Net metering is the financial engine that makes residential solar so attractive. It’s the policy that lets you sell excess electricity back to the grid, turning your utility meter into a two-way street. But how does it actually work, and is it available where you live?
How Net Metering Works
When your solar panels produce more electricity than your home is using — typically during midday — the excess flows back into the utility grid. Your meter literally spins backward (or records negative usage on digital meters), earning you credits.
Later, when your panels aren’t producing enough — at night, on cloudy days, or during high-usage periods — you draw electricity from the grid as usual. The credits you banked offset this usage on your electric bill.
At the end of each billing cycle, you only pay for your net consumption — the difference between what you used from the grid and what you sent back. If you sent more than you used, you carry credits forward to the next month.
Types of Net Metering
Full retail net metering credits you at the full retail electricity rate for every kWh you export. This is the most favorable for homeowners and is available in many states.
Reduced rate net metering credits you at a lower rate, such as the wholesale or “avoided cost” rate. You still benefit, but the economics aren’t as strong.
Net billing (like California’s NEM 3.0) credits exports at a time-varying rate that reflects the grid’s actual value of solar at that moment. Midday exports earn less while evening exports earn more.
Net Metering by State
Net metering policies vary significantly by state. As of 2026, about 35 states plus Washington D.C. have mandatory net metering policies. Some states like New Jersey, Maryland, and Massachusetts offer particularly strong net metering that makes solar especially attractive.
Some states have been scaling back net metering. California’s transition to NEM 3.0 in 2023 reduced export credits significantly, though solar with battery storage remains highly economical there.
Maximizing Your Net Metering Benefits
Size your system correctly: Design your system to offset about 100% of your annual electricity usage. Oversizing wastes money if your utility doesn’t pay for excess annual production.
Shift usage to peak production hours: Run your dishwasher, laundry, and EV charger during the day when your panels are producing. This maximizes self-consumption and reduces your reliance on grid credits.
Consider time-of-use rates: If your utility offers TOU rates, pair solar with a battery to store midday production and use it during expensive evening peak hours.
What If My State Doesn’t Have Net Metering?
Even without traditional net metering, solar can still make sense. Battery storage lets you store excess production for your own use later. Some utilities offer alternative compensation structures. And self-consumption of solar electricity always saves money by reducing what you buy from the grid.
The Future of Net Metering
Net metering policies are evolving nationwide as solar adoption grows. The trend is moving away from simple full-retail net metering toward more complex rate structures that consider time of production and grid needs. This shift makes battery storage increasingly important for maximizing solar savings.
