What Is Net Metering and How Does It Work?
Net metering (officially called "net energy metering" or NEM) is a billing arrangement between you and your utility company. When your solar panels produce more electricity than your home is using (which typically happens around midday), the excess power flows backward through your electric meter to the grid. Your utility credits you for this exported electricity.
At night or on cloudy days when your solar system isn't producing enough power, you draw electricity from the grid and use your accumulated credits to pay for it. At the end of the billing cycle, your utility calculates the "net" — the difference between what you exported and what you imported.
Full Retail Net Metering vs. Net Billing (Important Distinction)
Not all net metering policies are created equal. There are three main types of compensation structures in the US:
1. Full Retail Net Metering (Best for Solar Owners)
You receive credit at the full retail electricity rate for every kWh you export. If your retail rate is $0.25/kWh, you get $0.25 credit for every kWh exported. This is the most solar-friendly policy because it fully values your excess solar production.
States with full retail net metering (2026): New York, Massachusetts, New Jersey, Connecticut, Rhode Island, Vermont, Florida, North Carolina, Illinois, and parts of Michigan and Wisconsin.
2. Net Billing (Lower Export Credit)
You receive credit at a lower "avoided cost" rate (typically $0.05–$0.12/kWh) rather than the full retail rate. This means you "buy" electricity from the grid at the full retail rate but only get "paid" a fraction of that rate when you export. Net billing significantly reduces solar savings but makes battery storage much more valuable.
States with net billing (2026): California (NEM 3.0), Arizona, Nevada, Idaho, and parts of Texas (depending on utility).
3. No Net Metering (Worst for Solar Owners)
Some utilities do not offer any compensation for exported solar electricity. You still save money by using your solar production directly (avoiding the retail rate), but any excess production is essentially given to the grid for free. In these states, battery storage is essential.
States with no/net-very-low compensation: Alabama, Tennessee, South Dakota, and some rural electric cooperatives nationwide.
| State | Net Metering Type | Export Credit Rate (avg) | Avg Payback Period |
|---|---|---|---|
| New York | Full retail NEM | $0.22/kWh | 6–9 years |
| Massachusetts | Full retail NEM | $0.26/kWh | 5–8 years |
| California | Net billing (NEM 3.0) | $0.08/kWh | 8–12 years |
| Florida | Full retail NEM | $0.13/kWh | 7–10 years |
| Texas (Oncor) | Net billing | $0.06/kWh | 9–13 years |
| Arizona (APS) | Net billing | $0.09/kWh | 8–11 years |
California NEM 3.0: What Changed and Why It Matters
California, the largest solar market in the US, switched from full retail net metering (NEM 2.0) to net billing (NEM 3.0) in April 2023. This was the most significant policy change in the US solar industry in the past decade.
Under NEM 2.0, solar exporters received ~$0.29/kWh credit for their exports. Under NEM 3.0, the export credit dropped to an average of $0.08/kWh (varying by time of day and season). This reduced the financial value of exported solar by about 75%.
How Net Metering Affects Your Solar Payback Period
The payback period is the time it takes for your cumulative electricity savings to equal the total cost of your solar system. Net metering policy is the single biggest factor affecting payback period (bigger than system cost or sunlight levels).
In full retail net metering states, the payback period is typically 5–9 years. In net billing states, it increases to 8–13 years. In no-net-metering states, solar is still worth it if you have high daytime electricity usage (you use the solar directly), but the payback is longer (~10–15 years).
Net Metering Policy by State (2026 Update)
The following table shows the current net metering policy for all 50 states. Note that policies can change at any time (utilities and PUCs regularly propose changes), so always verify with your local utility.
| State | Policy Status (2026) | Export Rate | Solar Friendliness |
|---|---|---|---|
| Alabama | No net metering (investor-owned utilities) | $0.00–$0.03/kWh | 🟢 Poor |
| Alaska | Net metering available (some utilities) | Varies | 🟡 Fair |
| Arizona | Net billing (APS, TEP) | $0.08–$0.11/kWh | 🟡 Fair |
| Arkansas | Net metering (some utilities) | ~$0.10/kWh | 🟢 Good |
| California | Net billing (NEM 3.0) | $0.05–$0.12/kWh | 🟡 Fair (battery recommended) |
| Colorado | Net metering (investor-owned utilities) | ~$0.14/kWh | 🟢 Good |
| Connecticut | Full retail net metering | ~$0.24/kWh | 🟢 Excellent |
| Florida | Full retail net metering | ~$0.13/kWh | 🟢 Excellent |
| Georgia | Net metering (limited) | ~$0.05/kWh | 🟡 Fair |
| Illinois | Net metering (adjusted) | ~$0.12/kWh | 🟢 Good |
| Massachusetts | Full retail net metering + SMART | ~$0.26/kWh | 🟢 Excellent |
| New Jersey | Full retail net metering (transitioning to TRECs) | ~$0.17/kWh | 🟢 Excellent |
| New York | Full retail net metering | ~$0.22/kWh | 🟢 Excellent |
| North Carolina | Full retail net metering | ~$0.12/kWh | 🟢 Good |
| Texas | Varies by utility (Oncor = net billing) | $0.05–$0.12/kWh | 🟡 Mixed |
Do I Need Net Metering If I Have a Battery?
A battery reduces your reliance on net metering because you can store excess solar and use it at night instead of exporting it. However, net metering still provides value for:
- Excess electricity your battery cannot store: On very sunny days, your battery may fill up by 1 PM. The remaining solar production still goes to the grid (hopefully for a credit).
- Multi-day cloudy periods: If there are several consecutive cloudy days, your battery may be depleted. Net metering credits can help offset grid electricity during these periods.
- Winter months: In most US climates, solar production is 40–60% lower in winter. Net metering credits accumulated during summer can offset winter grid use.
How to Check Your State's Net Metering Policy
To find the most up-to-date net metering policy for your state:
- Visit the DSIRE database and search for your state.
- Call your utility company and ask: "What is your current net metering policy for new solar customers?"
- Check your state's Public Utility Commission (PUC) website for recent orders or rulings.
- Use our solar savings calculator to model your savings under different net metering scenarios.
📊 Calculate Your Solar Savings Now
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Calculate My Solar Savings →❓ Frequently Asked Questions
Net metering is a billing mechanism that credits solar homeowners for excess electricity they export to the grid. It allows you to use the grid as a 'battery,' drawing power at night and getting credited for your daytime exports.
As of 2026, states with full retail net metering include New York, Massachusetts, New Jersey, Connecticut, Florida, North Carolina, and Illinois. California switched to net billing (NEM 3.0) in 2023.
NEM 3.0 reduced the export credit rate from ~$0.29/kWh to ~$0.08/kWh. This reduces solar savings by 20–40% and makes battery storage much more valuable.
A battery reduces your reliance on net metering because you can store excess solar and use it at night. However, net metering still provides value for excess electricity your battery cannot store, and for multi-day cloudy periods.
Net metering typically refers to full retail rate credit for exports. Net billing refers to a lower export credit rate (based on the utility's 'avoided cost'). Net billing reduces solar savings but is still better than no compensation.
Visit DSIRE (dsireusa.org), call your utility company, or check your state's Public Utility Commission website. Policies can change, so always verify the current rules before installing solar.