used in conjunction with battery storage. As your solar panel system produces energy to fulfill your electricity needs, your battery storage system will receive energy until it is charged.

Only when your battery backup is charged will energy start to be sent to the grid in exchange for credits. And, during times of need, you will be able to draw energy from your battery instead of the grid, which can offer protection against peak rates.

If you seek to gain energy independence and decrease your reliance on the grid, battery storage would be a great way to achieve this.

Summary: Is net metering worth it?

Commercial or residential customers with solar panel systems should utilize net metering because it is a great way to receive credits for producing their own electricity.

Sending excess power to the electric grid has many benefits, such as promoting distributed generation systems, energy independence, and reducing strain on the electricity grid.

Without net metering or solar storage, the excess electricity you generate would be wasted.

If you are considering solar power, then finding a net metering program will help to maximize the benefits of your investment.

Are you interested in owning a solar power system or have questions about net metering? 

Our energy advisors are ready to give you a financial breakdown of how much you’d save when installing solar. Fill in the form below for more information, or you can call us at (609) 225-4101


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Daisy Perez

Daisy Perez

Hi, I'm Daisy. I love solar energy! My job is to help people get the most out of their solar panels, and it's so amazing being able to do that every day.

I also enjoy taking trips to Blackwater Falls State Park in West Virginia for some serenity time – it's a great place for me to recharge my batteries and just relax.

But when I’m not doing those things, you can find me at home with my dogs or cooking up something yummy in the kitchen.

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