How Does Net Metering Work?

June 12, 2026

When you install solar panels, you tap into clean energy whenever the sun shines. But what if you're not home to use that power, or your panels produce more than you need? Does it simply go to waste? Not at all, thanks to net metering policies!

Understanding net metering

Think of net metering as a way your electric company gives you credit for the extra electricity your solar panels produce.

Here's how it works:

When your solar panels generate more electricity than your home needs, that excess power flows back to the main power grid. Your electric meter, a special "net meter," keeps track of how much power you send out.

These "credits" then help to reduce your electricity bill. So, when your solar panels aren't producing much (like at night or on cloudy days), you can pull power from the grid and use those credits to lower what you owe. Net metering has been key to making solar more affordable for millions of homeowners across the country.

Different "net metering" policies

While "net metering" often means a dollar-for-dollar credit (you get the same value for power sent out as power pulled in), things are changing. Some utilities now offer different ways to credit you:

• 1-to-1 net metering: This is ideal. Every bit of power you send to the grid earns you the same credit as if you bought it from the grid.

• Monthly net metering: During the monthly billing cycle the utility provides dollar for dollar credits just like 1-to-1 net metering. The difference being any total production greater than total consumption in the billing period rolls over to the next month at a credit lower than the rate you the utility charges you. This is a favorable policy as most solar production is credited the higher rate.

• Net billing (export credits): You get a lower credit for the power you send to the grid than what you pay to pull power from it. The export credit might be based on what the utility "saved" by not having to produce that power themselves. Battery storage pairs well with export credit policies as you can keep more solar production in your home to use later saving higher grid prices.

• Gross Metering or Feed-In-Tariff: This is very rare for homes in the U.S., however seen in Europe, Australia, and utility-scale solar systems. All the power your solar panels make goes directly to the grid, and you get paid a set rate for it (often lower than what you pay for electricity). You then buy all the power you need from the grid.

These differences can affect how much you save.

Net metering benefits

Most homes use more electricity in the mornings and evenings, but solar panels produce the most in the afternoon. Net metering ensures this afternoon surplus isn't wasted. The extra electricity is sent to the grid, and you earn net metering credit from the utility company for that energy.

• For example: if you produce 10 kWh of extra electricity per day (which is easily achievable for home solar panels), you will have 10 kWh worth of net metering credit which you can use to offset your usage later. That's enough power to run your TV, lights, and even your dishwasher.

Due to the seasonality, summer's abundant sunshine can build up credits to offset higher winter electricity bills when there's less daylight available and increased cloud coverage.

• For example: if you produce 1,400 kWh of solar electricity in June, July, and August but only consume 1,200 kWh of electricity each month. These bits of excess production would accumulate and add up to 600 kWh of extra net metering credits. These credits could then be applied to your utility bills during the fall and winter when your monthly solar production is lower.

Impact on savings

Net metering saves you money by reducing your annual electricity spending. This system effectively allows you to "bank" excess energy production to cover your needs during cloudier, shorter days, balancing your energy usage throughout the year and helping to lower your overall bill.

You typically won't receive a cash payment from your utility for the excess power you generate. Instead, you build up valuable energy credits on your bill that you can apply towards future electricity usage. In some regions, if you have a significant surplus of credits at the end of a yearly cycle, your utility might issue a "true-up payment" for the remainder, though this is usually at a lower, non-retail rate. Most favorable net metering policies allow systems to be sized to offset 100% to 120% of your home's annual electricity usage, maximizing your bill savings.

• Important Note: Every household's energy consumption habits are unique. Palmetto LightReach systems are thoughtfully designed to achieve a specific annual production and offer a consistent monthly payment, ensuring long-term savings. Your specific savings will directly correlate with your individual consumption.

Net metering vs battery storage

Should you choose net metering or battery storage for your solar system? The good news is it's not an either/or scenario, you can benefit from both! However, different situations make one option more appealing:

• When a battery makes sense: If your area frequently experiences power outages, a backup battery provides essential power when the grid goes down. Batteries are also a smart choice if your state has less favorable net metering policies, like a low export credit, encouraging you to use more of your self-generated power. Some newer state policies, like California's NEM 3.0, Illinois, and Arizona are example export credit policies that make, using your own solar energy more valuable than sending it to the grid, which can make a battery a worthwhile addition.

• When net metering is ideal: If your state offers generous net metering policies, you might significantly reduce your electricity bill without the extra cost of battery storage. The grid effectively acts as your "virtual battery," storing excess power for later use.

Another emerging option is demand response incentive programs. This allows the utility to call on your battery and export stored electricity to the grid, particularly during peak demand times like hot summer days. In exchange, you often receive credits at more favorable rates and maybe even upfront incentive checks for participating. These "grid services" or "energy sharing" programs are growing in popularity. Learn about Palmetto's Battery Bonus Plan available to Texas homeowners.

Net metering availability

The net metering landscape is constantly changing as utilities and public utility commissions update policies. Most states have some form of net metering, but state requirements often apply only to larger investor-owned utilities. This leaves smaller municipal utilities or electric co-ops to set their own rules. Policies also vary greatly in structure and value across states and even within states.

Therefore, it's crucial to confirm your specific utility's policies. The easiest way to see if your solar energy system will be eligible for net metering, and at what rate, is to contact or visit the website of your local electric utility.

Source: NC Clean Energy Technology Center

Find your net metering policy

Policies vary from state to state and even between different electric companies. Here are the easiest ways to find out if net metering is available to you and your specific rates:

1. Contact your local electric utility.
2. Visit your electric utility's website. Look for sections on "solar," "net metering," or "renewable energy."
3. Check your electricity bill. Sometimes, your bill will have information about your solar credits or direct you to where you can find more details.

You can also view our Utility Master Guide and see if we have information about your state's utility rates.

It's important to understand your utility's rules to make the most of your solar investment.