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In the day, energy produced by the panels is used to provide for the total power consumption of the household. If extra energy is produced by the panels, then it gets sent to the EB for storage (hence the term on grid). During the night, since the panels won't be producing energy the power that was sent to the EB will be sent back for usage. The net meter is crucial in this system since it tracks the power sent to/from the EB.
In case of a power cut, since the inverter is kept on by the EB power, the system will not function.