What Is Net Metering? How It Works and How You Can Benefit

If you’ve ever looked into installing solar panels, you may have encountered concepts such as net metering and its relation to the electric grid. However, whether you’re a first-time homeowner or just looking to live more sustainably, you may have come across this term and wondered: what is net metering?  

Put simply, net metering is a system that tracks and credits solar panel owners for the excess energy they send back to the electric grid. However, there are some key details every current and potential solar panel owner should keep in mind. 

Here we will define what net metering is, how it works, and whether your location meets local net metering requirements.

So, what is net metering and what does it mean?

More and more homeowners are investing in solar panels to power their homes efficiently and sustainably. In most cases, solar systems in residential neighborhoods are linked to the local electrical grid. 

When solar panels are connected to the grid, they can benefit from the process of net metering.

When solar panels generate more power than is needed to power a home, their owners can sell this excess electricity back to the local utility company to then distribute back to others connected to the grid. 

While it is possible to operate these systems without being connected to the local electrical grid, there are a few key reasons why grid-tied solar panels are more practical for the average homeowner.

1. Cost: Off-grid systems require batteries, and grid-tied systems typically do not. While these batteries can last several years, they do not come cheap. Connecting to the grid not only reduces the costs of these batteries, but also eliminates installation and recurring maintenance costs. 

2. Reliability: An off-grid system may not have enough capacity to power an entire household. When a system is tied to the grid, it can draw any extra necessary energy needs from the grid to meet the demands of the house. 

Whether on or off-grid, solar panels do continue working when it’s cloudy or nighttime. However, depending on how dense the cloud cover is, the amount of power the solar panels produce decreases.

This is where reliability comes in: when a solar system is connected to the grid, it will still have access to the electricity it needs when the weather turns overcast, or if a part of the system malfunctions. 

As mentioned above, the process of net metering is another key benefit of connecting your solar panels to the electricity grid. Let’s dive deeper into how, exactly, net metering works. 

How does net metering work?

There are three common models for net metering: buy all/sell all, net billing, and net metering, which is the most common. Each process differs slightly, so let’s dive in. 

Net metering

During the day while the sun is out, solar panel systems often produce more electricity than a household consumes, causing the meter to run backwards and send the extra electricity back to the power grid. 

Net metering is the most common arrangement for this process – customers will only receive a bill each month if their system generates less energy than their household uses. If their system generates more than their household uses, customers will receive a credit for their excess production that can be applied to utility bills.

Often, these credits will offset any electricity customers may need from the grid. Credits are equivalent to the rate that you would otherwise pay for electricity. 

Buy all/sell all

Solar owners have another option if they are connected to the grid: the buy all/sell all method. Customers can sell all of the energy their system generates to the utility company at a wholesale price.

The utility company will then provide the customer 100% of the home’s energy, at the current retail price. However, it’s important to note that this model requires two separate meters to measure the amount of energy generated, and the amount consumed by the house. 

If you choose to go with this model of net metering, you’ll have to pay the difference between the energy generated and consumed. This also means that your house won’t consume the energy your solar panels generate. 

Net billing

The net billing model acts similarly to net metering. In this process, customers can use the electricity generated by their panels and sell the excess to the local utility company. 

However, this model is different in that customers cannot receive credits to apply in the future.

What are the benefits of net metering?

Net metering can be a great option for a lot of homeowners who are actively using solar panels, or are considering investing in a solar system. There are a few key benefits of pursuing a net metering model for your home, on both an individual and societal level. 

Greater control

Whichever model you decide to go with, there’s no doubt that net metering provides customers with greater control over their energy usage. It ensures that solar owners have access to the energy their home needs at all times of the day, without having to foot the cost of a solar battery. 

Net metering can also provide greater control over the costs associated with solar systems. Net metering gives solar customers more control over their electricity bills by crediting, and in some cases, compensating them for the electricity that their system feeds to the grid. 

This process can serve to benefit both solar and non-solar customers, however: a 2014 study commissioned by the Nevada Public Utility Commission found that net metering provided $36 million in benefits to all NV Energy customers, solar and non-solar alike. 

Cleaner, more efficient electricity 

Net metering allows solar customers to generate their own electricity on their property in a cleaner, more energy-efficient way. 

Utilizing net metering increases demand for solar energy among consumers in a given area, which will also result in economic benefits such as job creation, income generation, and increased investment. 

The more customers are incentivized to adopt net metering for their solar panels, the more clean, efficient energy will be powering homes and communities. 

Improving local utilities 

Net metering also offers benefits to local utilities. How?

