What is Net Metering - All You Need to Know

By: Tom | November 24, 2025

What is Net Metering?

Home owners with solar power can save money utilizing net metering. Here's how it works. If your solar panels create more electricity than you're using, extra power gets sent back to the grid. Your utility company then gives you credits on your bill. This helps lower how much you owe for electricity. It also allows you to recoup your solar energy setup investment faster. With net metering, you remain connected to the grid. So, you still have access to electricity when the sun isn’t shining and your panels aren't producing. The net metering system is also very beneficial to your energy provider. Return of excess power helps stabilize the grid during peak energy demand times. This relieves stress on overworked electricity infrastructure.

Net metering has much to offer, but these programs are not without their shortcomings. Regulations differ from state to state and programs are not yet available everywhere. We’ll discuss everything you need to know…

Confirm Eligibility for Net Meter System

Net metering is available in many but not all areas. Eligibility is determined by your state, city, and even your electricity company. The easiest way to confirm its status in your area is to contact your local power provider. They can also tell you what specific net metering programs (if any) are available. Your provider is also a good source of valuable information about grid-connection requirements.

Net Metering Local and State Policies

Net metering policies throughout the US vary greatly and are changing every day. Many states are currently transitioning from one program to another as the solar landscape continues to evolve. It's important to learn the rules specific to your state and utility company. The main differences you'll find relate to how electricity your solar system produces is credited. Some areas offer full retail credit for every kilowatt-hour (kWh) sent back to the grid. Others might offer a lower rate depending on when the power is exported. We'll discuss the most common net metering options. These programs and compensation structures are not available everywhere and specifics will also vary by state and even by utility provider. Yet, reviewing basic concepts of these plans should provide a baseline for what you may possibly find in your area.

Evaluating Types of Net Metering Programs

We've listed some of the most common net metering programs available. There are also also many new programs rapidly emerging at the state and local levels. NY, for example is transitioning to a new net metering program called Value of Distributed Energy Resources (VDER). This program, sometimes referred to as Value Stack, is designed to more accurately reward solar users. Instead of simply issuing credits on a one for one basis, a variable rate reflecting the actual cost of power is applied. While NY is the first to adopt VDER, other states like Illinois and New Hampshire are exploring similar methods. Expect even more innovative concepts and changes in the coming years.

True Net Metering (Full Credit for Your Solar Power)

True net metering offers full credit for every unit of electricity you send back to the power grid. Think of your home as a bank: every unit (kWh) of power you send to the grid is like putting a dollar in your account. When you need power from the grid later (like at night), you use those "dollars" to pay for it. Utilizing a special meter, the utility company tracks how much power you send out and how much you take in. If you send out more than you take in, you get a credit that rolls over to your next bill. Some areas even allow these credits to roll over for a full year. This helps you save up extra power when the sun shines and use it when the days are short or skies are overcast.

Time-of-Use (TOU) Net Metering

With Time-of-Use (TOU) net metering, the value of your solar power changes throughout the day. Electricity is worth more during "peak" times like in the late afternoon and early evening. when many people are using power. It's worth less during "off-peak" times, like overnight or in the middle of the day. This means if your solar panels send power to the grid during peak times, you get more credit for it. Storing excess energy in a backup battery allows you to take full advantage of this program.

Avoided-Cost Net Metering

With this program, power companies pay you for your extra solar electricity at a lower rate. This payment is usually what it would cost them to make or buy that power themselves. Think of it this way: the utility pays you what they "avoided" spending by not having to generate that power. This rate is less than what you pay for electricity when you buy it from them. So, while you still get some credit for your solar power, it's not at the full retail price. This makes Avoided-Cost net metering less appealing compared to other programs.

Net Billing

Net billing is when you get full credit for the solar power you use in your home. But, any extra power sent back to the grid is credited at a lower price. The problem occurs during periods when solar panels are not producing electricity. These lower rate credits usually won't cover the cost of the power you purchase from the grid. For this reason, Net Billing is sometimes combined with TOU rates. This makes the program more attractive to consumers.

