Net Metering Explained: How Utilities Pay You for Solar Power
Net metering is the most economically valuable utility policy for solar owners. In states with retail-rate net metering, every kilowatt-hour your solar panels send to the grid is credited at the same price you'd pay to buy that kilowatt-hour. Here's exactly how that works and why it varies so dramatically by state.
How Net Metering Works
Your home draws electricity from the grid when solar production is below household consumption. When solar production exceeds consumption — typically midday in summer — surplus energy flows backward through your electric meter and onto the grid. Your meter tracks net energy: imports minus exports across the billing cycle.
Under retail-rate net metering, exports are credited at the same per-kWh price as imports. A homeowner who imports 200 kWh and exports 200 kWh in a billing cycle pays nothing for energy that month. The grid effectively becomes a no-cost battery — solar production stored as kWh credits, drawn back when needed.
Retail Rate vs Avoided Cost
Not all net metering is created equal. The most generous version is retail-rate: exports earn the same price as imports (~$0.14/kWh nationally). The least generous is avoided-cost: exports earn the utility's wholesale generation cost (~$0.04/kWh). The difference is a 3-4x swing in solar economics.
Several states use modified rates that fall between these extremes — California's NEM 3.0 (technically Net Billing) credits exports based on time-of-export wholesale prices, which average around $0.06-$0.08/kWh, well below retail. New states regularly transition existing solar customers to less generous successor tariffs while grandfathering installs under previous rules for 20 years.
Credit Rollover and Annual True-Up
In most net metering states, surplus credits roll forward month to month. You build up a credit balance during summer high-production months and draw it down during winter. This typically zeroes your annual energy charges if your system is properly sized to your usage.
A handful of states cash out unused credits at year-end at avoided-cost rates rather than allowing indefinite carryover. This pushes proper sizing toward 100% of usage rather than oversizing — annually-credited surplus is worth far less than month-rolled surplus.
Net Metering vs Time-of-Use
Increasingly, utilities pair net metering with time-of-use (TOU) rate structures. Under TOU, the price of imports varies by time of day — typically higher during 4-9pm peak hours. If your net metering credit is calculated at retail rate (whatever the rate is at export time), TOU + retail net metering is wonderful for solar because midday exports earn moderate rates while evening imports cost peak rates.
Under net billing structures (like California NEM 3.0), exports earn fixed low prices regardless of time, while imports are charged at full TOU. This is why batteries have become economically essential in California — discharging at evening peak rates instead of importing them is the only way to recapture the full value of solar production.