These models can level out the demand curve for electricity in a given area, and allow utility companies to better manage their peak loads. Because net metering encourages energy generation onsite, in close proximity to where it’s consumed, it can also reduce the strain on local electricity distribution systems. 

An additional benefit to utilities and ratepayers – net metering encourages private capital to invest in new, clean, local energy capacity at no cost or risk to them. After all, this investment in cleaner energy will serve to benefit entire communities. 

A plethora of studies conducted around the U.S. have demonstrated that net metering serves to improve not only individual homes, but entire communities and local electric grids as well. Interested in pursuing net metering for your home? Keep reading to find out how.  

Is net metering available to me?

Many U.S. states have passed net metering laws that local utilities are required to abide by. In places where there are no net metering policies, however, some utilities often offer net metering programs voluntarily or as a result of regulatory decisions, but some states don’t offer net metering at all.

This varying net metering availability and policy is widely due to differences in state legislation and regulations across the country. There are a few different ways to check whether net metering is available in your area: 

• Do a quick internet search. Whether on Google or Wikipedia, finding your state’s rules can oftentimes be pretty straightforward. However, for a comprehensive list of U.S. state metering policies, the National Conference of State Legislatures (NCSL) has this great resource. 

• If your state’s qualifications aren’t so straightforward, or you can’t find the information you’re looking for online, it’s always a good idea to speak to your energy provider. They will be able to answer any questions you may have about net metering. 

List of net metering credit states

According to our most recent research, net metering is currently available in the following states, with the following parameters:

Alaska	Applicable to customers of utilities with annual retail sales of 5,000,000 kWh or more. Excess generation is credited to the customer’s next bill at the non-firm power rate and carries over indefinitely, and there is a 25 kW system capacity limit.
Arizona	Applicable to customers of investor-owned utilities and electric cooperatives. Excess generation is credited at the avoided cost rate, and no capacity limit is specified.
Arkansas	Applicable to customers of investor-owned utilities and electric cooperatives. Excess generation is credited to the customer’s next bill at the retail rate and carried over indefinitely with compensation after two years of accumulation at annual average wholesale avoided cost, and there is a 25 kW system capacity limit for residential customers.
California	Applicable to customers of all utilities except LADWP* Excess generation is credited to the customer’s next bill at the retail rate; after a 12-month cycle, the customer may opt to roll over their credit indefinitely or to receive payment for their credit at a rate equal to the 12-month average spot market price for the hours of 7 am to 5 pm for the year in which the surplus power was generated. Capacity limit of 100% of customer’s annual load.
Colorado	Applicable to customers of all utilities except for municipal utilities with less than 5,000 customers. Excess generation is credited to the customer’s next bill at the retail rate; after a 12-month cycle, IOU customers may opt to roll over their credit indefinitely or to receive payment at IOU’s average hourly incremental cost, while municipality and co-ops provide annual reconciliation at a rate they deem appropriate. Capacity limit of 120% of customers’ average annual consumption for IOU customers and 10 kW for municipality and co-op customers.
Connecticut	Applicable to customers of investor-owned utilities. Excess generation is carried over as a kWh credit for one year and reimbursed to the customer at the avoided cost of wholesale power at the end of the year (March 31). Capacity limit of 2 MW for standard net metering and 3 MW for virtual net metering.
Delaware	Applicable to customers of all utilities. Excess generation is credited to the customer’s next bill at the retail rate, except for certain community-owned facilities; after a 12-month cycle, the customer may opt to roll over their credit indefinitely or to receive payment for credit at the energy supply rate. Capacity limit of up to 110% of customers’ 12 months of historical energy consumption up to 25 kW for residential customers.
Florida	Applicable to customers of all utilities. Excess generation is credited to the customer’s next bill at the retail rate and is reconciled annually at the avoided-cost rate. Capacity limit of 2 MW.
Hawaii	Applicable to customers of all utilities. Excess generation is credited to the customer’s next bill at a specified rate, which varies by utility and tariff. Capacity limit of 100 kW for HECO, MECO, and HELCO customers and 50 kW for KIUC customers.
Georgia	Applicable to customers of all utilities. Excess generation is credited to the customer’s next bill at a predetermined rate filed with the PSC. Capacity limit of 10 kW for residential customers.
Idaho	Applicable to customers of Avista Utilities, Idaho Power, and Rocky Mountain Power. For Rocky Mountain Power customers, excess generation is credited to the customer’s next bill at the retail rate for residential customers; for Idaho Power customers, excess generation is credited to the customer’s next bill as a per kWh credit and carried forward indefinitely; for Avista Utilities customers, excess generation is credited to the customer’s next bill and granted to the utility at the end of a 12-month billing cycle. Capacity limit of 25 kW for residential customers.
Illinois	Applicable to customers of investor-owned utilities and alternative retail electric suppliers. For non-competitive customers, excess generation is credited to the customer’s next bill as a kWh credit at the retail rate and granted to the utility at the end of a 12-month billing cycle; for competitive customers, excess generation is credited to the customer’s next bill as a kWh credit at the electricity provider’s avoided cost of electricity supply over the monthly period. Capacity limit of 2 MW.
Indiana	Applicable to customers of investor-owned utilities. Excess generation is credited to the customer’s next bill as a kWh credit and carried over indefinitely. Capacity limit of 1 MW.
Iowa	Applicable to customers of investor-owned utilities. Excess generation is credited to the customer’s next bill at the retail rate and cashed out annually at the avoided cost rate. Capacity limit of 1 MW.
Kansas	Applicable to customers of investor-owned utilities. Excess generation is credited to the customer’s next bill at the average cost rate and expires on March 31 each year. Capacity limit of 15 kW for residential customers.
Kentucky	Applicable to customers of investor-owned utilities and electric cooperatives with the exception of TVA distribution utilities. Excess generation is credited to the customer’s next bill at the retail rate and carried over indefinitely. Capacity limit of 30 kW.
Louisiana	Applicable to customers of all utilities. Excess generation is credited to the customer’s next bill at the avoided cost rate. Capacity limit of 25 kW for residential customers.
Maine	Applicable to customers of all utilities. Excess generation is carried forward to the next billing period and granted to the utility at the end of a 12-month billing cycle. Capacity limit of 660 kW for IOU customers and 100 kW for municipal and co-op customers.
Maryland	Applicable to customers of all utilities. Excess generation is credited to the customer’s next bill at the retail rate and reconciled annually in April at the commodity energy supply rate. Capacity limit of 2 MW.
Massachusetts	Applicable to customers of investor-owned utilities. Excess generation credits vary by system type and customer class. Capacity limit of 2 MW for Class III systems, 1 MW for Class II systems, and 60 kW for Class I systems.
Michigan	Applicable to customers of investor-owned utilities, MPSC rate-regulated electric cooperatives, and alternative electric suppliers. Excess generation is credited to the customer’s next bill at the retail rate for systems under 20 kW and carried over indefinitely. Capacity limit of 150 kW.
Minnesota	Applicable to customers of all utilities. Excess generation for systems under 40 kW is reconciled monthly and customers may opt to receive payment or a credit on their next bill at the retail rate. Capacity limit of 1 MW.
Mississippi	Applicable to customers of all investor-owned electric utilities with limited applicability over cooperatives (TVA co-ops can opt out of state net metering rules if they participate in TVA’s net metering program). Excess generation is sold to the utility at the avoided cost rate plus DG benefits adder (2.5 c/kWh); the credit value may be carried over indefinitely. Capacity limit of 20 kW for residential customers.
