If you've been researching solar power or you’ve considered installing a solar panel system for your home, you've probably come across the term net metering. Sounds like a complicated and fancy term, right? Don’t worry, it’s not rocket science.
Net metering is actually a pretty straightforward concept that could help you lower your electric bills. This guide will explain what net metering is and how you could start doing it to save some serious cash.
Like you can probably guess from the name, net metering is a metering program that allows you to send excess electricity generated by your solar panel system back into the grid.
Basically, you can lend or sell your unused solar power to your local utility company, and they’ll credit you for it. It’s almost like trading stocks, but without the Wall Street drama.
When your solar panels produce more electricity than you need to run your home, or more than your battery bank can store, you can set up your solar power system to have that extra energy flow back into the grid. The magic happens when your local utility company tracks this contribution using a net metering system, which essentially spins your meter backward.
Depending on the arrangement you have in place with that company, you’ll most likely earn net metering credits that can offset the cost of the electricity you pull from the grid during times when your solar panels aren’t generating enough—like at night, on cloudy days, or just during periods of high electricity demand where your solar power system isn’t cutting it.
Think of it as a two-way street for electric power where everyone wins. You sell them solar power you don’t need at the time for credits you can then apply towards grid power you pull when you do need it.
Let’s make things easy with a really simplified example. Suppose your rooftop or backyard solar panel system generates 1,200 kilowatt-hours (kWh) of electricity in a month, but you only use 900 kWh over that same period. That’s 300 kWh of excess generation you could have sent back to the grid.
Under a net metering program or net meter arrangement, your utility bill would get credited for that 300 kWh, typically at whatever the standard retail rate of electricity was at that time. When your home needs to pull power from the grid at a later date, those meter credits kick in to cover the costs. It’s a win-win.
In most cases, the utility company would provide a net meter, which would work with your hybrid solar inverter to measure the amount of power you’re selling back into the grid system.
In doing so, you pretty much try to save as much money as possible running your home on free solar electricity, then sell the power your batteries can’t store back into the grid. When the time comes that you need grid power, you’ve banked those credits, so your utility bill will be much lower or potentially even nothing.
Here’s the kicker: the details of how this works will depend on your state’s net metering policy and the specific metering rules set by the electric utility company you work with.
Some states and public utility commissions are more generous than others, so it’s worth checking your local net metering laws or consulting with your utility provider about your region’s solar policy.
The main benefit of net metering is obvious: it saves you money. But that’s not all. Here are some other perks:
By balancing out when you use solar power and when you feed solar into the grid for metering credits, you can effectively avoid the cost of pulling electricity from the grid during high-demand, peak-price times.
Plenty of utility companies now run time-of-use rates, where the cost of electricity fluctuates throughout the day. With a net metering arrangement, you can use your stored solar power or metering credits when prices are high, so you only have to pay full price for grid power when it’s at its cheapest.
Even if you don’t have adequate energy storage (like a high-capacity battery system), you can still maximize the value of your solar installation by sending excess electricity back to the grid.
It’s almost like renting out a spare room for some extra cash… but you’re doing so with your solar power system.
By participating in a net metering system, you’re beginning to reduce your reliance on the grid. While you still have the option to pull grid power when you need it, you leverage your own renewable energy system, either using your solar power directly, or to off-set your energy costs.
Helping people achieve power independence is one of the main reasons why we started The Solar Lab in the first place. So, we’re all for net metering given it helps people take those first steps towards off grid living.
Speaking of which, programs like net metering agreements make residential solar systems more financially accessible, as homeowners can directly and immediately see a return on their investment after they install their system.
While off grid power systems can be really useful for backup purposes and generating power in remote areas, we like that net metering setups help people embrace solar power without having to alter their day-to-day life in an overly noticeable way. They can pull grid power when they need it, but still use their system to save money.
Not all net metering programs are the same, as these arrangements tend to vary depending on where you live. Because of this, it's always worth taking the time to look into your utility provider's specific policies.
To make this easier, here’s a quick overview of some of the different ways net metering credits are managed:
Some policies credit you at the full retail price of electricity, while others offer a lower “wholesale” rate for power your solar power system sends back into the grid. It goes without saying that the utility companies with the more generous net metering rules are more beneficial for homeowners.
Typically, net metering programs are the ones that offer full retail compensation for solar power sold into the grid, where net billing programs use more of an avoided cost model. Don’t worry, we’ll explain it in more detail below.
If you’re part of a community solar initiative or have multiple properties with grid-tied solar power systems, you might benefit from virtual net metering, which allocates credits across different accounts or locations. This allows you to decide where you would like your credits to be applied and when.
Rather than being credited for each kWh you have supplied to the grid, so you can pull that same amount from the grid at a later time for no cost, you simply receive a cash payout or a set discount on your bill.
This is usually referred to as an avoided cost price per kWh, which is usually awarded at a price that is equal to or less than the wholesale rate. It’s similar to net metering but usually less generous.
