If you have gone solar, or you are weighing it, net metering is the policy that decides what your extra power is worth. When your panels make more electricity than your home uses, that surplus flows back to the grid, and net metering is how your utility pays you back for it. Get the rate right and a correctly sized system can wipe out most of your electricity charges. Get it wrong and you leave money on the table.
This guide is a plain-English, national explainer: what net metering is, how the credits work, the three main ways utilities compensate exports, how credits roll over, and how the rules change from state to state. We keep it vendor-neutral, and every rate and policy below is dated so you can check it against the primary source.
What is net metering?
Net metering is a billing rule that lets a solar customer send surplus electricity to the grid and receive a credit against the electricity they later pull from the grid. The utility measures the net difference between what you export and what you import over a billing period, and you pay only for the net amount you draw. In its most generous form, one exported kilowatt-hour offsets one imported kilowatt-hour at the full retail rate.
The grid acts like a savings account for power. On a sunny afternoon your panels often produce more than the house needs, and that overflow earns a credit. After sunset, or on a cloudy week, you spend those credits instead of paying cash for grid power. Net metering only starts once your utility grants Permission to Operate, so it helps to know how long a solar installation takes before your credits begin.
Key takeaways
- Net metering credits you for the surplus power your solar panels export to the grid.
- The credit rate is the whole game. Full-retail credits are worth far more than avoided-cost credits.
- Credits usually bank month to month and settle up once a year at an annual true-up.
- Rules vary by state and utility, so always confirm your local program before you buy.
How net metering works, step by step
The mechanics are the same in most states, even when the credit rate is not:
- Your panels generate electricity. When the sun is up, your system powers the home first.
- Surplus flows to the grid. Any power you do not use in the moment is exported.
- A bidirectional meter tracks both directions. It records the kilowatt-hours you import and the kilowatt-hours you export.
- You earn credits for exports. The value of each credit depends on your state and utility program.
- You settle up at true-up. Credits offset the power you draw at night and in low-sun months.
Getting connected takes utility approval and a licensed installer. The typical path is: apply for interconnection, install an approved meter, pass a technical inspection, and receive Permission to Operate. Before you sign, it is worth confirming the program is a good fit for your solar investment.
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Full retail vs net billing vs avoided cost
Most net metering debates come down to one question: how much is an exported kilowatt-hour worth? There are three common answers, and the difference between them can change your payback by years.
Full-retail net metering (1:1)
This is the most valuable form. You receive a credit at the full retail rate, the same price you pay to buy electricity. Export one kilowatt-hour, offset one kilowatt-hour. A single meter tracks both directions, and states such as New Jersey still credit residential exports at the full retail rate. It is simple and it pays back fast.
Net billing
Under net billing, exports are credited at a lower rate than retail, often an export-specific value the state sets rather than the full retail price. California’s NEM 3.0 (the Net Billing Tariff) is the clearest example: export credits are based on hourly avoided-cost values instead of the retail rate, which cut average export compensation by roughly 75 percent and made home batteries central to the payback math. Net billing pushes owners to use or store their power on site rather than sell it cheap.
Avoided-cost (buy-all, sell-all)
In an avoided-cost or buy-all/sell-all setup, you sell everything your panels make to the utility at its wholesale avoided cost, often only about 3 to 5 cents per kWh, and buy everything your home uses back at the retail rate. Separate meters track production and consumption. This is the least generous structure for a homeowner because the sell rate is far below the buy rate.
| Compensation model | Export credit value | Meter setup | Best paired with |
|---|---|---|---|
| Full-retail net metering | Full retail rate (1:1 offset) | One bidirectional meter | A system sized to your annual usage |
| Net billing | Lower export-specific rate, often near avoided cost | One bidirectional meter | A home battery to self-consume power |
| Avoided cost (buy-all, sell-all) | Wholesale avoided cost, roughly 3 to 5 cents per kWh | Two separate meters | On-site use and storage |
How net metering credits roll over
Because solar output swings with the seasons, most programs let credits bank over time rather than expire each month. A typical arrangement works like this:
- Monthly rollover: Surplus credits earned in sunny months (spring and summer) carry forward to offset higher-use months.
