Net Metering Explained: How Selling Solar Energy Back to the Grid Works

Net metering is the single most important policy affecting residential solar economics. It determines how much you're credited for excess solar energy you send to the grid - and that credit can be the difference between a 6-year and a 14-year payback period. Here's how it works and why it matters.

How Net Metering Works

When your solar panels produce more electricity than your home uses (typically mid-day), the excess flows to the grid. Your utility meter literally spins backward (or its digital equivalent). You receive a credit for that exported energy. At night or on cloudy days when your panels produce less than you use, you draw from the grid and use up your credits. At the end of each billing period, you pay only for your net usage - total grid consumption minus total solar exports.

With full retail net metering, your credits are worth the same per-kWh rate you pay for grid electricity. If you pay $0.20/kWh, every kWh you export is credited at $0.20. This makes the grid effectively a free, unlimited battery - store your excess during the day, withdraw it at night, with no loss.

The Net Metering Landscape in 2026

States with strong net metering (full retail credit): New Jersey, Massachusetts, New York, Maryland, Connecticut, and many others still offer 1:1 retail rate credits. These are the best states for solar ROI. States with modified net metering: California (NEM 3.0) reduced export credits to roughly $0.05-$0.08/kWh (down from $0.30+), dramatically reducing the value of exported energy. Several other states are considering similar reductions. States without net metering: A few states (primarily in the Southeast) don't mandate net metering, though many utilities still offer voluntary programs with varying credit rates.

How NEM 3.0 Changed Solar in California

California's NEM 3.0 (effective April 2023) is the most significant net metering reform and a preview of where other states may head. Under NEM 3.0, export credits dropped approximately 75% compared to NEM 2.0. The system now values exports based on the "avoided cost" to the utility, which varies by time of day. Mid-day exports (when solar production peaks) are worth very little because the grid is flooded with solar energy. Evening exports (if you have a battery) are worth more.

The result: solar-only systems in California now have much longer payback periods. But solar + battery systems do well because they can store daytime energy and either use it during expensive evening peak hours or export it when credits are highest. NEM 3.0 effectively made batteries financially necessary in California.

How Net Metering Affects Your Solar Decision

In strong net metering states: Solar is a no-brainer for most homeowners. Size your system to offset 90-100% of annual usage. Excess production earns credits at full retail value. Batteries are optional (nice for backup but not financially necessary). In reduced net metering states (like California NEM 3.0): Size your system to match your daytime usage rather than total usage. Add a battery to store excess for evening use. The solar + battery combination still provides strong savings. In states without net metering: Size your system conservatively to avoid overproduction. A battery is essential to maximize self-consumption. Solar can still make sense but requires careful sizing.