What is Net Metering?

Net metering is a billing arrangement that allows solar panel owners to receive credit for excess electricity they send to the power grid. When your solar panels produce more electricity than your home is using, the surplus flows to the grid and your electric meter essentially "runs backward," crediting your account.

Think of the grid as a giant battery: you deposit electricity during sunny hours and withdraw it when needed at night or on cloudy days. Net metering makes this exchange possible and is one of the key factors that make solar economically attractive.

How Net Metering Works

Step-by-Step Process

• Step 1 - Solar Production: Your panels generate electricity from sunlight throughout the day.
• Step 2 - Instant Use: Your home first uses the solar electricity directly, powering lights, appliances, and HVAC.
• Step 3 - Excess Export: When production exceeds your immediate needs, surplus electricity flows to the grid.
• Step 4 - Meter Records Both Ways: A bidirectional meter tracks both electricity imported from and exported to the grid.
• Step 5 - Credit Applied: Your utility credits your account for exported electricity at the net metering rate.
• Step 6 - Monthly Bill: You pay only for "net" electricity used (imports minus exports).

Daily Net Metering Cycle Example

Here's what a typical day looks like for a home with solar and net metering:

• 6 AM - 8 AM: Low solar production. Home imports 3 kWh from grid.
• 8 AM - 12 PM: Solar exceeds usage. Home exports 8 kWh to grid.
• 12 PM - 4 PM: Peak solar. Home exports 12 kWh to grid.
• 4 PM - 8 PM: Solar declining. Home uses remaining solar, then imports 5 kWh.
• 8 PM - 6 AM: No solar. Home imports 10 kWh from grid.
• Daily Total: Imported 18 kWh, Exported 20 kWh = Net export of 2 kWh (credit!)

Types of Net Metering Policies

1. Full Retail Net Metering (Best for Solar Owners)

Under full retail net metering, you receive credit at the same rate you pay for electricity. If you pay $0.20/kWh to buy power, you receive $0.20/kWh credit for exported power.

• Maximum value for your solar production
• Simple 1:1 kWh exchange
• Best solar economics and fastest payback
• Available in: NY, NJ, MA, CT, MD, VT, NH, RI

2. Net Billing / Reduced Rate Net Metering

Export credits are worth less than the retail rate - typically 50-75% of what you pay for imported electricity.

• Still valuable but reduced solar economics
• Encourages self-consumption over export
• Battery storage becomes more attractive
• Used by: CA (NEM 3.0), HI, UT, NV, some NC utilities

3. Avoided Cost / Wholesale Rate

You receive only the utility's "avoided cost" - the wholesale price of electricity, typically $0.03-$0.06/kWh.

• Minimal value for exports
• Best to maximize self-consumption
• Battery storage essential for good economics
• Used by: GA, parts of TX, parts of FL, AL

4. Buy-All, Sell-All (Feed-in Tariff)

All solar production goes to the grid at a fixed rate, and you buy all your electricity separately. Less common in the US but used in some countries.

Net Metering by State (2026)

California NEM 3.0 Explained

California's NEM 3.0 (Net Billing Tariff), implemented in April 2023, represents a major shift in net metering policy. Understanding NEM 3.0 is important as other states may follow similar approaches.

Key NEM 3.0 Changes

• Reduced Export Values: Export credits dropped from ~$0.30/kWh to $0.05-$0.08/kWh on average
• Time-Varying Rates: Export values change hourly based on grid needs (higher in evening, lower midday)
• Avoided Cost Pricing: Credits based on wholesale electricity value, not retail rate
• 9-Year Grandfathering: Existing NEM 2.0 customers locked in for 20 years
• Battery Incentive: Makes battery storage economically necessary

NEM 3.0 Export Value by Time

• Midday (10 AM - 4 PM): ~$0.03-$0.05/kWh (lowest value, solar peak)
• Late Afternoon (4 PM - 7 PM): ~$0.10-$0.15/kWh (transitional)
• Evening (7 PM - 9 PM): ~$0.25-$0.35/kWh (highest value, peak demand)
• Night/Morning: ~$0.08-$0.12/kWh (moderate value)

