Net Metering Explained: How Solar Credits Work
Reminder: 30% Federal Tax Credit Expires December 31, 2025
Net metering policies are important—but so is the federal tax credit deadline. The 30% ITC for residential solar expires at the end of 2025. Understand your net metering, then act before the credit disappears.
TLDR: Net metering lets solar owners send excess electricity to the grid and receive credits against future bills. Full retail net metering credits at the same rate you pay. Some states (California NEM 3.0, Arizona) credit at lower "avoided cost" rates. Your net metering policy significantly impacts solar ROI.
How Net Metering Works
During the day, your solar panels may produce more electricity than you use. That excess flows to the grid. Your meter tracks:
- Electricity you consume from the grid (you pay for this)
- Electricity you export to the grid (you receive credit)
At billing, the two are "netted" against each other.
Types of Net Metering
Full Retail Net Metering
Credits equal the retail rate (what you pay for electricity).
- Export 100 kWh at $0.15/kWh = $15 credit
- Consume 100 kWh later = $15 charge
- Net effect: $0
States with full retail: New York, New Jersey, Massachusetts, Colorado, and most others.
Reduced Rate Net Metering
Credits at lower than retail (wholesale or "avoided cost").
- Export 100 kWh at $0.05/kWh = $5 credit
- Consume 100 kWh later at $0.15 = $15 charge
- Net effect: $10 cost
States with reduced rates: California (NEM 3.0), Arizona (some utilities), Hawaii.
Time-of-Use Net Metering
Credits vary by time of day.
- Export during peak (2-6 PM): Higher credit
- Export during off-peak (night): Lower credit
Solar produces most during midday, which may not align with highest rates.
Net Metering by State
Best net metering:
- New Jersey: Full retail, no cap
- New York: Full retail (VDER for larger systems)
- Massachusetts: Net metering + SMART payments
- Colorado: Full retail up to 120% of usage
Challenging net metering:
- California NEM 3.0: Reduced export rates
- Arizona (APS, SRP): Low export credits
- Hawaii: Grid export limited
Q&A: Net Metering
Q: Do credits roll over?
A: Usually yes, monthly. Annual true-up policies vary. Some utilities pay out excess; others credit at reduced rates.
Q: What about battery storage?
A: In weak net metering states, batteries let you store excess for personal use later rather than exporting at low rates. This improves economics.
Q: Can utilities change net metering?
A: Yes, but existing installations typically "grandfather" under their original terms. Installing now locks in current policy.
The Bottom Line
Net metering is the foundation of solar economics. Full retail net metering makes solar a no-brainer in most states. Reduced rate programs require careful calculations—battery storage often helps.
Check your state's policy before committing. Installing sooner protects you from potential future policy changes.
How to Maximize Net Metering Value
Optimize your solar system for the best net metering returns:
Right-Size Your System
Design for 100-120% of annual usage. This exports minimal excess while covering your needs. Oversizing creates exports at potentially lower value.
Shift Usage to Midday
Run heavy loads (dishwasher, laundry, EV charging) during peak production. This uses your solar directly rather than exporting and re-buying later.
Consider Battery Storage
In poor net metering states, batteries store excess for evening use. This avoids exporting at low rates and buying back at high rates.
Net Metering and Battery Economics
The relationship between net metering and batteries:
Good net metering (1:1 credits): Batteries primarily for backup, not economics. The grid acts as free storage.
Poor net metering (reduced credits): Batteries improve economics by storing excess for personal use. May add 20-40% to savings.
Time-of-use rates: Batteries charge during cheap periods and discharge during expensive periods. Can be economically attractive even with good net metering.
Policy Trends
Net metering faces ongoing pressure from utilities:
- California NEM 3.0: Drastically reduced export credits in 2023. New installations less profitable.
- Arizona utilities: Some offer as little as $0.03/kWh for exports.
- Hawaii: Effectively ended net metering due to grid capacity.
Many states are considering similar changes. Installing now often locks in current (better) rates for 20 years.
Understanding Your Monthly Bill
With net metering, your bill includes:
- Grid consumption charges: kWh used from grid x rate
- Credit from exports: kWh exported x credit rate
- Fixed charges: Customer charge, minimum bill, etc.
Net metering doesn't eliminate fixed charges. You'll always owe the minimum customer charge ($10-$20/month typically).
Virtual Net Metering
Some states offer virtual or community net metering:
- Credits from off-site solar installations
- Allows renters and those with unsuitable roofs to benefit
- May have lower credit rates than rooftop
Available in: New York, Massachusetts, Minnesota, Colorado, and others.