For example, California used to offer net metering under the Net Energy Metering (NEM) 2.0 program, where credits awarded to homeowners were just a small fraction less than the retail rate (they docked a small fee for various environmental initiatives).
Now, under NEM 3.0, which is a net billing program in all but name, the value of solar power fed into the grid is just 75% of the retail rate. While those already enrolled in NEM 2.0 are grandfathered in, those with new solar power systems will have to accept the reduced net billing rate.
Idaho also shifted to net billing in late 2023, offering reduced compensation credits of just 5.96 cents per kWh, which is significantly below the retail rate the state’s utility companies charge homeowners for grid power.
With these types of net billing arrangements, your excess generation is reimbursed at a rate that’s lower than the cost of electricity you buy from the grid. Better than nothing, but less appealing than a standard net metering arrangement.
Some metering policies set limits on the size of your solar power system or the total amount of solar energy that can qualify for the program. For example, Indiana has a maximum net metering credit of just 1,000 kWh per month, while Oklahoma limits residential customers to just 100 kWh per month.
In most cases, states with limits expand the totals for non-residential customers, like those with registered solar farms, but individual residential properties have strict limits on what they’ll be credited for feeding power back into the grid.
This is something you’ll want to research ahead of time, especially if you’re planning on investing heavily in building out a large scale system.
In states where net metering laws don’t exist or have been phased out, you might encounter alternative policies like the net billing or energy trading programs mentioned above. These can still provide financial benefits, though they might not be as lucrative as traditional net metering credit systems.
The U.S. Department of Energy keeps tabs on solar policies nationwide, so it’s a good idea to check their website for updates. As of right now, there are only three states that don’t offer some form of net metering or net billing: Alabama, South Dakota, and Tennessee.
Still, it’s a good idea to check what the policies are in your home state before you invest in a grid-tied system if your intention is net metering.
Net metering can be really beneficial for homeowners, but it’s not a one-size-fits-all type of arrangement. Here are some scenarios to consider:
Not all electric utilities participate in net metering programs, so you’ll need to confirm availability in your area.
If you can’t participate in a net metering arrangement, you could focus on using peak shaving to reduce the cost of your electricity bills. You don’t really need an elaborate system for that type of setup, just a few panels, a power station, and some sort of smart transfer switch, like this Anker F3800 + Smart Home Panel Bundle.
If you’re not generating enough excess electricity for the arrangement to be profitable, or even worth your time, you might be better off just focussing on building a backup system or using your stored solar power to run specific appliances directly.
Let’s say you just have a few solar panels in your backyard, you might be better off using the power they generate to run something like a heater in your garage, rather than going through the hassle of selling that power back into the grid for credits.
In doing so, you’d cut down on your monthly bills a bit by using free electricity to run your garage heater, but you wouldn’t have to deal with the back-and-forth headaches of setting up an arrangement with your utility company.
Again, even just pairing a bigger portable power station with solar panels would be one way to cut your bills by powering specific appliances with solar.
The components required for net metering are pretty much the same pieces of equipment you’d need to run any solar power system, but with a few small tweaks.
Obviously, you need solar panels and some sort of mount or racking system to angle the panels in a way that they can generate power effectively.
You’ll also need a grid-tied or hybrid power inverter, as this will convert the direct current (DC) power your solar panels generate into the alternating current (AC) that the grid and your home requires.
Since you will be feeding power back into the grid, it’s essential that you have a grid-tied inverter, rather than an off-grid inverter. You’ll also need some sort of net meter, or bi-directinoal meter, which can be provided by the utility company itself. This device simply measures the amount of electricity that is being fed into the grid.
Like any solar power system, you’ll also want batteries that are sized for your system, as this will allow you to store the solar power you are not selling back to the grid. With your battery, you’ll also require a charge controller, but plenty of modern grid-tied inverters now include built-in charge controllers, so you shouldn’t have to worry about that.
If you’re still feeling a bit confused about what you’d need, or even what the differences are between the various types of solar power systems, we recommend watching our LEARN educational series, which breaks down the basics of solar in a really simple, beginner-friendly way.
As more people move towards independent and renewable energy sources, we’d assume that net metering programs will continue to grow and expand. Some states are looking into time-of-use pricing, while others are experimenting with virtual net metering and other approaches.
Whatever the case, solar power is here to stay, and programs like these make it easier for individual homeowners to embrace it. However, before you go full steam ahead, we’d recommend contacting your local utility provider, or even just taking a look at any net metering policies they may have posted on their website.
Weigh up your options, assess your electricity costs and needs, then decide whether or not net metering is a viable option for your specific situation.
Current Deals: https://signaturesolar.com
Use Code: SOLARLABSAVE50 for $50 Off Your Order
Current Deals: https://shopsolarkits.com
Use Code: THELAB for 4% Off Your Order
Explore more practical tips, guides, and insights to help you get the most out of solar
More HOWTOs >
