Net Metering Explained: How It Works and Why It Matters
Solar panels produce the most electricity midday. You use the most electricity morning and evening. Without net metering, you'd waste that midday production or need expensive batteries.
Net metering solves this mismatch. It's the reason solar economics work for most homeowners. And it's under pressure in several states.
How Net Metering Works
When your panels produce more than you're using, the excess flows to the electric grid. Your meter runs backward (or tracks the credit digitally). Later, when you use more than you're producing, you pull from the grid and your meter runs forward.
At the end of the billing period, you pay for the net difference between what you consumed and what you produced.
If you produced more than you used, you get a credit that rolls to next month. Some states pay out unused credits annually; others let them roll indefinitely.
Example
In one day:
- Morning (7-9 AM): Use 5 kWh from grid
- Midday (9 AM-4 PM): Panels produce 30 kWh, you use 8 kWh, export 22 kWh to grid
- Evening (4-10 PM): Use 12 kWh from grid
- Night (10 PM-7 AM): Use 8 kWh from grid
Total used from grid: 25 kWh
Total exported to grid: 22 kWh
Net consumption: 3 kWh
You only pay for 3 kWh, even though you actually consumed 33 kWh throughout the day.
Types of Net Metering
Full Retail Net Metering
You get credited at the same rate you pay. Export at $0.15/kWh, get $0.15 credit. This is the original, most favorable arrangement.
Net Billing (Reduced Credit)
You get credited at a lower rate than you pay. Export at wholesale rate ($0.03-$0.06/kWh), pay retail ($0.15/kWh) for what you use. This is where many states are heading.
Time-of-Use Net Metering
Credits and charges vary by time of day. Exporting during peak afternoon hours earns more; consuming during peak hours costs more. Can work in your favor or against you depending on your usage patterns.
State-by-State Situation
Strong Net Metering States
- New York: Full retail net metering with annual true-up
- Massachusetts: Full retail credits for systems under 25 kW
- New Jersey: Full retail net metering
- Colorado: Full retail for investor-owned utilities
- Maryland: Full retail net metering
Reduced or Modified Net Metering
- California (NEM 3.0): Reduced export credits, significantly lower value for exported power
- Nevada: Phased reduction of credits over time
- Arizona (SRP): Very low export rates, demand charges
- Utah: Transitioning to lower export rates
No Statewide Net Metering
- Texas: Deregulated market, policies vary by utility
- Alabama: Limited or no net metering
- Tennessee: TVA policies apply
Why Net Metering Is Changing
Utilities argue that solar customers don't pay their fair share of grid costs. The grid is still there when you need it at night. Someone has to maintain it.
Solar advocates counter that distributed generation reduces grid stress, avoids transmission losses, and provides environmental benefits worth compensating.
The truth is somewhere in between. Full retail net metering was probably too generous. Some current proposals are probably too stingy. The fight is over finding the right balance.
What This Means for You
If you live in a full retail net metering state: Install soon. Policies can change, but most states grandfather existing systems under the rules in place when installed.
If you live in a reduced net metering state: Solar can still make sense, but system sizing and battery storage become more important. Don't oversize—excess production has less value.
If policies are uncertain: Check if your state grandfathers existing installations. If so, installing sooner locks in better terms.
Alternatives to Net Metering
Battery Storage
Store midday production for evening use instead of exporting. Reduces dependence on net metering value. Adds $10,000-$15,000 to system cost but can improve economics in weak net metering states.
Load Shifting
Use more electricity when panels are producing. Run dishwashers, laundry, and EV charging midday. Reduces exports and maximizes self-consumption.
Smaller Systems
Size your system to match daytime consumption rather than total consumption. Less excess to export means less dependence on net metering credits.
Bottom Line
Net metering makes solar economics work for most homeowners. But it's evolving, and the trend is toward less generous credits for exports.
Check your state's current policies and proposed changes. If strong net metering is available now but threatened, installing sooner likely means better long-term terms.
And regardless of net metering, the federal tax credit expires December 31, 2025. That deadline matters more than most policy changes.
