When the sun is shining, your solar system generates electricity, which means you will purchase less electricity from the local utility. Over the course of one year, your utility will track the amount of electricity your system has fed into the grid and use this credit to offset the costs of power purchased from the utility during peak usage or at night when your system does not generate electricity.
At the end of the year, the utility will "true up" how much electricity you used, and offset it to how much your system fed back to the utility grid. If you produced more than you consumed, your bill will be close to zero. If you used more electricity than you generated, you will only pay the difference.
As an example in the State of California, the California Solar Initiative currently contributes $2.50 /watt for solar electric systems less than 50 kilowatt (kW) and owners may apply for this incentive as an up-front cash rebate known as the Expected Performance Based Buydown (EPBB). Program Administrators calculate a customer's rebate using the expected performance of the owner's system based on equipment ratings and installation factors such as geographic location, tilt, orientation and shading. Customers receive their incentive payment in a lump sum after their system in fully installed and interconnected.