Net metering is one of the most important policies affecting the financial return of solar panels. In simple terms, it lets you sell excess solar electricity back to the grid and receive credit on your utility bill. When your panels produce more than you use during the day, that surplus energy flows to the grid, and your meter essentially runs backward. At night, when your panels are not producing, you draw electricity from the grid and use those credits. Understanding net metering is critical for anyone considering solar panels.
How Net Metering Works: Step by Step
- Midday (high production): Your panels generate more electricity than your home uses. The excess flows to the grid, and your utility credits your account.
- Evening (no production): Your panels stop producing at sunset. Your home draws electricity from the grid, using up the credits you banked during the day.
- End of month: Your utility calculates the net difference between what you sent to the grid and what you drew from it. If you sent more than you used, you have a credit. If you used more, you pay the difference.
- End of year (true-up): Many utilities do an annual settlement where remaining credits may be paid out at a reduced rate or rolled into the next year.
Types of Net Metering
Full Retail Net Metering (1:1)
The gold standard. Every kWh you send to the grid earns a credit at the full retail electricity rate. If you pay $0.15/kWh, you receive a $0.15 credit for every kWh exported. This is the most financially favorable arrangement for solar homeowners. States with full retail net metering include New Jersey, New York, Massachusetts, and many others.
Net Billing (Reduced Rate)
Under net billing, you receive credit for exported energy at a lower rate than what you pay for electricity. For example, you might pay $0.15/kWh to buy electricity but only receive $0.08/kWh credit for what you export. California's NEM 3.0 policy is a high-profile example of this approach. This makes battery storage more attractive, as storing your excess is worth more than selling it back.
Avoided Cost / Wholesale Rate
The least favorable arrangement. You receive credit at the utility's wholesale (avoided cost) rate, typically $0.03-$0.05/kWh. A few states and utilities use this model. In these cases, the economics strongly favor self-consumption and battery storage over grid exports.
Net Metering by State
Net metering policies vary dramatically by state. Here is a snapshot of key states:
| State | Net Metering Type | Export Rate | Rating |
|---|---|---|---|
| New Jersey | Full Retail | $0.17/kWh | Excellent |
| New York | Full Retail (VDER) | $0.15-$0.22/kWh | Excellent |
| Massachusetts | Full Retail | $0.25/kWh | Excellent |
| Florida | Full Retail | $0.13/kWh | Good |
| Colorado | Full Retail | $0.14/kWh | Good |
| California (NEM 3.0) | Net Billing | $0.05-$0.08/kWh | Fair |
| Nevada | Net Billing | 75% retail | Good |
| Arizona | Net Billing | Varies by utility | Fair |
| Texas | Varies by provider | $0.03-$0.10/kWh | Varies |
How Net Metering Affects Your Savings
The impact of net metering on your solar economics is substantial. Consider a homeowner in Boston, MA with a 7 kW system producing 9,000 kWh per year who uses 10,000 kWh annually:
- Self-consumption (60%): 5,400 kWh used directly, saving $1,350 at $0.25/kWh
- Grid export (40%): 3,600 kWh sent to grid
Under full retail net metering, those 3,600 kWh earn $900 in credits. Total annual savings: $2,250. Under a reduced net billing rate of $0.08/kWh, those same exports would only earn $288. Total annual savings drop to $1,638 -- a 27% reduction.
This is why net metering policy is so important when evaluating solar. Homeowners in states with full retail net metering see significantly better returns.
Strategies to Maximize Net Metering Value
- Size your system correctly: Aim to offset 80-100% of your annual electricity usage. Oversizing only makes sense with full retail net metering.
- Shift usage to daytime: Run your dishwasher, laundry, and EV charger during peak solar production hours to maximize self-consumption.
- Add battery storage: If your utility offers reduced export rates, storing excess energy and using it at night is more valuable than selling it back.
- Monitor your production: Use your solar monitoring app to understand production patterns and optimize your energy usage accordingly.
- Understand your true-up date: Know when your utility resets credits so you can manage your account balance.
Is Net Metering Going Away?
Net metering has been under pressure from utilities in several states. The most notable change was California's transition from NEM 2.0 (full retail) to NEM 3.0 (reduced export rates) in April 2023. However, the trend is not universal. Many states have strengthened their net metering policies, and some have codified them into law, making them harder to change.
If you are considering solar, the existing net metering policy at the time of your installation is typically grandfathered for 10-20 years, depending on the state. This means installing sooner locks in favorable terms even if policies change later.
Net Metering and Your Electric Bill
With net metering, your electric bill will look different. Most solar homeowners see their bill drop to the minimum connection charge ($10-$20/month in most areas) or even receive a credit. Here is what a typical monthly bill looks like after solar:
| Month | Grid Usage | Solar Export | Net | Bill |
|---|---|---|---|---|
| January | 800 kWh | 400 kWh | -400 kWh | $60 |
| April | 600 kWh | 900 kWh | +300 kWh | $10 (min) |
| July | 1,200 kWh | 1,100 kWh | -100 kWh | $25 |
| October | 500 kWh | 800 kWh | +300 kWh | $10 (min) |
Surplus credits from spring and fall months help offset higher usage during summer and winter, smoothing out your annual costs.
Bottom Line
Net metering is a critical factor in solar economics. States with full retail net metering offer the best returns, while states with reduced export rates may require battery storage to maximize savings. Before going solar, check your state's net metering policy and understand how exports will be credited. Our city cost pages factor in local net metering policies when calculating savings for areas like Phoenix, AZ, Denver, CO, and Atlanta, GA.