What is net metering and how does it work?

Net metering is a utility billing mechanism that credits you at the full retail electricity rate for solar electricity you export to the grid. When your panels produce more electricity than you use (sunny midday), the excess flows to the grid and your meter runs backwards — accumulating credits. At night or on cloudy days when you draw from the grid, those credits offset your import bill. Annually, you pay only for your net consumption (what you imported minus what you exported). Under full net metering, 1 kWh exported = 1 kWh of credit at the retail rate — the most favorable solar billing structure available.

Which states have net metering?

Most states have net metering policies, but quality varies widely. States with strong retail-rate net metering protected by law include: Massachusetts, New Jersey, Maryland, Virginia, New York, Connecticut, Rhode Island, Florida, North Carolina, Colorado, Oregon, Washington, and Wisconsin. California had retail-rate net metering (NEM 2.0) but replaced it with NEM 3.0 in April 2023, which pays much lower export rates (~$0.03–$0.08/kWh). States without mandatory net metering or with avoided-cost export rates: Indiana, Tennessee, Alabama, Mississippi — solar buyers in these states must size systems to self-consumption and add battery storage to maximize value.

What happens to unused solar credits at the end of the year?

Net metering credit rollover rules vary by state and utility. Most states roll credits over month-to-month at retail value throughout the year. At the annual true-up (usually April 1), unused excess credits either: (1) carry forward indefinitely at full retail value (rare, most favorable — Massachusetts Virtual Net Metering); (2) are compensated at avoided-cost rate, typically $0.03–$0.06/kWh (most common — CGS in CT, PECO in PA, Dominion in VA); (3) are forfeited entirely (least common). This is why right-sizing your system to your annual consumption matters — significant annual net export earns far less than retail value in most states.

Is net metering at risk in my state?

Net metering is under pressure in several states, but has strong statutory protection in others. Most at risk: Arizona (APS net billing at ~$0.03/kWh since 2017 for new customers, though retail NEM was grandfathered); California (NEM 3.0 cut export rates 75% in 2023); Nevada (retail NEM was cut in 2015, then restored in 2017 by AB 405 with statutory protection). Best-protected: New Jersey, Massachusetts, Virginia, Maryland, Washington (all have legislatively mandated net metering); Florida (HB 741 attempted cuts but was overturned in courts). If net metering policy is the primary driver of your solar payback, choose states with statutory (not just regulatory) protection and avoid utilities undergoing active rate cases.

Net Metering Explained for Homeowners in 2026: Complete Guide

Net metering is the billing mechanism that makes rooftop solar financially viable for most American homeowners. When your solar panels produce more electricity than your home uses, the surplus flows back into the grid and you receive a credit on your utility bill. Later — at night, on cloudy days, or in winter — you draw from those accumulated credits instead of paying full retail price.

Simple in concept, but the execution varies dramatically by state and utility. Retail-rate net metering in New Jersey produces a 6-year payback. Avoided-cost net billing in Alabama can produce a 16-year payback on the same system. Getting this right before you sign a $30,000 contract is the single most important thing a solar buyer can do.

This guide covers everything: how net metering works mechanically, the critical retail vs. avoided-cost distinction, annual true-up rules, state-by-state policy status, how battery storage changes the equation, and how to verify your utility's specific policy before getting quotes.

How Net Metering Actually Works: The Billing Mechanics

Your utility installs a bi-directional meter that measures two flows: electricity you consume from the grid, and electricity your solar panels send back to the grid. At the end of each billing cycle, you pay only the net difference — hence "net metering."

Example: Your panels produce 900 kWh in June. You consume 700 kWh from your panels directly and send 200 kWh to the grid. At night and on cloudy mornings, you draw 300 kWh from the grid. Your net consumption is 300 kWh − 200 kWh credit = 100 kWh you owe the utility.

With retail-rate net metering at $0.15/kWh, your bill is $15 instead of $45 — a $30 credit for energy you produced. That's the economic engine behind solar payback periods in the 6–10 year range.

Monthly vs. Annual Netting: A Critical Distinction

Some utilities net monthly (credit expires unused at month-end); others accumulate credits through an annual true-up period (usually April 1). Most standard net metering programs net annually, meaning:

Summer surplus credits carry forward through fall, winter, and spring
At the annual true-up date, remaining surplus credits are settled — either at retail rate (full credit) or avoided cost (typically $0.03–$0.06/kWh, the wholesale rate utilities charge for surplus)

The true-up settlement rate is the key variable that drives right-sizing decisions. If your annual settlement is at avoided cost, you should size your system to offset approximately 90–95% of your annual consumption — not 100–110%. Oversizing wastes the excess production.

