What Is Net Metering?
Net metering is a utility billing mechanism that credits solar panel owners for the electricity they export to the grid. When your panels produce more electricity than you're using — typically midday when the sun is brightest and you're away at work — the excess flows onto the grid and your meter effectively runs backward. At the end of the billing period, you pay only the "net" difference between what you consumed and what you produced.
In simple terms: net metering turns your utility into a "virtual battery" — you store energy on the grid during the day and draw it back at night, with the utility keeping track of the balance.
How Net Metering Credits Work
Under traditional full retail net metering, every kWh you export to the grid earns you a credit equal to the retail rate you pay for electricity. If you pay 20 cents/kWh to consume electricity, you receive 20 cents/kWh for electricity you export. This 1:1 ratio is the most favorable for solar owners.
Example: You generate 800 kWh/month from solar. You consume 1,000 kWh/month from the grid. Your net usage is 200 kWh. You pay for only 200 kWh instead of 1,000 kWh — saving $160/month at 20 cents/kWh rather than $200.
The Net Metering Policy Landscape in 2026
Net metering policy has changed dramatically since 2020 as utilities push back against rooftop solar owners. The landscape now falls into several categories:
States with Strong Full Retail Net Metering
Most northeastern and mid-Atlantic states still have full retail net metering: New York, New Jersey, Maryland, Virginia, North Carolina, Massachusetts (though with modifications), and many others. These states offer the best solar economics.
States with Reduced Export Rates
- California (NEM 3.0 / Net Billing): Since April 2023, new solar installations earn only the "avoided cost" rate for exports — approximately 5 cents/kWh — rather than the retail rate of 30+ cents/kWh. This fundamentally changed California's solar math. Battery storage is now essentially required to make California solar economically optimal.
- Nevada: Reduced export rates after a contentious policy battle in 2015–2016, though the state partially reversed course under later legislation.
- Florida: Utility industry attempts to reduce net metering have been ongoing. Current policy remains relatively favorable but is under pressure.
- Arizona: Export rates are below retail and vary by utility.
States Without Mandatory Net Metering
A few states (notably Texas and Alabama) have no statewide net metering mandate. Individual utilities may offer net metering voluntarily, and some do, but solar owners have no guaranteed right to compensation for exports.
Annual True-Up vs. Monthly Billing
Some utilities bill net metering on a monthly basis (credits expire each month), while others offer annual true-up billing. Under annual true-up, credits accumulated in summer (when solar production peaks) can offset bills in winter (when production is lower). Annual true-up is significantly more favorable for solar owners and is required by law in some states including California's older NEM 2.0 customers.
Non-Bypassable Charges: What Net Metering Doesn't Eliminate
Even with robust net metering, most utilities have fixed "non-bypassable charges" that solar owners must still pay regardless of how much they export. These include:
- Customer service charge ($5–$25/month fixed)
- Grid connection / standby charges
- Public purpose charges (low-income assistance programs)
In California, even solar owners who generate more than they consume pay $10–$20/month in minimum charges. Utilities are increasingly seeking to increase these fixed charges, which reduces the economics of going "solar zero" (generating 100% of your usage).
How NEM 3.0 Changed the California Calculation
California's 2023 shift to Net Billing (NEM 3.0) is the most significant net metering policy change in US history. Under NEM 2.0, a California solar owner exporting power received credits at ~30 cents/kWh. Under NEM 3.0, those credits are approximately 5 cents/kWh during most hours (higher during evening peak).
The result: solar payback periods in California stretched from 6–8 years to potentially 10–15 years for solar-only systems. However, with battery storage, you can capture solar energy during the day and use it during evening peak hours (5–9 PM) when TOU rates are highest — effectively self-consuming your solar at retail value rather than exporting at avoided cost. This is why California solar installations now almost universally include battery storage.
What to Check Before Going Solar
- Your utility's current net metering rate — not what it was 3 years ago
- Whether rates will be grandfathered if policy changes (NEM 2.0 customers kept their rates for 20 years)
- Annual true-up vs. monthly billing — affects which months you "waste" excess credits
- Fixed charges you'll still owe regardless of solar production
- Whether your installer models net metering correctly — some use retail rate for exports even when the actual export rate is lower
Bottom Line
Net metering policy is the single biggest variable in residential solar economics after electricity rates. Full retail net metering makes solar extremely attractive. Reduced export rates (like California's NEM 3.0) still allow solar to work well economically — but only when paired with battery storage or aggressive self-consumption strategies. Before signing a solar contract, verify your utility's current net metering policy directly — and make sure your solar quote accurately reflects actual export compensation rates.