Optimizing Under NEM 3.0

• Add Battery Storage: Store midday solar for evening use/export at higher rates
• Maximize Self-Consumption: Use solar directly rather than exporting
• Shift Loads: Run dishwasher, EV charging, etc. during solar hours
• Right-Size System: Don't oversize - match production to consumption
• Smart Home Integration: Automate appliances to use solar when available

Understanding Your Net Metering Bill

Net metering bills can be confusing. Here's how to read them:

Key Terms on Your Bill

• kWh Delivered (Imported): Electricity you used from the grid
• kWh Received (Exported): Electricity you sent to the grid
• Net kWh: Delivered minus Received - what you actually pay for
• Credit Balance: Accumulated credits from excess production
• Minimum/Fixed Charges: Fees you pay regardless of usage

Sample Monthly Net Metering Bill

• kWh Delivered from Grid: 400 kWh
• kWh Exported to Grid: 350 kWh
• Net kWh Usage: 50 kWh
• Rate: $0.18/kWh
• Energy Charge: 50 × $0.18 = $9.00
• Fixed Charges/Fees: $12.00
• Total Bill: $21.00 (vs. ~$84 without solar)

Net Metering Credit Rollover

Different utilities handle excess credits differently:

Monthly Rollover

Most common approach - unused credits roll forward each month. Great for building up credits during sunny months to use in winter.

Annual True-Up

Credits accumulate for 12 months, then:

• If you owe money: Pay the remaining balance
• If you have excess credits: Some utilities pay out at avoided cost; others reset to zero

Best Strategy for Credit Management

• Size your system to roughly match annual usage
• Avoid significant over-production (credits may be forfeited annually)
• Plan your true-up month for after summer (maximize credit accumulation)
• Consider EV purchase to use excess credits

Connecting to Net Metering

Requirements

• Grid-Tied System: Your solar must be connected to the utility grid
• Bidirectional Meter: Utility installs a meter that tracks both directions
• Interconnection Agreement: Contract with utility outlining terms
• Proper Installation: System must meet electrical codes and utility specs
• Insurance: May need to add solar to homeowner's policy

Interconnection Process

• Application: Installer submits interconnection application to utility
• Review: Utility reviews system design (1-4 weeks typical)
• Approval: Utility approves interconnection
• Installation: System is installed and inspected
• Meter Swap: Utility installs bidirectional meter
• Permission to Operate (PTO): Utility grants PTO - you can turn on solar!

Alternatives to Net Metering

In areas without good net metering, consider these alternatives:

Battery Storage

Store excess solar for personal use instead of exporting. Eliminates dependence on net metering rates.

Community Solar

Subscribe to a shared solar farm and receive bill credits. Available even for renters or those with unsuitable roofs.

Virtual Net Metering

Credits from one property can offset bills at another location (same account holder). Useful for businesses with multiple sites.

Behind-the-Meter Solutions

Maximize self-consumption with:

• Smart load management (run appliances during solar hours)
• Electric vehicle charging during the day
• Electric water heater with timer
• Heat pump operation during solar hours

The Future of Net Metering

Net metering policies are evolving as solar adoption grows. Key trends:

• Value-Based Rates: More states moving to time-varying export rates
• Grid Services: Solar+storage owners may earn money for grid support
• Capacity Limits: Some utilities capping net metering enrollment
• Fixed Charges: Increased minimum bills for solar customers
• Battery Integration: Policies increasingly favor solar+storage

Conclusion

Net metering remains one of the most important factors in solar economics. Understanding your local net metering policy helps you:

• Size your solar system appropriately
• Decide whether to add battery storage
• Calculate accurate payback and savings
• Maximize the value of your solar investment

Ready to see how much solar energy you could produce? Use our free Solar Production Calculator to get accurate estimates, then factor in your local net metering policy to calculate true savings.