What is net metering and how does it work?

Updated June 30, 2020

There are many advantages to using solar energy to power your home in 2020. Benefits for homeowners who choose to install solar panels include the use of clean energy, greater independence from the electric grid, and most importantly, big financial savings.

So, what makes installing solar panels such a great way to save money? The answer to that is net metering.

What is net metering?

Net metering is a solar incentive that requires your utility to purchase excess solar electricity that your solar panels produce at the full retail value of electricity.

In other words, when your solar panels produce more electricity than your home needs, that excess power will be sent to the power grid. Your utility will then pay you for that power sent to the grid, usually in the form of energy credits on your utility bill. This credit will be equal to the full retail price of electricity.

Solar panels will produce more electricity in the summer months and less during winter. Net metering allows you to build up these credits on your utility bill during the summer months, so that you can use them in the winter to offset your energy use.

If you have the right size rooftop solar system, you could make enough solar energy to cover all of your electricity usage for the year. This would wipe out your electric bill entirely!

How does net metering work?

Usually, your solar panel system will generate the most electricity during the middle of the day. This also happens to be when homes use the least amount of energy. Solar panels don’t produce energy at night, which is typically when homes consume the most energy.

The combination of high solar energy output and low electricity usage means that your solar panels are producing a lot of excess energy during the day.

This video explains how a grid-connected solar system works to power a home during the day:

When your utility offers net metering, that excess electricity your solar panels produce can be exported to the grid. Your utility will then give you a credit that can be used to offset your electricity usage later in the day, when your home is using more electricity, but your solar panels aren’t producing.

Here’s an example - let’s say your solar panels produced 10 kWh of electricity between noon and 1:00 PM. During the same time period, your home consumed 2 kWh of electricity. The extra 8 kWh your solar panels produced would be sent to the grid, and you would receive 8 kWh credits to be used later in the day when your solar panels don’t produce enough electricity.

In other words, you don’t pay for all the power you import from the grid. Instead, your power exports cancel out some, or even all, of your grid usage. This means you only have to pay your utility the ‘net’ difference. That’s why it’s called net metering!

Do I need to install special net metering equipment?

In order to participate in net metering, you will only need to add one additional piece of equipment to a standard grid tied solar panel system - a bi-directional meter.

Bi-directional electricity meters are capable of measuring electricity that flows to and from the grid. This allows your utility to track how much energy you consume and how much you produce. Your solar installer or utility will be able to install a bi-directional meter for you.

What are the benefits of net metering?

Utility bill savings

The biggest benefit of net metering to solar homeowners is the utility bill savings, as net metering can greatly reduce your monthly power bills. In fact, you can bring your electric bill down to zero if your system is designed to offset all of your electric usage.

This results in tens of thousands of dollars in savings over the life of your solar system, and your panels can quickly pay for themselves.

Calculate your payback period when you install solar panels on your home

No need for expensive battery storage

Net metering also ensures that you get the most out of your solar panels. When your utility offers net metering, it allows you to use the grid as a ‘virtual’ battery to store the economic value of your excess solar power.

Without it, you would need to install a solar battery to store your excess electricity, which can run you thousands of dollars. Otherwise, your excess power would just get sent to the grid, without you getting any value from it.

How long will it take to pay off my solar system with net metering?

Areas that offer full retail net metering will have shorter payback periods than areas that do not offer net metering. On average, solar panel systems have a payback period between four and nine years.

There are a number of factors that go into determining the payback period for your solar energy system, such as:

The size of your system
The amount of electricity your home consumes
The price of electricity in your area
The cost of installation
Applicable tax credits or rebates

Is net metering available in all states and cities?

Net metering is technically mandated in 38 states, and Washington D.C. In addition, major utility companies in Idaho and Texas offer net metering to their solar customers without being mandated to do so.

However, not all net metering policies are created equal. Net metering has come to be a catch-all phrase that is used to describe utilities purchasing solar power from homeowners. True net metering is what we have described throughout this article, where you receive the full retail rate of electricity for each kWh of power you send to the grid.

Some states only require utilities to compensate customers at the avoided cost rate of electricity for solar power sent to the grid, which is substantially lower than the retail rate and decreases your solar savings.

Other states have alternative programs, including things like ‘gross metering’ in Louisiana and feed-in tariffs in Hawaii. Alabama, South Dakota, and Tennessee don’t offer net metering or any alternative programs. You can find out specific information about programs in your area by selecting your state from the below table.

The following table shows what states offer the various types of net metering and which have alternative programs as of June 2020:

State	Full-retail net metering	Avoided cost net metering	Alternative program
Alabama	No	No	No
Alaska	Yes	No	No
Arizona	No	No	Yes
Arkansas	Yes	No	No
California	Yes	No	No
Colorado	Yes	No	No
Connecticut	Yes	No	No
Delaware	Yes	No	No
Florida	Yes	No	No
Georgia	No	Yes	No
Hawaii	No	No	Yes
Idaho	Yes*	No	No
Illinois	Yes	No	No
Indiana	Yes	No	No
Iowa	Yes	No	No
Kansas	Yes	No	No
Kentucky	No	No	Yes
Louisiana	No	No	Yes
Maine	Yes	No	No
Maryland	Yes	No	No
Massachusetts	Yes	No	No
Michigan	No	No	Yes
Minnesota	Yes	No	No
Mississippi	No	Yes	No
Missouri	No	Yes	No
Montana	Yes	No	No
Nebraska	No	Yes	No
Nevada	No	No	Yes
New Hampshire	Yes	No	No
New Jersey	Yes	No	No
New Mexico	Yes	No	No
New York	Yes	No	No
North Carolina	Yes	No	No
North Dakota	No	Yes	No
Ohio	Yes	No	No
Oklahoma	No	No	Yes
Oregon	Yes	No	No
Pennsylvania	Yes	No	No
Rhode Island	No	Yes	No
South Carolina	No	No	Yes
South Dakota	No	No	No
Tennessee	No	No	No
Texas	Yes*	No	No
Utah	Yes	No	No
Vermont	Yes	No	No
Virginia	Yes	No	No
Washington	Yes	No	No
Wisconsin	No	No	Yes
West Virginia	Yes	No	No
Wyoming	No	No	Yes

*Major investor-owned utilities in these states offer full retail net metering even though there is no state mandate requiring them to do so.

We recommend consulting with local solar installers for the most accurate and up-to-date information on net metering in your area, as policies are always changing and can vary between utilities.

If your state allows it, having a net metered solar system is the best way for you to take advantage of renewable energy while saving thousands of dollars over the lifetime of the system.

See how much net metering can save you when you install solar on your home

Author: Catherine Lane | SolarReviews Blog Author

Catherine is a researcher and content specialist at SolarReviews. She has strong interests in issues related to climate and sustainability which led her to pursue a degree in environmental science at Ramapo College of New Jersey.