Understanding Net Metering Credits
How your utility handles credits affects your actual savings significantly:
Monthly vs Annual True-Up
Some utilities reconcile credits monthly—you pay any net consumption each month and credits don't carry over. Others use annual true-up, where credits accumulate all year and only get settled once.
Annual true-up works better for solar. Summer overproduction credits offset winter shortfalls. Monthly true-up can leave you paying in winter even if annual production matches consumption.
Credit Expiration
Some utilities expire unused credits after 12 months. Others let them roll indefinitely. A few pay out unused credits annually at avoided-cost rates (usually much lower than retail).
Know your utility's policy before sizing your system. If credits expire annually, don't oversize expecting to bank production forever.
Fixed Charges and Minimum Bills
Even with net metering, you pay fixed customer charges ($10-$30/month) regardless of consumption. Some utilities have minimum bills that set a floor on what you owe.
These charges mean solar can never eliminate your electric bill entirely. Budget accordingly.
How to Maximize Net Metering Value
Optimize your solar investment with these strategies:
Size Appropriately
In strong net metering states, match your system to annual consumption. In weak net metering states, size for daytime usage plus battery charging capacity.
Shift Loads to Daytime
Run dishwashers, laundry, and pool pumps during peak production hours. Program EV charging for midday when practical. More self-consumption means less dependence on export credits.
Consider Time-of-Use Optimization
If your utility uses TOU rates for net metering, battery storage can shift exports and consumption to maximize value. Export during peak rate hours, consume during off-peak hours.
Monitor Policy Changes
Net metering rules change. New customers often get different terms than existing ones. If your state is debating changes, installing sooner typically grandfathers you under better terms.
The Future of Net Metering
Net metering as we know it is evolving. Utilities are pushing for rate structures that better reflect grid costs. Expect continued pressure toward:
- Reduced export credits based on wholesale rates
- Time-varying credits that change hourly
- Demand charges for solar customers
- Fixed charges that don't scale with solar production
None of this means solar stops making sense. But battery storage becomes more important, and system sizing strategies need to evolve. Self-consumption is the most secure form of savings—using your own power can never be devalued by policy changes.
The economics still favor solar in most markets. Just understand your specific net metering terms before signing a contract, and size your system accordingly.
Working with Your Utility
Understanding your utility's specific net metering program helps maximize your savings:
Application Process
Most utilities require a net metering application before installation. Your solar installer typically handles this, but approval can take 2-6 weeks depending on the utility. Factor this into your timeline.
Interconnection Agreement
You'll sign an interconnection agreement specifying the terms of your grid connection. This covers safety requirements, meter arrangements, and credit calculation methods. Read it carefully—this is your actual contract with the utility.
Meter Requirements
Some utilities install a new bi-directional meter at no cost. Others charge a fee ($100-$300) for a meter that tracks both consumption and production. Net metering typically doesn't require a separate production meter.
System Size Limits
Many net metering programs cap system size at 100% of your historical consumption. If you're planning energy efficiency improvements or adding an EV, document your expected future usage to justify a larger system.
Documentation and Monitoring
Keep records to verify your net metering is working correctly:
- Monthly statements: Compare utility bills to production data. Credits should appear correctly.
- Annual true-up: Verify end-of-year calculations match your records.
- Rate changes: Note when your utility changes rates—your credit value may change too.
- Policy updates: Track net metering policy discussions that could affect your grandfathered status.
Solar monitoring systems track production in real-time. Compare this against your utility's records to catch any billing errors early.
What Happens When You Move
Selling a home with solar and net metering involves some considerations:
Owned Systems
If you own your solar system outright, it transfers with the property. The new owner applies for net metering under their name. Most utilities process this as a simple account transfer—the net metering agreement follows the property, not the person.
Leased or PPA Systems
Third-party owned systems require the buyer to either assume the lease/PPA or you buy it out before sale. This can complicate home sales. Some buyers appreciate built-in savings; others see it as a liability.
Credit Balances
Unused net metering credits typically expire when you close your account. Time your move to avoid losing accumulated credits—close to your annual true-up date if possible.
Net metering remains one of the most important factors in solar economics. Understanding how it works in your specific utility territory helps you size your system correctly and maximize your savings over time.