Net Metering Explained: How It Works, States & Rates
- Net metering only applies to grid-tied solar — off-grid systems don't have a grid connection to meter.
- Net metering credits excess solar production against your electricity bill at the retail rate.
- Many states have weakened net metering since 2020 — California's NEM 3.0 cut export rates by 75%.
- The value of net metering depends heavily on your state's export rate and time-of-use pricing.
- If net metering in your state has been weakened, batteries become more valuable than exporting to the grid.
What is net metering?
Net metering is a billing arrangement that allows grid-tied solar owners to send excess electricity to the utility grid and receive a credit on their bill. Your meter runs forward when you draw from the grid and backward (or credits accumulate) when you export. At the end of the billing period, you pay only the "net" — what you consumed minus what you exported.
In its simplest form: if you produce 800 kWh in a month and consume 700 kWh, you have a 100 kWh credit that rolls forward to offset next month's bill.
How net metering billing works
- During the day: Your solar panels produce power. If production exceeds your home's consumption, excess flows to the grid.
- At night/cloudy days: You draw power from the grid as normal.
- Monthly billing: Your utility calculates net consumption (grid draw minus export). If net is negative (you exported more than you imported), you receive a credit.
- Annual true-up: Many utilities do a once-yearly settlement. Accumulated credits reduce your annual bill — but most utilities don't pay cash for annual surplus.
Full retail rate vs avoided cost — a critical distinction
Not all net metering is equal. The rate at which your utility credits exported power determines the financial value:
| Credit rate | What it means | Financial impact |
|---|---|---|
| Full retail rate | Credit equals what you'd pay to buy that kWh | Best — exported power is as valuable as consumed power |
| Avoided cost / wholesale rate | Credit at utility's generation cost (~$0.03–0.05/kWh) | Poor — exported power worth 5–10× less than retail |
| Time-of-use export rate | Credit varies by time of export | Good if exporting at peak hours; poor at midday |
Net metering by state (2026)
| State | NEM status | Export rate | Notes |
|---|---|---|---|
| Texas (varies) | Varies by utility | Full retail to avoided cost | No statewide mandate; depends on your utility |
| New York | Full retail NEM | Full retail rate | Strong NEM; community solar also available |
| New Jersey | Full retail NEM | Full retail rate | Strong NEM program |
| Massachusetts | Full retail NEM | Full retail rate | Net metering with bill credits |
| California | NEM 3.0 (weakened) | ~75% below retail | Export rates cut significantly in 2023 |
| Hawaii | Customer Grid Supply | Below retail | Original NEM ended; current program less favorable |
| Arizona | Weakened NEM | Below retail | Export rates reduced in recent years |
| Florida | Full retail NEM | Full retail rate | Strong NEM preserved through 2029 |
The trend: net metering is being weakened
Since 2020, many states have reduced export rates as utilities push back against rooftop solar. California's NEM 3.0 (2023) cut export rates by approximately 75%, dramatically reducing the payback period for grid-tied solar without batteries. Hawaii, Arizona and Nevada have all reduced export rates.
This trend has two important implications:
- Batteries become more valuable: Instead of exporting cheap power and reimporting expensive power, using batteries to store and self-consume solar makes more economic sense as export rates fall.
- Off-grid becomes more competitive: As grid-tied solar becomes less financially attractive due to reduced export rates, the comparison with off-grid solar shifts. In states with weak net metering, the financial case for off-grid (or hybrid with large batteries) improves.
Net metering vs off-grid: which makes sense?
| Situation | Grid-tied with NEM | Off-grid |
|---|---|---|
| Already grid-connected, strong NEM state | Often better ROI | Higher cost, more complex |
| Already grid-connected, weak NEM state | Less attractive | Competitive — especially with batteries |
| No grid access or expensive connection | Not applicable | Clear choice |
| Want full energy independence | Doesn't provide this | Complete independence |
Frequently asked questions
Can I go off-grid and keep my grid connection as backup?
Yes — this is a hybrid system. You maintain the grid connection but have enough battery and solar to cover most of your needs. You only draw from the grid when your batteries are depleted. This is increasingly popular in states with weakened net metering — you get resilience and independence without fully disconnecting. See our hybrid solar guide.
Does net metering apply to battery storage?
In most states, net metering credits apply to power exported from batteries charged by solar. However, some utilities are moving to time-of-use pricing that distinguishes when the power was generated. Check your specific utility's tariff.
What happens to my net metering credits if I move?
Credits typically don't transfer to a new address or owner. Annual accumulated credits that haven't been used are usually paid out at a low rate (often avoided cost, not retail) or forfeited. This is one reason annual production should roughly match annual consumption — minimise annual surplus.