Net Metering Explained: How Your Utility Actually Pays You Back

Net metering is the single biggest factor in how fast solar pays for itself, and it varies more by state (and even by utility within a state) than almost anything else in the solar equation.

The basic mechanism

When your panels produce more electricity than your home is using, the surplus flows onto the grid through your existing utility meter, which effectively runs backward. Your utility tracks that exported energy and credits your account — either at the full retail rate you'd otherwise pay, a discounted "avoided cost" rate, or a formal export tariff, depending on your state's rules. At night or on cloudy days, you draw power from the grid and those credits offset the cost.

Why the rate matters so much

Retail-rate net metering (1:1 credit) is the best-case scenario — every kWh you export is worth exactly what you'd otherwise pay to buy it, so oversizing your system slightly to cover winter shortfalls with summer surplus makes financial sense. Avoided-cost or wholesale-rate net metering pays substantially less for exported power (sometimes a third to a half of retail), which changes the math: a smaller system sized to your daytime usage, or a system paired with a battery, often makes more financial sense than a large system designed to export a lot of surplus.

What "NEM 3.0" changed in California

California's transition from NEM 2.0 to NEM 3.0 (technically called net billing) cut the value of exported solar power by roughly 75% for new customers, which is the main reason the large majority of new California solar installs now include a battery — storing surplus power to use in the evening is worth far more than selling it at the new export rate.

Check your specific state and utility

Net metering policy is set at the state (and sometimes utility) level, not federally, so it can differ meaningfully even between neighboring states. Some states mandate retail-rate net metering statewide; others leave it up to individual utility tariffs, which is why the same house on opposite sides of a utility service boundary can see very different solar economics. Check your state's incentive note on our state pages, and ask any installer to show you the specific tariff your system would be billed under — not just a generic "net metering available" claim.