How Net Metering Works

Net metering ensures the energy you generate at home doesn't go to waste.
Net metering ensures the energy you generate at home doesn't go to waste.
David McNew/Getty Images

You've seen the dire warnings on the news about shrinking energy resources and increasing environmental problems. In your effort to become a better global citizen, you've installed solar panels on your roof. You're also being careful to turn off your lights and appliances when you leave for work each morning.

While you're away, your house is generating energy but you're not using it. Meanwhile at night, when you have the lights and TV blaring, your solar system is sitting idle. You could buy an expensive battery to store the extra energy you generate during the day, but there's another option that allows you to send your extra power to the grid in exchange for banked energy credit that you can use when you need it. It's called net metering.

When your home is equipped with a renewable energy source (such as wind or solar power), it sends the excess energy that's generated back into the grid to power other homes. An electrical converter called an inverter turns the DC (direct current) power coming from your renewable energy source into AC (alternating current) power, which matches the voltage of the electricity flowing through the power line.

As that excess energy is being generated, your power meter spins backward rather than forward, giving you a credit that you can use to pay for your future energy use (you can roll over excess electricity to your next bill, just as many cell phone companies let you roll over minutes).

If you've generated more energy than you've used at the end of the year, your electric company may pay you back for the extra power at the retail rate. If you have market-rate net metering, the utility company will pay only a wholesale rate, which is less than retail and won't earn you anything (it's kind of like giving away your extra energy), but you'll still save on your overall power bill.

Net metering can be measured over the month or year. Annualized net metering provides a more accurate measurement because it takes into account your changing energy usage and production over the four seasons.