Net Metering: what it is and how net energy metering works
Net metering, known in Spanish as ‘medición neta’ or ‘balance neto’, is a compensation mechanism used in distributed generation installations that allows for the accounting of electricity consumed from the grid and the surplus energy that the user feeds into the electricity system.
Net metering is particularly relevant to self-consumption of solar photovoltaic energy. When a system generates more electricity than it needs at any given time, the surplus can be fed into the grid. Subsequently, the energy previously fed into the grid can be used, either in full or in part, to offset the electricity consumed from the grid, in accordance with the rules established by each market.
Net metering is therefore neither a photovoltaic technology nor a storage system. It is a metering and offsetting mechanism that regulates how electricity exchanges between a self-consumer and the grid are accounted for.
In Europe, there is no single net metering scheme applicable to all countries. European legislation recognises the right of self-consumers of renewable energy to generate, store and sell their surplus electricity, but each Member State subsequently develops its own mechanisms for remuneration, offsetting and grid access.
How does net metering work?
Net metering works by recording the flows of electricity between a self-consumption installation and the electricity grid. During periods when solar generation is lower than consumption, the user first uses the electricity produced by their photovoltaic installation and draws the additional energy they need from the grid. When production exceeds instantaneous demand, the surplus electricity can be fed into the electricity system. The process can be simplified as follows:
Solar generation → self-consumption → surplus → feeding into the grid → credit
To record these exchanges, a meter capable of distinguishing between imported and exported energy is normally used. At the end of the settlement period, the net metering mechanism determines what proportion of the electricity fed into the grid can offset the electricity consumed from the grid.
- Generation falls short of consumption: the facility imports electricity from the grid to meet the remaining demand.
- Generation equivalent to consumption: photovoltaic output covers virtually all instantaneous demand.
- Generation in excess of consumption: surplus electricity is fed into the grid and credited in accordance with the terms of the net metering scheme.
The European Directive on Renewable Energy recognises the right of self-consumers to generate renewable electricity for their own consumption, to store it and to sell any surplus they feed into the grid. It also stipulates that the remuneration for that electricity must reflect its market value and may take into account its value to the grid, the environment and society.
Net metering and photovoltaic self-consumption
Net metering makes it possible to maximise the economic benefits of a photovoltaic installation when there is a time lag between when the electricity is generated and when it is consumed. A home, business or small industrial facility may produce a large amount of electricity during the middle of the day. If consumption at that time is lower than the amount of electricity generated by the photovoltaic system, a surplus is created which can be fed into the grid.
At night or during periods of low irradiance, the situation is reversed: the installation generates little or no electricity and the consumer needs to draw power from the electricity grid. Under certain net metering schemes, the energy previously fed into the grid can be used to offset part of that imported electricity. The period used to calculate the balance may be hourly, monthly, annual or based on other criteria defined by national regulations.
The Council of European Energy Regulators (CEER) It identifies net metering as one of the possible billing systems used when a self-consumer feeds surplus electricity into the grid, alongside other metering and remuneration models. From an energy perspective, net metering facilitates the consumer’s active participation in the electricity system. The user is no longer merely a purchaser of electricity but also acts as a producer, a role commonly referred to as prosumer .
However, the trend in European regulation is increasingly focusing on instantaneous self-consumption, price signals, storage and flexibility. This is because a net settlement of imported and exported energy may not accurately reflect the timing of electricity generation or the costs associated with grid usage.
The difference between net metering and net billing
Net metering and net billing are both related to the offsetting of surplus renewable energy, but they represent different mechanisms. In a traditional net metering scheme, the offsetting is based primarily on energy quantities. The kilowatt-hours fed into the grid are used to reduce, in accordance with the established conditions, the kilowatt-hours drawn from the grid during the settlement period. In net billing, by contrast, the energy purchased from the grid and the electricity fed into the grid are valued separately. The consumer pays a set price for the electricity drawn from the grid and receives a payment or credit for the surplus energy fed into the grid.
- Net Metering: this primarily compares the kWh imported with the kWh previously exported.
- Net Billing: assigns a separate monetary value to the electricity consumed and the electricity fed into the grid.
This difference is important because a kWh generated at midday does not necessarily have the same value for the electricity system as a kWh consumed during a peak demand period. For this reason, several European markets have moved, or are moving, away from traditional net metering schemes towards models that place an economic value on surplus energy and provide clearer incentives to encourage self-consumption and flexibility.
One example is the Netherlands. The International Energy Agency (IEA) states that the Dutch system currently allows households and small businesses to offset the electricity they feed into the grid against the electricity they consume from the grid, but this net metering scheme will end on 31 December 2026. From 2027 onwards, electricity fed into the grid will continue to be remunerated, but it will no longer be directly offset against consumption.
Why is net metering important for renewable energy?
Net metering has played a significant role in the expansion of distributed renewable generation because it allows economic value to be assigned to the electricity that a system generates but does not consume immediately. For a solar photovoltaic system, this can improve the utilisation of surplus electricity and reduce the net amount of electricity billed to the consumer. Consequently, the mechanism can enhance the economic viability of self-consumption and shorten the payback period for certain investments. Its main implications include:
- Utilising surplus energy: solar electricity that is not consumed immediately may have value within the net metering scheme.
- Reduction in net consumption: any surplus can offset part of the electricity subsequently drawn from the grid.
- Promoting distributed generation: making it easier for households and businesses to participate in the production of renewable electricity.
- Active consumer participation: turns the user into an agent capable of both consuming and generating and feeding electricity into the grid.
From the perspective of the electricity system, the design of net metering must also take into account issues such as grid tariffs, infrastructure costs, congestion, time-of-use price signals and the need to align consumption with periods of peak renewable generation. Consequently, the European framework is evolving towards systems in which self-consumers not only generate and feed electricity into the grid, but can also use storage, adjust their demand, participate via aggregators and respond to market signals.
Net metering should therefore be understood as one of several possible mechanisms for accounting for and crediting electricity generated from renewable self-consumption. Its specific application always depends on each country’s regulatory framework and should not be confused with other models such as net billing, the direct sale of surplus electricity or feed-in tariff schemes.