Net metering is the policy that lets solar homeowners sell excess electricity back to the grid — effectively running their electric meter backward. It's one of the most powerful financial tools in the solar playbook, and it can dramatically shorten your payback period.
How Net Metering Works
Your solar panels often produce more power than you're using — especially on sunny weekday afternoons when you're at work. Without net metering, that excess power would go to waste. With net metering, it flows into the grid and your utility credits your account.
At night or on cloudy days, you pull power back from the grid and use those credits. At the end of the billing period, you pay only the "net" difference between what you sent and what you consumed.
Net Metering Policy Types
| Policy Type | Credit Rate | States | Homeowner Impact |
|---|---|---|---|
| 1:1 Retail Net Metering | Full retail rate | NY, MA, NJ, CO, many others | Best — maximum savings |
| Avoided Cost / Wholesale | 3–7¢/kWh | CA (NEM 3.0), some utilities | Lower — longer payback |
| Buy-All / Sell-All | Varies | Some TX utilities | Depends on rate structure |
| No Net Metering | None | Some rural co-ops | Consider battery storage |
California's NEM 3.0: A Warning
In April 2023, California switched from 1:1 net metering (NEM 2.0) to NEM 3.0, which reduced export credits by roughly 75% for new solar customers. This significantly changed the economics of going solar without a battery in California.
Under NEM 3.0, pairing your solar system with a battery (like the Tesla Powerwall or Enphase IQ Battery) is effectively required to maximize savings — the battery stores daytime excess for evening use instead of exporting at low rates.
States With the Best Net Metering Policies
- Massachusetts: 1:1 retail net metering with SMART program additional incentives
- New York: Full retail net metering under Value of Distributed Energy Resources (VDER)
- New Jersey: Net metering at full retail with annual true-up
- Colorado: Retail rate net metering with Colorado Public Utilities Commission oversight
- Minnesota: Net metering at retail rate up to 40 kW for residential
How Much Can You Earn?
A typical 8 kW solar system in a sunny location produces around 10,000–13,000 kWh/year. A typical home uses 10,500 kWh/year (US average). Net production depends heavily on system size, usage, and location.
If you produce 13,000 kWh and use 10,500 kWh, you export 2,500 kWh. At a 22¢/kWh retail credit, that's $550/year in export credits on top of your reduced bill.
💡 Tip: Check your utility's specific net metering rate before going solar. DSIRE.org maintains a comprehensive database of state and utility policies.