What is net metering and how does it work?

Net metering is a billing arrangement where your utility credits you for excess solar electricity you send to the grid. When your panels produce more than you use, the surplus flows to the grid and your meter effectively spins backward. You receive a credit on your electric bill, typically at the full retail rate, which offsets electricity you draw from the grid at night or on cloudy days.

Which states have the best net metering policies?

States with the strongest net metering policies include Massachusetts, New Jersey, New York, Maryland, and Connecticut. These states offer full retail rate credits, allow generous system sizes, and provide indefinite credit rollover. Other strong states include Illinois, Minnesota, and Oregon.

What happened to net metering in California?

California transitioned to NEM 3.0 (Net Billing Tariff) in April 2023. Under NEM 3.0, solar export credits dropped from the retail rate of roughly 30 cents per kWh to approximately 5 to 8 cents per kWh based on the avoided cost rate. This makes battery storage much more important for California solar owners to maximize self-consumption.

Can my utility eliminate net metering?

Utilities cannot unilaterally eliminate net metering. Changes require approval from the state public utility commission (PUC). Many states have enacted net metering laws that utilities must follow. However, states can and do modify their programs over time, as California demonstrated with NEM 3.0. Most states grandfather existing customers under their original terms for 10 to 20 years.

Is net metering the same as net billing?

No. Under traditional net metering, you receive credits at the full retail electricity rate. Under net billing (sometimes called net metering 2.0 or 3.0), exports are credited at a lower rate, often the wholesale or avoided cost rate. Net billing is becoming more common as states update their solar policies.

Net Metering Policies by State: Complete US Guide 2026

Net metering is one of the most important financial incentives for solar homeowners. It determines how much your utility pays you for excess solar electricity you send back to the grid. Policies vary dramatically from state to state, and understanding your local rules can mean the difference between a 6-year payback and a 12-year payback.

How Net Metering Works

When your solar panels produce more electricity than your home is using, the surplus flows back to the utility grid. Under net metering:

Your meter tracks two-way flow — electricity you consume from the grid and electricity you export to it.
Exports generate credits on your utility bill, typically at the retail rate (what you normally pay per kWh).
Credits offset future usage — at night, on cloudy days, or in winter when your panels produce less.
Monthly or annual true-up — at the end of the billing period, you pay only for your net consumption.

In practice, a well-sized solar system with net metering can reduce your electric bill to nearly zero, with credits from sunny months covering your usage in darker months.

State-by-State Policy Overview

Net metering policies fall into three broad categories:

Net metering policy categories as of 2026 | Source: DSIRE, NREL
Policy Type	Export Credit Rate	States	Value for Solar
Full Retail Net Metering	100% of retail rate	MA, NJ, NY, MD, CT, IL, MN, OR, CO, and ~25 others	Excellent
Reduced Rate / Net Billing	40-75% of retail rate	CA (NEM 3.0), NV, AZ, HI, SC, IN	Good (battery recommended)
Avoided Cost / Wholesale	2-5 cents/kWh	AL, TN, KY, parts of TX, ID	Limited (maximize self-use)

Top States for Net Metering

These states offer the most favorable net metering policies for residential solar in 2026:

Massachusetts

Credit rate: Full retail rate (1:1)
System cap: 25 kW residential
Credit rollover: Indefinite monthly rollover; annual cash-out at avoided cost
Extras: SMART program provides additional performance incentives
Massachusetts consistently ranks among the best states for solar ROI thanks to high electricity rates (averaging 25-30 cents/kWh) combined with strong net metering.

New Jersey

Credit rate: Full retail rate (1:1)
System cap: No specific cap for residential
Credit rollover: 12-month rolling credit
Extras: Successor Solar Incentive (SuSI) program and SREC-II market
New Jersey’s combination of net metering, SRECs, and the federal ITC makes solar payback periods among the shortest in the nation at 5 to 7 years.

New York

Credit rate: Full retail rate for residential systems
System cap: 25 kW residential
Credit rollover: Varies by utility; typically 12 months
Extras: NY-Sun incentives, Value of Distributed Energy Resources (VDER) for larger systems
High electricity prices in downstate New York (25-35 cents/kWh) make solar an excellent investment.

Maryland

Credit rate: Full retail rate (1:1)
System cap: 200% of annual usage
Credit rollover: 12-month rolling; excess paid at generation rate
Extras: Maryland Solar Renewable Energy Credits (SRECs)
Maryland’s renewable portfolio standard drives strong SREC values, adding $500 to $1,500 per year in additional income.

Connecticut

Credit rate: Full retail rate with time-of-use option
System cap: 25 kW residential
Credit rollover: Annual rollover
Extras: Residential Solar Investment Program (RSIP) rebates
Connecticut’s high electricity rates (24-28 cents/kWh) and strong policies deliver payback periods of 6 to 8 years.

