What is Net Metering? Homeowner's Guide

This article is for educational purposes only. BKV Energy does not offer solar buyback plans or plans specific to homeowners or renters with solar panels.

Net metering is a system that allows residential electricity customers who generate their own electricity (usually through solar panels) to send the surplus electricity they do not use back to the grid. In return, they receive credits on their utility bills.

For Texans with solar panels connected to their homes, net metering is a great way to significantly reduce your electric bills.

How does net metering work?

The net metering process involves the homeowner generating their own electricity (typically from solar panels). Any excess energy they don’t use is sent back into the grid, earning them credits. Here’s a breakdown of how net metering works.

Step 1: Generate power

Suppose you install solar panels on your home. These panels generate electricity based on sunlight, powering your home appliances, lights, and devices.

Step 2: Send excess, unused power back to the grid

In some cases, your solar panels may generate more power than you need. The excess electricity that you don’t use flows back to the utility grid. This is tracked by a bi-directional electric meter, which records the amount of electricity you send to the grid and the amount you pull from the grid.

Step 3: Earn credits

For the power you send back to the grid, your electricity company gives you credits on your electricity bill. These credits usually equal the rate you pay for each kilowatt-hour you consume from the grid, although rates can vary by region and utility policies.

This is where net metering differs slightly from solar buyback plans. Solar buyback programs also allow customers to sell excess electricity back to the grid, but instead of earning a credit at the retail rate, customers are often paid at a lower rate for their energy.

Step 4: Draw power from the grid when needed

When your solar panels aren’t producing enough electricity (like at night or on cloudy days), you use power from the grid. The credits you accumulated can offset the cost of this power.

Step 5: End-of-cycle billing reconciliation

At the end of the billing period, your utility calculates how much energy you used from the grid versus how much you sent back. If you sent back more than you used, you might see a reduced bill or even a carry-over credit to the next billing cycle, depending on your utility’s policies.

Pros and cons of net metering

Benefits of net metering

Reduced electricity bills: Thanks to net metering, customers can lower or even completely eliminate their monthly energy bills by generating their own power and sending unused electricity back to the grid.
Incentivizes renewable energy: By making it financially beneficial for homeowners, net metering encourages the adoption of renewable energy and investment in residential solar panel systems.
Energy independence: Those who generate their own energy can rely less on electricity companies, which can be especially valuable during outages or peak demand periods.
Environmental impact: Net metering encourages homeowners to install solar panels, which promotes cleaner energy production. Solar panels reduce carbon emissions.
Reduces peak demand on the grid: By sending excess energy back to the grid during the hottest, sunniest days, solar customers can help grids meet peak demand, potentially lowering costs and improving grid stability.
Easily implemented and tracked: With a bi-directional meter, customers can easily track the energy they use versus what they send to the grid.

Drawbacks of net metering

Shifting costs to non-solar customers: Transmission and distribution utilities have to cover the costs of maintaining and operating the grid. If net metering customers are paying less, then costs may unintentionally shifter those without solar panels installed.
Revenue loss for utilities: Net metering can reduce revenue for utility companies, which could impact their ability to invest in infrastructure and maintenance, especially as more customers adopt solar.
Variable policy structures: Net metering policies vary widely between states, and some have reduced or eliminated net metering benefits, creating uncertainty for customers considering solar.
Weaker integration with non-solar renewables: Net metering is best suited for solar or other systems with predictable patterns. Wind or other renewable sources that generate power at night might not fully benefit from daytime energy demand on the grid.
Dependent on policy and regulation: If policies and regulations changed to reduce the compensation rate for excess power generation, this can impact the financial return for solar customers, potentially making solar less attractive.
Grid and infrastructure strain: High levels of net metering in some areas could cause grid instability or infrastructure strain, as most grids were designed for a one-way power flow.

Solar buyback vs net metering

Net metering and solar buyback are similar programs, but they are not exactly the same. Both involve selling excess electricity generated by solar panels back to the grid, but they operate differently in terms of how customers are credited and compensated.

Net metering: Credits for excess energy sent back to the grid are often valued at the same rate you pay for electricity (retail rate), meaning you “break even” on the energy you send back to the grid.
Solar buyback: Also allows customers to sell unused energy back to the grid, but instead of earning a credit at the retail rate, customers are generally paid at a lower rate that is typically lower than what they pay to consume electricity from the grid.

Written by Graham Lumley

Graham Lumley, Growth Product Manager at BKV Energy, leads digital and traditional marketing strategies, focusing on educating Texans about the state's deregulated energy market. With over 10 years of marketing experience, he creates content to help consumers understand and save on their energy bills, bringing a fresh and dynamic approach to the industry.