Net metering is the policy that makes rooftop solar financially viable for most homeowners. Without it, excess solar generation would be wasted. Here's how it works — and how changing policies are affecting solar ROI.
How Net Metering Works
When your solar panels produce more electricity than your home uses at that moment, the excess flows back to the grid. Your utility meter runs backward — or, more accurately, the utility tracks your net usage (consumption minus generation) and credits your bill at the agreed rate.
Under full retail net metering (the most favorable policy), you receive credit at the full retail electricity rate — the same rate you'd pay if you bought that electricity from the utility. At $0.20/kWh, exporting 1,000 kWh earns you $200 in bill credits.
Net Metering vs. Net Billing vs. Buy-All/Sell-All
Net metering: Credit at full retail rate. Best for solar ROI. Still the standard in most states.
Net billing (California NEM 3.0): Credit at a lower "avoided cost" rate — roughly $0.05/kWh vs. retail rates of $0.29/kWh. Dramatically reduces the value of exported solar. Battery storage becomes essential under NEM 3.0.
Buy-all/sell-all: You sell all generation to the utility at a fixed rate, and buy all consumption at retail. Rare for residential.
The Trend: States Are Reducing Net Metering
California led the transition to lower export rates in April 2023. Nevada, Hawaii, and Arizona have previously reduced net metering rates. Other states are evaluating changes. The implication: the sooner you go solar in a state with strong net metering, many programs grandfather existing customers for 20 years.
Battery Storage and Net Metering
In states with reduced export rates (California, Nevada), battery storage changes the economics significantly. By storing your excess solar and using it during peak evening hours (when rates are highest), you avoid both buying expensive peak power AND exporting at the low avoided-cost rate.