- Annual true-up: Once a year the utility reconciles your credits against your usage. Depending on the program, leftover credits may be paid out at a lower rate, carried forward, or forfeited.
Reading the fine print on rollover and true-up matters, because a program that pays out excess annual credits at avoided cost, or zeroes them out, rewards a system sized close to your yearly usage rather than a deliberately oversized one.
Net metering by state, and how it varies
The United States is a patchwork. Each state, and often each utility inside it, sets its own export credit, system-size caps, and true-up rules. Some states reward solar with full retail credits and easy interconnection; others have moved to net billing or added fixed charges. Here is how the picture looks across five major solar states as of August 2026:
- New Jersey: still credits residential exports at the full retail rate, and owners can stack SREC-II income on top. See New Jersey net metering and SRECs.
- Pennsylvania: offers statewide full-retail net metering with price-to-compare credits. See solar and net metering in Pennsylvania.
- California: moved to NEM 3.0 net billing, which lowered export credits and made batteries central to payback. See how California NEM 3.0 net billing works.
- Florida: currently keeps 1:1 retail net metering for residential customers. See Florida net metering in 2026.
- New York: pairs net metering with the VDER value stack and a customer benefit contribution charge. See New York net metering and VDER.
Policies change. California’s shift to NEM 3.0 is the headline example, and other states are tuning their rules to balance solar growth with grid stability. For a utility-specific case, see how Xcel Energy credits solar in Colorado, and how ComEd credits Illinois solar under supply-only net metering. Always confirm your own utility’s current tariff before you buy.
How to get the most out of net metering
The rate is set by your state, but a few habits help you capture the full value of the credits you earn:
- Size the system to your usage. An oversized system can generate credits that pay out at a low rate or expire at true-up.
- Add storage where exports are cheap. In net-billing states, a battery lets you use your own power in the evening instead of selling it at avoided cost. See how a battery pairs with California’s net billing rules.
- Shift big loads to daylight. Running laundry, dishwashers, and EV charging while the sun is up uses your own generation first.
- Mind time-of-use rates. If your utility charges more at peak hours, learn your off-peak and peak electricity hours and lean on credits when power is most expensive.
Solar panels are not free, and net metering does not by itself eliminate every charge, since most bills still carry fixed connection and minimum fees. But with the right program and a sensible system size, net metering can offset most of the energy portion of your electricity bill for the life of the system.
Frequently asked questions about net metering
What is net metering in simple terms?
Net metering is a utility billing rule that credits solar owners for the surplus electricity their panels send to the grid. You use the grid like a battery: you bank credits when you overproduce and spend them when you underproduce, and you pay only for the net power you draw.
How does net metering work?
A bidirectional meter records both the power you import from the grid and the power you export to it. When your panels make more than your home uses, the surplus earns a credit. You then use those credits to offset power you pull at night or on cloudy days, lowering your bill.
What is the difference between net metering and net billing?
Full net metering credits exports at the full retail rate, a 1:1 offset. Net billing credits exports at a lower, export-specific rate, often based on the utility’s avoided cost. California’s NEM 3.0 is a net-billing program, which is why batteries matter more there.
Do net metering credits expire?
It depends on the program. Most utilities let credits roll over month to month, then reconcile them once a year at an annual true-up. Leftover credits may carry forward, be paid out at a lower rate, or be forfeited, so it pays to size your system close to your yearly usage.
Does every state offer net metering?
No. As of August 2026, most states require utilities to offer some form of net metering or a successor net-billing tariff, but the terms vary widely. Some credit exports at the full retail rate, while others use net billing or avoided cost. Always check your state and utility.
Can I use net metering with battery storage?
Yes. Batteries store surplus solar for use at night or during peak-price hours instead of exporting it at a low rate. In net-billing states such as California, pairing storage with solar is often what makes the payback work.
Resources and sources
MySolarFY is an independent solar information and referral service, not an installer. Programs and rates change; verify current terms with your utility and state before you buy. Where lease or PPA options are available, they carry their own terms, such as an annual price escalator, and total payments over the contract may exceed the cost of a cash purchase.
- U.S. Department of Energy: Net Metering and Your Electric Bill
- U.S. Energy Information Administration: Electric Power Monthly
- DSIRE: Net Metering Policies by State
- NREL: The Basics of Net Metering
