Net energy metering (NEM) is a billing system that allows homeowners with solar panels to receive credit for excess electricity they send back to the grid.

When your solar system produces more electricity than your home uses, that extra energy is exported to the utility grid. In return, your utility provides credits that can be used to offset electricity you draw from the grid later.

According to the U.S. Department of Energy, net metering enables solar customers to balance their electricity use over time by earning credits for excess generation¹.

How net energy metering works

Net energy metering tracks the flow of electricity between your home and the grid.

Here’s how it works:

• Your solar panels generate electricity during the day

• Your home uses that energy first

• Any unused electricity is sent to the grid

• Your utility tracks exported energy and applies credits

• You use those credits when your system isn’t producing enough power (like at night)

This system helps homeowners maximize the value of the energy their solar panels produce.

Why net energy metering matters

Net energy metering plays a key role in making solar energy more practical and accessible.

Key benefits:

• Maximizes solar value:

  You get credit for unused energy instead of wasting it

• Reduces reliance on the grid:

  Offsets electricity usage over time

• Supports grid efficiency:

  Excess solar energy helps supply local demand

• Improves long-term savings potential:

  Credits can reduce future electricity costs

The Solar Energy Industries Association notes that net metering has been one of the most important policies for expanding residential solar adoption in the U.S.

Types of net energy metering programs

Net metering policies vary by state and utility, but most fall into a few common structures:

1. Retail rate net metering

• Credits are provided at the full retail electricity rate

• Historically the most favorable structure for homeowners

2. Net billing (or modified NEM)

• Exported energy is credited at a lower rate than retail

• Common in newer programs (e.g., updated state policies)

3. Time-based or time-of-use (TOU) credits

• Credit value varies based on when energy is exported

• Higher value during peak demand hours

Policies continue to evolve as utilities adapt to growing solar adoption.

Where net energy metering Is available

Net metering availability depends on your location.

• Many states offer some form of net metering or net billing

• Program rules, credit rates, and eligibility vary by utility

• Some states have transitioned to updated programs with different compensation structures

The DOE provides guidance that net metering policies are determined at the state and utility level, so homeowners should review local program details².

Net energy metering vs. net billing

While often used interchangeably, these terms are different:

• Net metering:

  Credits are typically closer to the retail electricity rate

• Net billing:

  Credits are usually lower and based on avoided cost or market rates

Understanding this difference is important when evaluating solar options in your area.

Key takeaways

• Net energy metering allows solar homeowners to earn credits for excess electricity sent to the grid

• It helps balance energy use between daytime production and nighttime consumption

• Programs vary widely by state and utility policies

• NEM remains a foundational concept for understanding how solar energy systems deliver value