Retail Rate vs. Avoided Cost: The Most Important Distinction in Solar Buying

This is the #1 consumer-protection fact that solar salespeople often skip.

Policy Type	What You Receive for Exports	Effect on Economics
Full Retail-Rate NEM	Same rate you pay for grid electricity (e.g., $0.15/kWh)	Shortest payback periods (6–12 years typical)
Net Billing / Modified NEM	Below retail but above avoided cost (e.g., $0.08–$0.12/kWh)	Moderate payback (10–15 years)
Avoided Cost Only	Wholesale electricity rate ($0.03–$0.06/kWh)	Longest payback (13–20 years); self-consumption design essential
No Net Metering	Nothing; may face penalty for export	Battery storage required; off-grid or minimal export design

Why this matters: A 10 kW system in a full retail-rate NEM state might produce $2,000/year in electricity value. The same system in an avoided-cost state, if you oversized to maximize export, might produce only $1,100/year — an 18-year payback instead of 10 years. The solution in avoided-cost states is to right-size the system to match self-consumption and minimize export.

States with Avoided-Cost or No Net Metering (Warning List)

These states either have no net metering mandate or pay avoided-cost rates for exports — buyers in these states must design for maximum self-consumption:

Alabama: Alabama Power pays ~$0.055–$0.065/kWh (avoided cost) vs. retail ~$0.12/kWh
Tennessee: TVA Green Power Providers pays ~$0.048/kWh plus charges a $15.64/month Power Service Connection fee
Mississippi: Entergy Mississippi/Mississippi Power pay avoided cost (~$0.04–$0.06/kWh)
Idaho: Idaho Power's October annual true-up settles surplus at ~$0.024–$0.040/kWh
Indiana: AES Indiana and Duke Energy Indiana removed the retail net metering mandate in 2022; export credited at avoided cost
Arizona (APS territory): APS net billing credits exports at ~$0.03/kWh — the lowest major utility rate in the country

Annual True-Up: How to Size Your System Correctly

Even in retail-rate net metering states, the annual true-up mechanics affect whether you get full value for every kWh you produce.

Standard annual true-up (most retail-NEM states): Credits accumulate monthly and roll over. At true-up (usually April 1), any surplus credits beyond the minimum bill amount are settled at avoided cost (or simply zeroed out in some programs).

Sizing implication: If you install a system sized at 110% of your annual usage, expecting to build up a big year-end bank, you'll likely lose 5–15% of your production value at true-up. The optimal design for most retail-NEM states is 95–100% offset, which captures near-full retail value for every kWh produced.

Exception: states with annual carryforward at retail rate: A few states (NJ, MA, NY under certain tariffs) maintain year-end surplus at retail-rate credit. In these states, slightly oversizing makes more sense.

How to calculate: Pull your utility bills for the last 12 months. Sum your total annual kWh usage. Size your system to produce 95% of that amount (accounting for a ~20% derate factor for inverter losses, temperature, and shading). Your installer should confirm this math against your specific utility's true-up rules.

Use the Solar ROI Calculator to model payback with specific state and electricity rate inputs, or the Solar System Designer to size your system correctly for your usage profile.

State Net Metering Policy Landscape in 2026

Full Retail-Rate Net Metering States (Best Economics)

These states mandate full retail-rate compensation for exports — the strongest foundation for solar economics:

Northeast: Connecticut (RSIP + retail NEM), Maine (Net Energy Billing at retail), Massachusetts, New Hampshire, New Jersey, New York (residential < 25 kW), Rhode Island, Vermont

Mid-Atlantic: Delaware, Maryland, Pennsylvania (retail-rate), Virginia (VCEA-protected)

Southeast: Florida (FPL/Duke/TECO), Georgia (≤10 kW only), North Carolina (HB 589 protected through 2027), South Carolina

Midwest: Illinois (ComEd/Ameren), Iowa (MidAmerican/Alliant), Kansas (OG&E/PSO), Michigan (PA 342), Minnesota (Xcel NEM), Missouri (SB 564 protected), Ohio (PUCO-regulated), Wisconsin (We Energies/MGE/Alliant)

Mountain West/South: Colorado (Xcel/Black Hills), Montana (NorthWestern), New Mexico (PNM/El Paso), Oregon, Utah (Rocky Mountain Power), Washington (RCW 80.60 protected), Wyoming (Rocky Mountain Power)

Sun Belt: Arizona (TEP territory), Hawaii (Smart Export — modified), Nevada (AB 405 statutory protection), Texas (some utilities — no statewide mandate)

Modified Net Metering (Reduced Rates for Large Export)

California (NEM 3.0): The biggest change in U.S. solar policy since 2010. New installations after April 2023 receive only ~$0.05–$0.08/kWh for exports (vs. $0.30+/kWh retail rate). Battery storage is now near-essential for California solar buyers to achieve competitive payback periods. Existing NEM 1.0/2.0 customers are grandfathered — if you installed before April 2023, you keep your existing rate.