States to Watch: Policy Changes

California (NEM 3.0)

California’s transition to NEM 3.0 in April 2023 was the most significant net metering change in recent years. Key impacts:

California NEM 2.0 vs. NEM 3.0 comparison | Source: CPUC, EnergySage
Feature	NEM 2.0 (Legacy)	NEM 3.0 (Current)
Export credit rate	Retail rate (~30 cents/kWh)	Avoided cost (~5-8 cents/kWh)
Monthly minimum bill	~$10/month	~$14/month
Battery incentive	Optional	Strongly recommended
Time-of-use required	Yes	Yes (4-9 PM peak)
Typical payback	5-7 years	8-11 years (solar only), 7-9 years (solar + battery)
Grandfathering	NEM 1.0 customers: 20 years	NEM 2.0 customers: 9 years from install

The lesson from California is clear: battery storage transforms the economics when export rates decline. With a battery, homeowners store excess solar production and use it during expensive peak hours (4 PM to 9 PM) instead of exporting at low rates.

Arizona

Arizona eliminated retail-rate net metering in 2017, moving to a reduced export rate. Current rates vary by utility but typically range from 7 to 10 cents per kWh. Battery storage is increasingly popular in Arizona for the same reasons as California.

Nevada

After temporarily eliminating net metering in 2015 (which caused a massive industry backlash), Nevada restored net metering in 2017 at 75% of the retail rate. The rate is scheduled to decline gradually. Current export credits run approximately 8 to 12 cents per kWh depending on the utility.

Indiana

Indiana transitioned away from full retail net metering in 2022. New solar customers receive credits at approximately the wholesale rate. Existing net metering customers are grandfathered until 2032.

Understanding Time-of-Use (TOU) Rates

Many states and utilities are moving toward time-of-use rate structures, which directly affect the value of your solar production:

Typical time-of-use rate structure | Actual rates vary by utility
TOU Period	Typical Hours	Rate Range	Solar Production	Best Strategy
Off-Peak	12 AM - 4 PM	10-18 cents/kWh	High	Export to grid or charge battery
Peak	4 PM - 9 PM	25-55 cents/kWh	Low/None	Use battery or stored credits
Super Off-Peak	12 AM - 6 AM	8-12 cents/kWh	None	Charge EV, run appliances

Under TOU rates, solar production during midday earns lower credits, but using stored energy during expensive peak hours can dramatically increase savings. This is why solar-plus-battery systems are becoming the standard recommendation in TOU markets.

States Without Net Metering

A handful of states have weak or no net metering policies:

Alabama: No statewide net metering; TVA offers a very limited buyback program
Tennessee: TVA service territory; limited programs through local utilities
South Dakota: No mandatory net metering
Mississippi: Limited voluntary programs

In these states, solar can still make financial sense if you:

Size your system to maximize self-consumption
Add battery storage to minimize grid exports
Take advantage of the 30% federal ITC

How to Maximize Your Net Metering Benefits

1. Size Your System Correctly

Design your system to offset 100% to 110% of your annual electricity usage. Oversizing beyond that may result in wasted credits if your utility does not pay cash for annual surplus.

2. Consider Battery Storage

In states with reduced export rates (California, Arizona, Nevada, Indiana), a battery lets you store excess production and use it during peak hours instead of exporting at low rates. Use our solar calculator to compare scenarios.

3. Shift Energy Usage

Run major appliances (dishwasher, laundry, EV charging) during peak solar production hours to maximize self-consumption and reduce grid exports.

4. Monitor Your Production

Use your inverter’s monitoring app to track production, consumption, and grid interaction. Identify patterns and adjust your usage habits to align with peak solar hours.

5. Understand Your Utility’s True-Up Cycle

Know when your utility settles your net metering account (monthly vs. annually). Annual true-ups let you bank summer credits for winter usage, which is particularly valuable in northern states.

Net Metering and Your Solar Payback Period

The value of net metering directly impacts how quickly your solar system pays for itself:

Net metering impact on solar ROI | Assumes 30% ITC, 2% annual rate escalation
Scenario	Export Rate	Est. Payback (6kW)	20-Year Savings
Full retail NM (25 cents/kWh)	25 cents/kWh	6-8 years	$25,000-$35,000
Reduced NM (12 cents/kWh)	12 cents/kWh	8-10 years	$18,000-$25,000
Avoided cost (5 cents/kWh)	5 cents/kWh	10-13 years	$12,000-$18,000
Avoided cost + battery	5 cents (stored)	8-10 years	$20,000-$30,000

For a detailed cost analysis, see our Solar Panel Costs in the USA 2026 guide.

The Future of Net Metering

The trend across the US is moving from traditional 1:1 net metering toward more nuanced compensation structures:

Net billing with lower export rates (California model)
Time-of-use differentiation that values solar production differently by hour
Value-of-solar tariffs that attempt to calculate the “true” value of distributed solar
Community solar programs for renters and those without suitable roofs

While these changes may reduce the value of solar exports, they also create new opportunities. Battery storage, smart energy management, and flexible load shifting are becoming increasingly valuable tools for solar homeowners.

The good news: most states grandfather existing net metering customers for 10 to 20 years after installation. Going solar sooner rather than later may lock in today’s favorable rates.