Feed-in Tariffs (FITs)

Feed-in Tariffs break the process into two separate transactions. The program allows you to sell all the solar power your system makes directly to the power company. Then you can buy all the power you need for your home back from them. The price they pay you for your solar power is usually much less than what you pay them for their electricity.

Solar Self-Consumption (Zero Export Rules)

Using this program, you have to use all the solar power your system makes, store it, or let it go unused. You are not allowed to send any extra power back to the main grid. This dramatically increases the value of backup storage batteries. You can still get power from the grid, but you usually have to notify the utility company when you need it. You might also be charged a fee for this service. For many, this system can be quite tedious and complicated.

Net Metering Pros & Cons

Net metering has created a simple, yet exciting pathway to embrace solar energy. These programs offer many long term financial and environmental benefits. Yet there are also certain drawbacks that may influence your decision to participate. We've listed the most relevant advantages and disadvantages to consider.

Net Metering Pros

Lowers Energy Bills: Net metering reduces monthly utility bills for businesses and homeowners. This occurs when credits are issued for excess electricity sent to the grid.
Faster Return on Investment for Solar: Credits are applied directly to energy bills. This allows home owners and businesses recoup renewable energy system cost quicker.
Batteries are Optional: A major benefit is that you don't always need to buy expensive batteries to store extra solar power. Instead, the grid acts as a "power bank" for excess electricity you solar panels produce. Credits are used then used later when your panels aren't producing enough electricity.
Supports Grid Stability: Net metering helps sustain our increasing energy needs. This greatly reduces stress on our aging power infrastructures, limiting power outages.
Promotes Business Sustainability: Net metering lowers carbon emissions and helps achieve corporate environmental goals. It also improves a company's public image by appealing to eco-conscious customers.

Net Metering Cons

Mismatch in Production and Demand Times: Solar energy production peaks during midday when energy demand is lower. Power sent to the grid during this period is usually credited at a rate reflecting this lower value. So, these credits don't align with the cost of power during the highest usage times. Where available, TOU programs allow you to store electricity and send power to grid when compensation is higher. But, this does require the purchase of a backup battery for storage.
No Direct Cash Payments: Net metering does not pay cash for surplus energy. Instead, credits are issued that can be applied to your next energy bill. The value of these credits might not always match the market price of electricity.
Continued Grid Dependency: Net metering requires homes and businesses remain connected to the utility grid. Therefore, those participating in this program can not attain full energy independence.
Cost Shifting: Some utilities claim that net metering creates a "cost shift". In this scenario, non solar customers pay more to cover grid upgrades to handle the two-way flow of energy. Meanwhile, solar owners reduce their contributions.
Varying Compensation Terms: The value of energy credits differs from state to state. Also, how long they roll over, and whether time-of-use rates apply depends on your location. For example, California's NEM 3.0, offer much lower compensation for exported electricity. Credits are sometimes based on wholesale rates or hourly fluctuations.

Should you Consider Adding A Solar Backup Battery?

Adding a solar backup battery allows you to store excess energy generated during off-peak hours and use it during peak hours, saving you the higher retail cost of electricity. That said, solar backup batteries can be expensive. But, managing how and when electricity is sent back to the grid can help offset this additional cost. Furthermore, during power outages, net metering is shut down for safety reasons. This also cuts off your access to solar generated power, even if the sun is shining. Having a battery backup also gives you more energy independence, maintaining power when the grid is down. Learn more about backup solar batteries...

Final Thoughts...

The possibilities for net metering are clearly limitless. Yet, many hurdles must be overcome in order to reach its full potential. Our aging national infrastructure most be updated to handle two way transfer of power on a large scale. Making net metering accessible to everyone will also be a major challenge. And of course, having clear and consistent terms on credits and usage will be a must moving forward. While achieving these goals will be a major undertaking, the success of these programs is essential to our environmental future. Fully implemented, net metering could also bring down energy costs nationwide as well. Regardless of all the pros and cons, net metering will no doubt continue to grow and prosper. Our recommendation, understand and embrace the process!

What is Net Metering - All You Need to Know