Arizona (APS net billing): APS territory pays only ~$0.03/kWh for exports. Self-consumption optimization and battery storage are the only ways to achieve reasonable economics in APS territory. TEP territory has full retail-rate NEM — a dramatically different situation in the same state.

Hawaii (Smart Export): Hawaii's Smart Export pays $0.14–$0.20/kWh — above avoided cost but below retail ($0.40–$0.46/kWh). Battery storage is essential to capture maximum per-kWh value from self-consumption at those high retail rates.

No Net Metering Mandate (Co-op and Rural Utility Variability)

In many states, the net metering mandate applies only to investor-owned utilities (IOUs). Rural electric cooperatives (which serve about 12% of U.S. households) are NOT covered in most states and may offer only avoided-cost credits or no export credit at all.

States where this matters most:

Oklahoma (OCC mandate covers OG&E/PSO; 35% of state served by co-ops NOT covered)
Iowa (IUB mandate covers MidAmerican/Alliant; rural co-ops not covered)
Nebraska (no statewide mandate; OPPD/NPPD/LES offer voluntary NEM; co-ops vary)
Kansas (KCC mandate covers OG&E/PSO; rural co-ops not covered)
Tennessee (TVA territory — no traditional net metering, GPP buyback only)

How to check: Call your utility before requesting quotes. Ask specifically: "Do you offer net metering? Is it at retail rate? Is there an annual true-up? What rate do I receive at year-end for any surplus?"

California NEM 3.0: A Case Study in Policy Risk

California's 2023 NEM 3.0 transition is the most consequential solar policy change in U.S. history — and a warning signal for buyers in other regulatory (non-statutory) net metering states.

What changed: New installations after April 15, 2023 receive "Avoided Cost Calculator" export rates averaging $0.05–$0.08/kWh, down from retail rates averaging $0.25–$0.32/kWh under NEM 2.0. The CPUC made this change by regulatory order — not through the legislature.

Battery storage became essential: Under NEM 2.0, a 10 kW California system without storage achieved 7–9 year payback. Under NEM 3.0 without storage, the same system may take 14–18 years. With a Powerwall 3, the system achieves 8–11 year payback by maximizing self-consumption during peak price hours.

What this means for other states: California's NEM was also regulatory (CPUC), not statutory (passed by the legislature). States with legislatively-enacted net metering — like Nevada (AB 405), Washington (RCW 80.60), New Jersey (state statute), Virginia (VCEA), and North Carolina (HB 589) — are more protected from regulatory rollbacks. Before signing a contract, ask your installer whether your state's net metering is regulatory (more vulnerable) or statutory (more stable).

Net Metering and Battery Storage: When Storage Changes the Math

Battery storage fundamentally changes the net metering calculation:

In full retail-rate NEM states: Storage may not improve economics much if exports are already credited at retail rate. The value of storage is primarily resilience (backup power during outages) and TOU rate optimization.

In NEM 3.0 / avoided-cost states: Storage dramatically improves economics. In California NEM 3.0, a battery system can achieve near-retail value per kWh by charging at low-cost grid periods and discharging during peak-price hours ($0.45–$0.55/kWh for peak TOU rates), rather than exporting at $0.05–$0.08/kWh.

In APS (Arizona) territory: SRP imposes demand charges that make storage effectively mandatory — without a battery, your solar system's peak morning and afternoon production may not fully offset SRP's demand charge spikes.

ITC bonus for storage: Batteries added alongside new solar systems qualify for the 30% ITC (40% in Energy Community counties). The ITC on a $12,000 Powerwall 3 saves $3,600–$4,800 out of pocket. See our home battery storage costs guide for full pricing and state incentive details.

TOU Rates and Net Metering Optimization

Most utilities are transitioning to Time-of-Use (TOU) rate structures that charge more during evening peak hours (typically 4–9 PM) and less during midday when solar is producing most.

The interaction with net metering is critical:

Solar production vs. TOU peaks: Solar panels produce most electricity between 10 AM and 3 PM — typically off-peak in most TOU structures. You export cheap midday power and import expensive evening peak power, creating a rate arbitrage working against you.

The battery solution: A home battery charges during peak midday solar production and discharges during evening peak-rate hours, capturing 2–4× the per-kWh value compared to exporting. In California, this is the primary reason battery attachment rates hit 87% in 2026.

