Net Metering vs. Net Billing Explained (2024)

In a perfect world, your home's solar system would precisely meet your electricity demands – nothing more and nothing less. In reality, there will be days when your panels produce more electricity than you use (sunny summer days) and days when they won't produce enough (shorter, cloudier days and nights). When this happens, net metering and net billing allow you to use the grid as storage, exchanging credit on your bill for the excess energy your panels transfer to the grid. When your solar system can't meet your energy needs, and you need to pull electricity from the grid, you can use these credits to compensate.

This article explains the difference between net metering and net billing compensation structures, different types of net metering and net billing, and where these programs are being offered nationwide.

While similar, net metering and net billing are not synonymous. Both programs compensate solar owners for transferring electricity to the grid when their panels overproduce, but the difference lies in how participants are compensated. Generally, net metering credits equal the retail electricity rate (what you, as a utility customer, pay for electricity). In contrast, net billing credits equal the wholesale rate (what your utility company pays for electricity).

Net metering

You receive bill credits with net metering, but it's not usually a monetary exchange. Instead, the credits you gain from net metering are "banked" and used when you need to pull electricity from the grid on a cloudy day. Net metering credits can be rolled over monthly and are usually a one-to-one exchange; your solar panels' kilowatt-hour (kWh) is worth the same as a grid-produced kWh. This simplifies your energy bill as you're only billed for your net energy use, or your energy consumption minus your energy production.

Net metering programs are an excellent way for solar owners to "store" the energy their solar panels produce. The one-to-one model of net metering makes home solar systems more valuable. However, utility companies argue that because retail prices reflect business expenses in addition to the value of electricity, net metering credits are equal to more than the value of electricity and delivery.

Net billing

Instead of "banking" the credits earned from the excess energy generated by your solar panels, net billing programs enable you to "sell" that energy to the utility, typically at the wholesale rate. Net billing is a monetary exchange in which the energy generated by your home solar system is treated like that of a large-scale solar project. However, your compensation rate will typically be lower with net billing than with net metering.

Net metering and billing policies vary from state to state and utility to utility. Different types of net metering and billing programs have developed as the renewables industry has grown and matured.

Retail net metering

Retail net metering is the classic model in which participants receive bill credits for the energy their solar panels produce at the retail electricity rate. Generally, this increases the value of home solar systems but results in less revenue for utility companies. Retail rates often include more than just energy costs; utility staff, maintenance, and other expenses are typically covered at least in part by revenue generated by retail supply. So, many utility companies are pushing to shift net metering policies to compensate solar energy system owners at rates far below the retail rate.

Virtual net metering

Virtual net metering benefits those participating in shared renewable energy projects, like community solar. It offers the same compensation as net metering but doesn't require the solar system to be physically located on the participants' properties. Community solar subscribers, for example, are typically allotted a portion of a large-scale solar array. When their portion of the array produces more energy than their home consumes, they'll receive the same credit through virtual net metering if those panels were installed on their roof.

Avoided-cost

Unlike most retail net metering programs, avoided-cost bill credits don't translate to a one-to-one compensation setup. Instead, participants receive credits equal to the price of the utility saved by not having to provide electricity to their homes. Since the transaction is monetary and not a one-to-one exchange, avoided-cost rates can be classified as net billing rather than net metering.

In addition to the energy savings you receive from producing your electricity with a home solar panel system, net metering, and net billing boost the savings potential for solar panels. Instead of "losing" the excess electricity your system produces on a sunny day, you can "store" that energy and use it when you need it on, say, a cloudy day or at night. The one-to-one exchange of net metering usually translates to lower electricity bills, a shorter payback period, and a more favorable return on investment.

Net billing can also contribute to a shorter payback period and boost overall savings, but it's less valuable for solar owners than net metering. To maximize your savings regardless of your local compensation program, you can always adjust your consumption habits and consider installing a solar battery to store your excess energy instead of relying on your utility.

Utilities tend to push back on net metering programs, and state and local policies change frequently. As previously mentioned, policies for these compensation structures vary from state to state and from utility to utility. For example, Idaho and Texas don't mandate net metering, but some utilities still offer it. To understand the available programs based on your location and utility, it's best to consult a trusted installer in your area.

Solar compensation programs by state