The 30-second version
Solar panels produce power during the day. Your home uses some of it; the rest gets exported to the grid. The question is: what does the utility credit you for exported power? Three answers exist:
- Full retail net metering (NEM 1.0 / 2.0): 1 kWh exported = 1 kWh credit. Best for homeowners. Mostly grandfathered in older states.
- Net billing / NEM 3.0: Exports credited at a much lower wholesale-style rate (often 25–35% of retail). Imports billed at full retail. The gap drives homeowners toward batteries and self-consumption.
- Buy-all / sell-all: All solar production is sold at one rate; all home consumption is bought at another. Rare in residential.
Which one applies to you depends on your state, utility, and the year you interconnect. The wrong assumption here can change your payback by 3–5 years.
Net metering 1.0 / 2.0: the original deal
Under traditional net metering, your meter spins both directions. Every kWh you export earns a credit equal to your retail electricity rate. At month's end (or year's end, depending on the state), the utility nets your imports against your credits. If you exported more than you imported, the credits roll over — sometimes indefinitely, sometimes annually with cash-out at avoided-cost rates.
This is the rule under which most U.S. residential solar was installed from 2010 through 2023. It's still in effect (often with grandfathering windows) in most non-NEM-3.0 states. Where you can still get full retail net metering as of 2026:
- Most of the Northeast: NY, NJ, PA, MA, CT, VT, NH, ME, RI, MD, DE
- Most of the Midwest: OH, MI, IN, IL, WI, MN, MO, IA
- The Mountain West: CO, NM, UT (with caveats), MT, WY
- Most of the Southeast: VA, NC, SC, GA, FL (Florida is fighting this annually)
- Texas: depends on retail provider — Green Mountain, Octopus, and others offer 1:1 buyback plans
NEM 3.0 (California): what actually changed
California's NEM 3.0 took effect April 15, 2023 and reset the rules for new solar interconnections in PG&E, SCE, and SDG&E territory. The headline change: exports no longer earn retail rates. Instead, they earn an "Avoided Cost Calculator" rate that varies by hour and month — averaging around 5–8 cents per kWh in 2026, vs. retail rates of 35–55 cents per kWh.
That's a 70–85% cut in the value of exported solar. The implications:
- Solar-only payback stretched from ~5 years to ~10–12 years. Many systems no longer pay back within their warranty period without storage.
- Battery attach rates jumped from ~10% to ~80%. A battery captures the retail-rate value the utility took out of grid export.
- System sizing changed. Pre-NEM-3.0, you sized for 100% offset. Post-NEM-3.0, you size for self-consumption + battery — often a smaller PV array paired with storage.
- TOU rate schedules became critical. Exporting at the right hour of the day matters more than the kWh count. Evening peak exports earn more than midday exports.
Other states with net billing or compressed export rates
California isn't alone. These states either operate similar net-billing structures or have moved meaningfully toward export-rate compression:
- Hawaii (Customer Grid-Supply Plus, Smart Export): Net metering ended in 2015. Current programs pay reduced rates for exports (~15 cents/kWh against ~35–45 cents retail). Battery attach rates have been 80%+ for years.
- Arizona (APS, TEP, SRP): Net billing since 2017. Exports paid at avoided-cost (~10 cents/kWh) versus retail of 14–18 cents. Still better than CA NEM 3.0 economics, but worse than full net metering.
- Nevada (NV Energy): NEM 1.0 grandfathered customers get retail; new customers under NEM 2.0+ get tiered reductions based on enrollment year — currently ~75% of retail.
- Idaho (Idaho Power): Net billing since 2020. Export rate ~3–5 cents/kWh.
- South Carolina (Duke, Dominion): Solar Choice tariff replaced net metering in 2024. Net billing with TOU export rates.
For state-by-state details, see solar cost by state and state rebates.
How to verify the export rate in your bid
Every solar proposal contains an estimated 25-year savings number. That number assumes a specific export rate. Three things you should verify:
- The exact rate they're using. "Net metering at retail" means full credit. "Net billing at avoided cost" or "NEM 3.0 export compensation" means the lower number. The difference between assumptions can change quoted lifetime savings by $20K+ on a typical system.
- Whether they're modeling TOU shifting. If your utility has TOU rates and you have a battery, the assumption of when exports happen vs. when imports happen materially affects the math. A flat-rate assumption either understates (good battery setup) or overstates (no battery) actual savings.
- Whether escalation is realistic. Most bids assume utility rate inflation of 3–4% per year. Historically true on average, but check your utility's recent track record. PG&E rates rose 12%+ per year from 2022–2024. Anything assuming 5–7% in California is in the right ballpark; 3% is conservative; 0–2% is unrealistic.