TOU states to watch: California (NEM 3.0 + E-TOU rates), Texas (Oncor/CenterPoint ERCOT flex plans), Arizona (APS, SRP, TEP TOU options), Colorado (Xcel TOU rates), Hawaii (Oahu, Maui, Hawaii islands).

For a deep dive on TOU optimization strategies, see the TOU rates and solar guide.

Statutory vs. Regulatory Net Metering: Policy Stability

This matters for your 20–25 year payback analysis. How stable is your state's net metering?

Statutory protection (highest stability): Legislature passed a law guaranteeing net metering. Utility commissions cannot change the rate without legislative action.

Nevada: AB 405 (2017) — statutory protection after the 2015 rollback
Washington: RCW 80.60 — legislatively protected retail-rate NEM
Virginia: VCEA (2020) — legislatively protected through at least 2028
North Carolina: HB 589 — grandfathers existing customers through at least 2027
New Jersey, New York, Massachusetts: All have statutory net metering foundations

Regulatory protection (moderate stability): Utility commission (CPUC, PSC, PUC) set the rate — same commission can change it. California's NEM 3.0 was a regulatory change without legislative approval.

No explicit protection: Many states have net metering rules through utility commission orders that could be modified. This is worth asking about when sizing your system.

Grandfathering provisions: Most states that change net metering programs grandfather existing customers for 10–20 years. If you're in a regulatory state considering a rate change, installing now rather than waiting may lock you into favorable rates.

Virtual Net Metering and Community Solar: Alternatives for Non-Owners

If you can't install rooftop solar — renter, HOA restriction, unsuitable roof, shaded roof — virtual net metering and community solar provide similar bill-credit economics:

Virtual Net Metering (VNM): Multiple accounts share credits from one installation. Used primarily for multi-family buildings (owner applies credits to individual unit bills) and commercial customers.

Community Solar: You subscribe to a share of a large solar farm and receive credits on your utility bill, typically at 5–15% below retail rate. No equipment on your property required. Available in 30+ states; strongest programs in NY, MA, IL, CO, MN, CT. See the community solar guide for provider comparisons and availability by state.

For renters specifically, see solar energy for renters for community solar programs, balcony power plants, and portable options.

How to Verify Your Utility's Net Metering Policy

Before getting solar quotes, verify three things with your utility:

Export rate: "Is net metering at full retail rate, avoided cost, or something in between?"
Annual true-up: "At the end of the year, what rate do I receive for any remaining surplus credits?"
System size cap: "Is there a maximum system size or offset percentage you'll approve for net metering?"

Where to find this information:

Your utility's website (search "[utility name] net metering")
Your state's Public Utilities Commission website
DSIRE (dsireusa.org) — the Database of State Incentives for Renewables and Efficiency
Ask your solar installer — they should know your specific utility's rules before proposing a system size

Read your interconnection agreement carefully. This is the contract you sign with the utility to connect your solar system to the grid. It specifies your export rate, billing cycle, and any cap on system size. Your solar installer handles the application, but you sign the agreement.

Net Metering and Your Home's Solar Economics: A Complete Picture

Net metering policy is the single variable that most changes solar economics across otherwise similar homes. Two homeowners with identical roofs and identical utility bills can have dramatically different payback periods depending on whether their utility offers retail-rate or avoided-cost net metering.

Full retail-rate NEM example (MA, NJ, NY, RI, CT): 9 kW system, $2,400/year electricity savings at $0.20+/kWh retail rate, 30% ITC → ~7-year payback, ~$78,000 25-year net savings.

Avoided-cost NEM example (AL, TN, ID, IN): Same 9 kW system, $1,400/year savings because most export is credited at $0.05/kWh, 30% ITC → ~14-year payback, ~$41,000 25-year net savings.

Use the Solar ROI Calculator to model your specific state and utility situation with personalized payback period and 25-year savings projections.

For deeper financial analysis, see our solar payback period calculator, which incorporates state-specific net metering assumptions, and our solar vs. grid electricity cost comparison for a full 25-year model.

State-Specific Net Metering Resources

For complete state-specific net metering rules, incentive stacks, and worked examples, see our dedicated state guides:

Top 10 Solar Markets: California (NEM 3.0) · Texas (no statewide mandate) · Florida (retail NEM) · New York (retail NEM, VDER) · New Jersey (retail NEM + SREC II) · Arizona (varies by utility) · Illinois (retail NEM) · Colorado (Xcel retail NEM) · Massachusetts (retail NEM + SMART) · Nevada (statutory retail NEM)

States with Avoided-Cost or Modified NEM: Alabama · Tennessee · Mississippi · Indiana · Idaho · Hawaii (Smart Export)

Full state-by-state guide: All 50 States Solar Incentives