Net metering is crucial to solar economics. States with strong 1:1 net metering offer the best solar returns. If your state is weakening net metering, installing now locks in current favorable terms—combined with the December 31, 2025 federal credit deadline, acting soon provides maximum value.
Calculating Your Net Metering Value
Estimate your net metering benefit with this approach:
Step 1: Determine Export Percentage
Typical homes export 20-40% of solar production. Higher if you're away during the day, lower if you work from home.
Step 2: Calculate Export Value
Example for a 10,000 kWh annual solar production with 30% exported:
- Exported electricity: 3,000 kWh
- Full retail credit ($0.15/kWh): $450/year
- Reduced rate credit ($0.05/kWh): $150/year
- Difference: $300/year (over 25 years: $7,500)
Step 3: Factor into System Economics
In poor net metering states, battery storage often makes sense. A $10,000 battery might save $300/year in lost export value—but also provides backup power and time-of-use optimization.
State-by-State Net Metering Details
| State | Credit Rate | Cap | Rollover |
|---|---|---|---|
| New Jersey | Full retail | No cap | Indefinite |
| New York | Full retail/VDER | No cap | Annual |
| Massachusetts | Full retail + SMART | No cap | Annual |
| California | Reduced (NEM 3.0) | No cap | Annual |
| Arizona (APS) | ~$0.03/kWh | Varies | Annual |
| Texas | Varies by utility | Varies | Varies |
| Florida | Full retail | Varies by utility | Annual |
Protecting Your Net Metering Rate
Grandfathering rules typically lock in your net metering terms:
- California NEM 2.0: Customers who installed before April 2023 keep NEM 2.0 rates for 20 years
- Arizona: Legacy customers keep original rates; new customers get reduced rates
- General rule: Once connected, your terms are locked for 10-20 years
Installing now protects you from future policy changes. The trend is toward reduced export credits—locking in current rates provides long-term value.
What Homeowners Say About Net Metering
Real experiences with net metering:
Sarah, New Jersey: "Full retail net metering makes our system a no-brainer. We produce 12,000 kWh, use 10,000. The 2,000 kWh we export covers our winter deficit. Annual electric bill: under $100."
The Martins, California (NEM 3.0): "We installed after the NEM 3.0 change. Our installer recommended a battery since export credits are so low. Between self-consumption and time-of-use optimization, we're still saving 70% on electricity."
David, Arizona: "APS pays almost nothing for exports. We added a Powerwall and now use nearly all our solar. The battery paid for itself faster than expected."
Understanding your net metering policy is essential for accurate solar economics. Good net metering states offer faster payback and higher returns. Challenging net metering states benefit from battery storage and careful system sizing. Either way, solar remains an excellent investment when combined with the 30% federal tax credit—available through December 31, 2025.
How Net Metering Affects System Sizing
Your net metering policy should influence how you size your solar system:
In Good Net Metering States
With full retail credits, slightly oversizing makes sense. Export some electricity in summer to build credits for winter when production drops. The grid becomes your free storage battery. Design for 100-120% of annual usage.
In Poor Net Metering States
Minimize exports by sizing more conservatively. Design for 80-90% of annual usage to avoid sending valuable electricity to the grid at low rates. Consider battery storage to capture excess for evening use.
With Time-of-Use Rates
Battery storage becomes more valuable. Store midday production for evening peak hours when electricity costs most. Net metering credits may vary by time—understand when your exports are most valuable.
Frequently Asked Questions
Q: What happens if I move?
A: Net metering agreements typically transfer with the home. New owners inherit your terms. This can increase home value, especially if you locked in favorable legacy rates.
Q: Can my utility deny net metering?
A: In states with mandatory net metering, no. In states without requirements, some utilities may limit participation or offer less favorable terms. Check your utility's policy before installing.
Q: What if I produce more than I use annually?
A: Policies vary. Some utilities pay out at avoided cost rates (wholesale). Others credit indefinitely. A few forfeit excess credits. Right-sizing your system avoids this issue.
Q: How do batteries interact with net metering?
A: Batteries store excess for later personal use instead of exporting. In poor net metering states, this increases value. In good net metering states, batteries are primarily for backup power.
Taking Action
Ready to benefit from net metering and solar?
- Research your state's policy: Check DSIRE database or your utility's website
- Understand your rate structure: Time-of-use, tiered, or flat rate affects optimal system design
- Get multiple quotes: Installers should explain how net metering affects your specific economics
- Consider batteries: Especially in states with reduced export credits
- Act before policy changes: Lock in current favorable terms while available
Net metering makes solar economically attractive across most of the United States. Combined with the 30% federal tax credit expiring December 31, 2025, installing solar now maximizes your savings for decades to come.