Missouri	Applicable to customers of investor-owned utilities, municipal utilities, and electric cooperatives. Excess generation is credited to the customer’s next bill at the avoided-cost rate and expires after 12 months or upon service termination. Capacity limit of 100 kW.
Montana	Applicable to customers of investor-owned utilities. Excess generation is credited to the customer’s next bill at the retail rate and granted to the utility at the end of a 12-month period. Capacity limit of 50 kW.
Nebraska	Applicable to customers of all utilities. Excess generation is credited to the customer’s next bill at the avoided-cost rate and reconciled annually at the avoided-cost rate. Capacity limit of 25 kW.
Nevada	Applicable to customers of investor-owned utilities. Excess generation is credited monthly at a rate equal to 95% of the retail rate for systems up to 25 kW. Capacity limit of 80 MW.
New Hampshire	Applicable to customers of all utilities. Excess generation is credited to the customer’s next bill as a kWh credit and carried forward indefinitely; customers may elect to receive payment at the avoided-cost rate for any excess credit remaining at the end of an annual period. Capacity limit of 1 MW.
New Jersey	Applicable to customers of investor-owned utilities and electric suppliers. Excess generation is credited to the customer’s next bill at the retail rate and reconciled annually at the avoided-cost rate. Capacity limit of 100% of the customer’s annual on-site energy consumption.
New Mexico	Applicable to customers of investor-owned utilities and electric cooperatives. Excess generation is either credited to the customer’s next bill at the avoided-cost rate or credited to the account and rolled over indefinitely at the retail rate; if the customer terminates service with the utility, unused credits are paid out at the avoided-cost rate. Capacity limit of 80 MW.
New York	Applicable to customers of investor-owned utilities. Excess generation is credited to the customer’s next bill and carried over until the end of the contract, at which point any unused credit will be forfeited. Capacity limit of 25 kW for residential customers.
North Carolina	Applicable to customers of investor-owned utilities. Excess generation is credited to the customer’s next bill at the retail rate and granted to the utility at the beginning of the summer billing season. Capacity limit of 1 MW for customer-owned systems and the lesser of 20 kW or 100% of estimated demand for leased residential systems.
North Dakota	Applicable to customers of investor-owned utilities. Excess generation is reconciled monthly at the avoided-cost rate. Capacity limit of 100 kW.
Ohio	Applicable to customers of investor-owned utilities. Excess generation is credited to the customer’s next bill at the unbundled generation rate; customers may request payment for excess credits at the end of a 12-month billing period. There is no capacity limit specified.
Oklahoma	Applicable to customers of investor-owned utilities and regulated electric cooperatives. Excess generation may not be credited, as utilities and co-ops are not required to purchase excess generation from customers. There is a capacity limit of 100 kW.
Oregon	Applicable to customers of all utilities except for Idaho Power. Excess generation is credited to the customer’s next bill at the retail rate for IOU customers and varies for municipal, cooperative, and PUD customers. Capacity limit of 25 kW for residential customers.&
Pennsylvania	Applicable to customers of investor-owned utilities. Excess generation is credited to the customer’s next bill at the full retail rate and reconciled annually at the price-to-compare rate. Capacity limit of 50 kW for residential customers.
Rhode Island	Applicable to customers of investor-owned utilities. Excess generation is credited at the avoided-cost rate and either rolled over to the customer’s next bill or purchased by the utility. Capacity limit of 10 MW.
South Carolina	Applicable to customers of all utilities with more than 100,000 customers (excluding cooperatives). Excess generation is credited to the customer’s next bill on a monthly basis and paid out annually at the avoided-cost rate. Capacity limit of 20 kW for residential customers.
Texas	Applicable to customers of CPS Energy, Austin Energy, and El Paso Electric Company. Excess generation is reimbursed at the avoided-cost rate for CPS Energy customers, credited to the customer’s next bill at the avoided-cost rate for Austin Energy customers, and credited to the customer at the avoided-cost rate with a refund check for credit exceeding $50 for El Paso Electric Co customers. No capacity limit for CPS Energy customers; capacity limit of 20 kW for Austin Energy customers and the lesser of 50 kW or 100% of electricity consumption for El Paso Electric Co customers.
Utah	Applicable to customers of Rocky Mountain Power. Excess generation is netted in 15-minute intervals and credited to the customer according to a rate schedule that ranges from 3.4 c/kWh and 9.2 c/kWh; any excess credits at the end of an annual billing period will expire with no compensation to the customer. Capacity limit of 25 kW for residential customers.
Vermont	Applicable to customers of all utilities. Excess generation is credited to the customer’s next bill at the blended residential rate and granted to the utility at the end of a 12-month billing cycle. Capacity limit of 20 kW for residential customers.
Virginia	Applicable to customers of investor-owned utilities and electric cooperatives. Excess generation is credited to the customer’s next bill at the retail rate and either rolled over or paid out at the end of a 12-month billing cycle. Capacity limit of 20 kW for residential customers.
Washington	Applicable to customers of all utilities. Excess generation is credited to the customer’s next bill at the retail rate and granted to the utility at the end of a 12-month billing cycle. Capacity limit of 100 kW.
West Virginia	Applicable to customers of all utilities. Excess generation is credited to the customer’s next bill at the retail rate with no annual true-up. Capacity is limited to 25 kW for residential customers.
Wisconsin	Applicable to customers of investor-owned utilities and municipal utilities. Excess generation credits vary by utility, but excess generation is generally credited at the full retail rate. Capacity limit of 20 kW.
Wyoming	Applicable to customers of investor-owned utilities, electric cooperatives, and irrigation districts. Excess generation is credited to the customer’s next bill as a kWh credit and reconciled annually at the seasonal avoided-cost rate. Capacity limit of 25 kW.

*LADWP customers can take advantage of net metering for systems up to 1 MW; excess generation is credited to the customer’s next bill at the retail rate.

Final thoughts on net metering

Now that you have a comprehensive answer to the question ‘What is net metering?’, you’re better informed to invest in your solar panel system now and in the future. 

Though it can take a few different forms, net metering serves to benefit not only your home’s energy use and monthly bills but also the entire electric grid as a whole. 

Green Coast is a renewable energy and green living community focused on helping others live a better, more sustainable life.