Net Metering 101: How to Get Paid for Your Excess Solar Energy

Published April 4, 2026  ·  7 min read

Solar panels produce the most electricity in the middle of the day, when the sun is strongest. But most households use the least electricity during those hours — everyone's at work, the kids are at school, and the AC isn't yet running at full blast. The result is that a well-sized solar system regularly produces more power than the home is consuming at any given moment.

Net metering is the policy that determines what happens to that surplus. Under a net metering arrangement, excess electricity flows back to the grid and your utility meter runs backward. At the end of the billing period, you're charged only for the net difference between what you consumed and what you generated. It's the mechanism that makes solar panels worth sizing to cover your full annual usage rather than just your daytime load.

How net metering works in practice

The mechanics are straightforward. Your solar system is connected to the grid through a bidirectional meter that measures electricity flowing in both directions. When your panels produce more than you're using, the excess flows out to the grid and your meter records a credit. When you're drawing from the grid — at night, on cloudy days, or during high-demand periods — that credit offsets what you owe.

In states with full retail net metering, the credit rate equals the retail rate you'd otherwise pay for electricity. If your utility charges 22 cents per kilowatt-hour (kWh), your exported kilowatt-hours earn 22 cents in bill credit. That one-to-one exchange is what makes the economics work: every unit you export is worth exactly as much as a unit you'd otherwise buy.

Most net metering programs roll unused bill credits forward month to month rather than paying them out as cash. Think of it like a prepaid balance on your electricity account — summer months when your panels run hard often build up a surplus that draws down your bill through the winter when production drops. At the end of a 12-month period, most utilities do an annual "true-up": they tally any credits you haven't used and either apply them to your next year's bill or pay them out at a much lower wholesale rate — typically 3 to 5 cents per kWh, far below the retail rate you earned credits at. Some utilities simply forfeit any remaining annual surplus entirely. The practical takeaway: size your system to cover close to 100% of your annual usage, but not dramatically more, since credits you can't use within a year have little value.

Net metering vs. net billing: an important distinction

Not all compensation programs are equal. Full retail net metering credits exports at the same rate you pay to buy electricity. Net billing credits exports at a lower rate — typically the utility's avoided cost or wholesale rate — which can be dramatically less.

California's transition to Net Energy Metering 3.0 (NEM 3.0) in April 2023 is the most significant example of this shift. Under the old policy, California homeowners received roughly 30 cents per kWh for exports. Under NEM 3.0, that dropped to 5 to 8 cents per kWh depending on time of day. For a system exporting 4,000 kWh per year, that's the difference between $1,200 in annual credits and roughly $240. The economics of solar in California didn't disappear, but they changed significantly — which is why battery storage has become nearly essential for new California installations. A battery lets you store the surplus and use it yourself at night, avoiding the need to export at the lower rate.

Arizona, Nevada, and Indiana have made similar moves toward lower export compensation. Illinois transitioned to supply-only net metering in 2025, reducing the value of exports by roughly half for commercial customers and affecting some residential programs as well. The national trend is clear: full retail net metering is likely to contract over time, and states that currently have strong programs may revisit them as grid costs evolve.

States with the strongest net metering in 2026

Several states continue to offer full 1:1 retail net metering with no caps and favorable rollover policies:

• New Jersey leads the country. Full retail credit at roughly 26 cents per kWh, monthly rollover, no system size cap for residential, and the Administratively Determined Incentive (ADI) production-based payment program running alongside net metering — which pays an additional fixed rate per kWh produced for 15 years. Payback periods of 5 to 7 years are common.
• Massachusetts offers full retail credit at 25 to 30 cents per kWh combined with the Solar Massachusetts Renewable Target (SMART) program, which pays an additional fixed monthly production incentive for 10 years. One of the strongest overall compensation packages available.
• New York provides full retail net metering at 25 to 35 cents per kWh in downstate markets, combined with the NY-Sun Initiative rebates and strong Solar Renewable Energy Credit (SREC) values. SRECs are certificates your system generates — one per megawatt-hour produced — that you can sell to utilities required to source a portion of their power from solar.
• Maryland offers full retail credit plus one of the more active SREC markets in the country, adding $500 to $1,500 per year in additional income for a typical residential system.
• Connecticut and Vermont maintain strong 1:1 retail programs with rates of 24 to 28 cents per kWh, producing payback periods of 6 to 8 years.
• Maine offers full retail net metering at 27 to 32 cents per kWh, making it one of the more underrated solar markets given its northern latitude.

States with reduced or no net metering

At the other end of the spectrum, a handful of states have weak compensation or no statewide requirement at all:

• California transitioned to NEM 3.0 in 2023, reducing export compensation to 5 to 8 cents per kWh. Battery storage is now effectively required to make new residential solar installations financially optimal.
• Texas has no statewide net metering requirement. In the deregulated Electric Reliability Council of Texas (ERCOT) market, which covers most of the state, individual retail electricity providers (REPs) set their own solar buyback rates ranging from 3 cents to retail-matched depending on the plan. Austin Energy's Value of Solar tariff at about 9.9 cents per kWh is a notable exception.
• Alabama and Tennessee have no statewide net metering policy. The Tennessee Valley Authority (TVA), which supplies power across much of both states, offers limited buyback programs but compensation is well below retail rates.
• Arizona, Nevada, and Indiana have moved to net billing structures with below-retail export rates, making self-consumption and battery storage the preferred strategy for new installations.

Why the timing of your installation matters

Most states that have reduced their net metering rates have grandfathered existing customers under the old policy — typically for 20 years from the date of installation. California NEM 2.0 customers, for example, are locked into their favorable rates until 2043. New customers installing today fall under NEM 3.0.

This grandfathering structure means that the date you interconnect your system can have enormous financial significance. If your state's net metering policy is currently under review — and several are in 2026 — installing before any rate reduction locks in the current terms for two decades. This is a legitimate and often underemphasized reason to act sooner rather than later in states with strong but potentially changing policies.

How to find out what your utility offers

Net metering policies are set at the state level but implemented by individual utilities, and the details can vary within a state. The most reliable places to verify your specific program are your utility's tariff sheet (available on their website) and the DSIRE database, which tracks incentive programs by zip code. Your installer should also be able to walk you through the exact compensation structure before you sign anything — and if they can't, that's a yellow flag.

Key questions to ask before signing an installer contract:

• What rate does my utility credit for exports? Full retail, time-of-use, or avoided cost?
• How long do unused credits roll over? Monthly, annually, or indefinitely?
• What happens to my annual surplus? Some utilities pay out remaining credits at a lower rate; others simply forfeit them.
• Will I be grandfathered if the policy changes? Most states say yes — but confirm this in writing with your installer.
• Is battery storage worth adding in my state? In net billing states, often yes. In full retail net metering states, less critical financially.

How net metering affects your ROI calculation

Net metering is baked into every solar ROI calculation, even when it isn't called out explicitly. The "savings per year" figure your installer quotes you assumes you'll receive credit for your exports at some rate. If that rate is the full retail price, the math is favorable. If it's wholesale, the payback period extends.

Our Residential Solar ROI Calculator lets you enter your system size and local electricity rate to see your payback period and 20-year savings. The calculator assumes full retail net metering by default — if you're in a net billing state like California or Arizona, your actual savings may be lower unless you plan to add battery storage. For a quick ballpark before you run the full calculation, the Quick Savings Estimate uses your state's average rate and adjusts for local sun hours.