Net Metering Explained
A rooftop solar array produces most of its power in the middle of the day — exactly when many households use the least, because people are at work and the air conditioning has not yet peaked. Net metering is the utility policy that decides what that midday surplus is worth. It is, for most homeowners, a bigger factor in whether solar pays off than the choice of panels.
Full retail net metering (1:1)
Under classic net metering, every kilowatt-hour you export to the grid offsets a kilowatt-hour you later import, at the same retail rate. Your energy bill for the month is roughly:
(kWh imported − kWh exported) × retail rate + a fixed connection charge
If you produce exactly as much over the year as you consume, your energy charges net close to zero, and you keep the fixed monthly connection fee. This is the best case for solar economics — it effectively lets you use the grid as a free, lossless battery, banking summer surplus against winter shortfall.
Why utilities are rolling it back
Utilities argue that crediting exports at the full retail rate over-pays solar owners, because the retail rate bundles in the cost of poles, wires, substations, and grid maintenance that exporting customers still depend on — so non-solar customers end up subsidising that infrastructure. Regulators in several large states have accepted parts of this argument and moved to less generous successor policies:
- Avoided-cost / wholesale export rates. You are paid what it would have cost the utility to buy that power on the wholesale market — often a third or less of the retail rate.
- Time-of-use (TOU) export rates. Exports are credited at low midday rates and you buy power back at high evening rates. The daily import/export mismatch shrinks the benefit, and shifts value toward batteries.
- Monthly rather than annual true-up. Surplus generated in a sunny month may not carry forward to offset a cloudy one.
- Grid-participation or “non-bypassable” charges on all kWh, including self-consumed solar.
California’s move from NEM 2.0 to NEM 3.0 in 2023 is the highest-profile example: export credits fell sharply, typical payback periods lengthened by several years, and home batteries went from optional to close to essential for the economics to work.
What it means for your decision
- Check your utility’s current rules before signing anything. The panels are a commodity; the export policy is what makes or breaks the payback. A quote built on “assumes full net metering” in a state that no longer offers it is fiction.
- Where export rates are poor, size the system to your daytime usage, not your total annual usage. Every kWh you export cheaply instead of using yourself is value lost.
- Consider a battery in low-export markets, to store the midday surplus and use it in the expensive evening rather than exporting low and buying back high. See is home battery storage worth it?.
- Understand grandfathering. When a state changes the rules, it usually locks in the old terms for existing solar customers for a set number of years (often 10–20). Know exactly how long your terms are protected and what happens after.
How to find out what your utility offers
The policy varies by utility, not just by state, and can change between when you sign and when you switch on. To pin it down:
- Search your utility’s name + “net metering” or “net energy metering” or “solar buyback.” Investor-owned utilities publish a tariff document; look for the current version and its effective date.
- Identify which regime you would enter — full retail (1:1), a net-billing / avoided-cost export rate, or a time-of-use export schedule — and the export credit rate in cents per kWh.
- Check the true-up period — monthly or annual — and what happens to a net annual surplus (rolled over, paid at wholesale, or forfeited).
- Ask about grandfathering — if you interconnect before a rule change, how many years are your terms locked (often 10–20)?
- Find the interconnection process and fees, and any system-size cap (commonly 100–120% of your prior 12 months’ usage).
- Get the installer’s assumptions in writing and confirm they match what the tariff actually says — some quotes still assume 1:1 in states that ended it.
Common misconceptions
- “Net metering pays me for power.” Under a true 1:1 scheme it offsets your bill; it rarely cuts you a cheque for net annual surplus (any credit is usually paid out at a low wholesale rate, if at all).
- “My panels will run the house during a blackout.” Not unless you have a battery and islanding capability. A standard grid-tied system shuts down in an outage for line-worker safety.
- “The policy that exists today is what I will always have.” Rules change; rely on the grandfathering terms in writing.
Three regimes, side by side
The same 10 kWh of daily midday surplus, valued three ways:
| Regime | How the 10 kWh is credited | Rough daily value |
|---|---|---|
| Full retail net metering (1:1) | Offsets 10 kWh of future grid use at the retail rate (~$0.20) | ~$2.00 |
| Net billing / avoided cost | Paid a wholesale export rate (~$0.05) | ~$0.50 |
| Time-of-use export | Credited at a low midday rate, bought back at a high evening rate | ~$0.30–0.70 |
Multiply the daily gap by 365 and it is the difference between solar paying back in 8 years and 13+ years on the same system. This is why “what does my utility credit exports at?” is the first question to answer, before panel brands or installer quotes.
What “grandfathering” is worth
When a state moves from a generous regime to a stingier one, existing solar owners are usually locked into the old terms for a set period — commonly 10 to 20 years from interconnection. That protection is a real, quantifiable asset: being on 1:1 net metering for 15 more years while new installs get avoided-cost rates can be worth thousands of dollars. It also creates a deadline effect — installing before a scheduled change can lock in far better economics — but never rush a bad quote just to beat a date; a poorly sited or overpriced system on good net metering can still be a loser.
The bottom line
Net metering sets the value of the solar power you do not use the instant you make it. Full retail (1:1) net metering is the best case and makes solar attractive across a wide range of conditions. Avoided-cost and time-of-use export schemes cut that value substantially, lengthen payback, and make batteries and right-sizing important. Confirm your utility’s current policy and grandfathering period before you buy. The solar savings calculator conservatively assumes production only offsets your own usage (no export credit); with full retail net metering your real savings would be somewhat higher.