Net metering and batteries
The interaction between net metering rules and battery economics is the key calculation in 2026 solar design.
- Full retail net metering states: Battery economics are weak unless you specifically value backup power or live with frequent outages. The grid acts as a "free battery" — you bank credits all summer and use them all winter.
- Net billing / NEM 3.0 states: Battery economics are strong. The battery captures the retail-rate value the utility took out of grid export. Payback on the battery alone is often 5–8 years in CA, HI, and AZ.
- Time-of-use states (with or without net billing): Battery shifts solar production from cheap midday hours to expensive evening peak. Adds 8–15% to lifetime savings even before considering backup value.
See the battery storage guide for sizing and product comparisons.
Side-by-side: how the same system performs under different rules
| Assumption | NEM 2.0 (retail credit) | NEM 3.0 (CA, no battery) | NEM 3.0 (CA, with battery) |
|---|---|---|---|
| System size | 10 kW PV | 10 kW PV | 10 kW PV + 13.5 kWh |
| Annual production | 15,000 kWh | 15,000 kWh | 15,000 kWh |
| Self-consumption rate | ~30% | ~30% | ~80% |
| Effective export credit | $0.35 / kWh | $0.06 / kWh | $0.35 / kWh (TOU shift) |
| Annual bill savings | ~$5,200 | ~$2,800 | ~$4,800 |
| Installed cost (2026) | $30,000 | $30,000 | $47,000 |
| Simple payback | ~5.8 years | ~10.7 years | ~9.8 years |
Notice: under NEM 3.0, adding the battery costs $12K more but produces ~$2K more in annual savings, restoring most of the lost economics. This is why CA installers now bundle storage by default.
What about virtual net metering and aggregated NEM?
Some states (CA, NY, MA, IL, MN among others) allow virtual net metering — a single solar array's credits can be allocated across multiple meters. Useful for homeowners who own multiple buildings on one property, multi-family housing, and community solar arrangements. The export rate rules still apply, but the credits can flow to a different account than the meter the panels are physically wired to.
Aggregated net metering is a related concept (mostly for agricultural and commercial properties) where multiple meters on contiguous land are netted together. Less commonly relevant for single-family residential.
Will net metering rules change again?
Almost certainly. Net metering is one of the most politically contested utility-regulatory issues in every state with significant solar adoption. Generally the trajectory is:
- Early adoption: utility offers full retail net metering to encourage solar.
- Adoption hits 5–10% of customers: utility argues solar customers are shifting fixed grid costs to non-solar customers ("cost shift" debate).
- Public utility commission compromises: caps, demand charges, lower export rates, or net billing.
- Most states grandfather existing customers for 10–20 years from interconnection date. New customers get the new rules.
If you're shopping solar in a state where rules have been stable for years, move quickly if a change is being telegraphed — grandfathering windows are usually generous, but they always close.
Does your bid use the right net metering rate?
Upload your solar proposal — the analyzer cross-references your utility's current export rate, flags unrealistic rate-escalation assumptions, and tells you if the quoted savings are believable.
Analyze My Bid →Frequently asked questions
Is net metering the same in every state?
No. Net metering is set by each state's public utility commission and varies dramatically. Some states have full retail credit; some have net billing with low export rates; some have eliminated programs entirely. Always verify the rule in your specific utility's territory.
If I move, do my net metering benefits transfer?
Generally no — net metering agreements stay with the home, not the homeowner. The new owner inherits the agreement and grandfathering. This is part of why solar adds resale value in net-metered states.
What happens to my excess credits at year-end?
Depends on the state. In most NEM 2.0 states, excess credits are "trued up" once a year — utility cuts you a check at avoided-cost rates (typically 3–5 cents/kWh) for any net excess. In some states they roll forward indefinitely. In a few they expire annually.
Can I lock in current net metering rules before they change?
Sometimes. States often telegraph rule changes 6–18 months in advance. Interconnecting your system before the change date typically locks you into existing terms for 10–20 years. If your state is signaling a change, this is a real reason to move quickly.
How does net metering interact with the federal tax credit?
It doesn't directly. Net metering rules are set by your state and utility and operate independently of any federal incentive. For lease and PPA structures, the installer claims the commercial ITC (Section 48E) and may pass some savings through. State and utility programs are separate. See the federal tax credit guide.
What's the difference between net metering and a feed-in tariff?
Net metering credits exports at a rate tied to retail electricity. Feed-in tariffs pay a separate, fixed dollar amount per kWh exported, often higher than retail. FITs are common in Europe but rare in the U.S. — Hawaii's older programs were the closest analog.