How Net Metering Works and Why It Matters
Net metering lets solar homeowners sell excess electricity back to the grid. Learn how it works, state policies, and how it affects your solar savings.
What Is Net Metering?
Net metering is a billing arrangement that allows solar homeowners to send excess electricity back to the utility grid in exchange for credits on their electric bill. When your solar panels produce more electricity than your home is using, the surplus flows to the grid, and your electric meter effectively spins backward.
This simple concept is one of the most important financial drivers of residential solar. Without net metering, you would need a battery to store every kilowatt-hour of excess production, dramatically increasing system costs.
How Net Metering Works in Practice
During the Day
On a sunny afternoon, your solar panels may produce 5 kW of power while your home is only using 2 kW. The extra 3 kW flows to the grid, and your utility credits your account for that electricity.
At Night
When the sun goes down and your panels stop producing, you draw electricity from the grid as usual. The credits you earned during the day offset the cost of this nighttime electricity.
Monthly and Annual Billing
At the end of each billing cycle, your utility calculates the net difference between what you consumed from the grid and what you exported. If you exported more than you consumed, you carry a credit balance forward to the next month.
Many utilities perform an annual true-up, settling your account once a year. If you have excess credits at the true-up date, some utilities pay you for them (usually at a lower wholesale rate), while others reset your balance to zero.
Types of Net Metering Policies
Full Retail Net Metering
Under full retail net metering, you receive credit at the same rate you pay for electricity. If your utility charges $0.15 per kWh, your exported solar electricity is credited at $0.15 per kWh. This is the most favorable policy for solar homeowners and has been the standard in most states.
Net Billing or Reduced-Rate Net Metering
Some states and utilities have moved to net billing, where exports are credited at a lower rate than the retail price. California's NEM 3.0 policy, for example, credits solar exports at roughly $0.05 to $0.08 per kWh instead of the full retail rate of $0.30 or more. This reduces the financial benefit of sending electricity to the grid.
Feed-in Tariffs
A few programs pay a fixed rate for all solar electricity you produce, regardless of whether you use it or export it. These are less common in the United States but can be found in certain utility territories.
Buy All, Sell All
Under this arrangement, all solar electricity is sold to the utility at a set rate, and you purchase all your household electricity from the grid separately. This is uncommon for residential systems in the U.S.
State-by-State Net Metering Landscape
Net metering policies vary dramatically by state. As of 2026:
The trend nationally is toward reduced compensation for solar exports. Utilities argue that net metering shifts grid maintenance costs to non-solar customers, while solar advocates contend that distributed solar provides valuable grid benefits that justify full retail credits.
How Net Metering Affects Your Solar Savings
Net metering is typically worth $500 to $1,500 per year for a residential solar system, depending on your system size, electricity rate, and how much excess you export.
With Full Retail Net Metering
A 7 kW system in New Jersey producing 9,000 kWh per year for a homeowner using 8,000 kWh annually would export roughly 4,000 kWh and import roughly 3,000 kWh. With full retail net metering at $0.17 per kWh, the homeowner effectively zeroes out their electric bill and may carry a small credit.
With Reduced-Rate Net Billing
That same homeowner under a net billing policy might receive only $0.06 per kWh for exports. The 4,000 kWh exported would earn $240 in credits, while the 3,000 kWh imported would cost $510. The homeowner still saves significantly but pays a net bill of $270 per year.
Strategies to Maximize Net Metering Value
Shift Energy Usage to Daytime
Run your dishwasher, washing machine, and other heavy loads during peak solar production hours. This self-consumption reduces the amount you export and maximizes the value of your solar electricity.
Right-Size Your System
Work with your installer to design a system that matches your annual consumption rather than dramatically oversizing. Excess production beyond your annual needs typically has diminishing returns under most net metering programs.
Consider Battery Storage
In states with reduced-rate net billing, a battery allows you to store daytime excess and use it in the evening, avoiding both low export credits and high evening electricity rates. This is especially valuable in states with time-of-use rate structures.
The Future of Net Metering
The trend is clear: utilities and regulators are moving toward lower compensation for solar exports. However, this does not mean solar is becoming less worthwhile. As battery costs decline, storing your own solar electricity becomes increasingly cost-effective.
If you live in a state with strong net metering today, going solar sooner may allow you to lock in favorable rates through a grandfathering period. SmartEnergyUSA can connect you with local installers who understand your state's specific policies and can design a system optimized for your net metering environment.
Get a free quote today and learn how net metering in your state affects your potential solar savings.
