If your solar panels make more electricity than your house is using, the surplus does not sit in the wires waiting for you. It flows out to the grid, and somebody else uses it. Net metering is the rule that decides what you get in return.
It is worth understanding before you buy a system, because it has more influence on how fast that system pays for itself than the price of the panels does.
A grid-tied solar system has no battery unless you add one. Electricity goes wherever there is demand at that instant — the fridge, the air conditioning — and whatever is left over leaves the building through the same wires that normally bring power in.
Under net metering, your utility measures both directions and subtracts one from the other. Draw 900 kilowatt-hours from the grid over a month, send 300 back, and you are billed for 300. The exported electricity has cancelled out an equal amount of imported electricity, which means in effect it was worth the full retail price you would otherwise have paid for it. That is the part that makes rooftop solar work financially in most of the country.
Almost nobody matches their own production month to month. A system sized to cover a year's use will overproduce in June and fall short in December. So when a month's exports exceed its imports, the balance usually carries forward as a credit in kilowatt-hours against later bills.
What happens to credit that is still unused at the end of the year is where states stop agreeing with each other. Some utilities pay it out in cash, though at a low wholesale rate rather than the retail rate. Some roll it forward indefinitely. Some simply keep it. This is the detail most worth checking locally, and it is a good reason not to oversize a system on the assumption that extra production is always extra money. If you are still working out what size you need, How to Size Your Residential Solar Electric System covers the calculation.
The phrase gets used loosely to mean any solar credit, but there is a real distinction behind it. Under true net metering, an exported kilowatt-hour cancels an imported one. Under net billing, the utility buys your exports at a separate and usually lower rate, while everything you consume is still charged at the full retail rate. Same panels, noticeably different economics.
Several states have made exactly that switch, and it shows in the rules themselves. California now runs net metering and net billing side by side depending on when a system was connected, while Maine's policy is called Net Energy Billing outright. Elsewhere the older arrangement is intact: Pennsylvania's net metering rule is a straightforward retail-rate offset.
A handful of states have no statewide requirement at all, which means net metering is whatever your particular utility decides to offer. Two neighbours served by different companies can be on completely different terms.
Where net metering does exist, it comes with boundaries. There is normally a cap on how large a single system may be, sometimes stated in kilowatts and sometimes as a share of your own past consumption — build beyond it and the extra output may earn nothing. There is often a second, less visible cap on how much net-metered capacity a utility has to accept in total, after which new applicants can be turned away even though the policy is still on the books.
Coverage varies too. State rules usually bind the large investor-owned utilities, while municipal utilities and rural electric co-operatives are frequently exempt and set their own terms.
Being paid for exports and being allowed to connect in the first place are two different processes, and the second one is what tends to hold up a finished installation. That is governed by interconnection rules — see Solar Interconnection Standards.
Net metering is also not the only way a solar owner earns money from production. In some states the electricity itself and the environmental attributes of that electricity are sold separately, which is the subject of What are SRECs?
Rules in this area change more often than most, and a policy can be amended or closed to new customers without much announcement. Treat the summary for your state as the starting point and confirm the current terms with the utility that will actually connect you.
