Discover how net metering works and how to navigate today’s changing policies to get the most value from your system.
Net metering is a way for solar energy customers to sell the excess electricity their system generates back to the utility company. Solar systems allow customers to generate their own electricity, but in many cases, excess energy is generated beyond what’s needed to run a home. Net metering enables any excess energy generation to be exported back to the power grid, which earns you a credit on your bill.
In this article, we’ll break down how net metering works, its benefits, and the different policies that determine your solar savings.
In this article:
- How net metering works
- Types of net metering policies
- Benefits of net metering
- Understanding net metering policy in the U.S.
- Is net metering right for you?
How net metering works
The electricity produced by solar panels is first used to power your home or business. If the solar system produces more electricity than needed — and you don’t have a home solar battery — excess power is sent to the utility grid. According to the Solar Energy Industries Association (SEIA), 20-40% of a solar energy system’s output on average goes back to the grid.
Net metering is a billing system where you get credit for the excess electricity your solar panels generate. With true net metering, you only pay for the difference between what your home uses and what you send back to the grid. However, while some form of net metering is required by law in most states, according to the Database of State Incentives for Renewables & Efficiency (DSIRE), policies and actual compensation vary widely.
Metering systems and equipment
To get credit for the solar energy you send to the grid, your home needs a meter that can measure the two-way flow of electricity. Most utilities now provide this as a digital smart meter. There are two main types you may encounter:
Bi-directional meters are the older, mechanical solution. Think of them like the odometer on an older car. When you draw electricity from the grid, the meter spins forward. When your solar panels produce more energy than you need, the excess flows back to the grid, and the meter registers that surplus by spinning in reverse, automatically lowering your net usage for the month. While this approach defined early net metering programs, it’s now becoming less common.
Smart meters, also known as Advanced Metering Infrastructure (AMI), are the modern digital standard. These meters don’t just measure usage, they communicate it. A smart meter precisely tracks how much electricity you import and export, then sends that data to your utility in near real-time. This technology enables more flexible billing models for utilities (such as time-of-use rates, which we explain later in this article), while also giving homeowners better visibility into their energy use — helping homeowners track solar savings and make more informed energy choices. According to the U.S. Energy Information Administration (EIA), by the end of 2023, over 112 million U.S. homes had smart meters, covering about 77% of all residential customers.
Rate structures and billing
Utility companies calculate the net difference between electricity usage and excess energy with Import vs. Export Tracking. An energy import is power pulled from the grid, while an export is excess energy sent back. Credits are applied for energy returned to the grid, and typically roll over. As part of some policies, credits can roll over from one month to the next, but expire at the end of the year. With credit rollover, customers can stack credits for the months they need to pull more electricity from the grid, like in the winter.
The way credits are distributed also varies. Some energy companies send monthly bills showing imported energy usage and available credits created from exports. With monthly settlements, credits are applied to each month’s bill. If they’re not needed, they roll over to the next month. Other companies conduct an annual “true-up”, only billing once at the end of a 12-month cycle. In this scenario, homeowners settle outstanding balances not covered by credits or roll excess credits over to cover future energy imports.
Fixed monthly fees, like service charges to maintain the power grid, often apply regardless of how much power you produce.
Types of net metering policies
Net metering programs vary widely. Utilities and regulators use different frameworks to compensate homeowners for the energy they export. Here are some of the most common policies:
Retail-Rate (One-for-One) net metering
Homeowners earn credits at full retail rate for every kilowatt-hour sent to the grid, so each exported kWh offsets one you’d otherwise buy. This is the most traditional form of net metering, hence why it’s also known as “true net metering.”
Example: New Jersey offers one-for-one net metering. Residential customers who install solar systems receive full retail credit for each kWh of electricity exported to the grid, with monthly credit rollover and annual true-up.
Net Billing (with Time-of-Use rates)
In a net billing framework, the price you pay to buy electricity — the full retail rate — is different from the credit you earn for sending excess energy back to the grid. This export credit is typically lower than the retail rate and often based on the utility’s “avoided cost,” which is what it would have cost them to produce that power themselves or buy it from another source.
In some programs, the value of this credit can be a fixed rate. In others, it varies based on time-of-use (TOU) pricing, where the value of your solar exports fluctuates depending on when they’re sent to the grid. Under a TOU structure, both electricity prices and export credit values are often higher during peak demand periods — typically in the late afternoon and early evening — to reflect the increased demand and cost of supplying energy.
Example: California’s newer solar billing program, NEM 3.0, is a leading example of a net billing policy that ties export credits to complex TOU rates that vary by the hour, day, and season. (More on this below.)
Tiered-rate net metering
Tiered-rate net metering is a policy structure where the value of solar energy credits decreases as more solar systems are installed across a utility’s service area. Instead of offering a fixed or retail-rate credit for excess electricity sent to the grid, utilities set predetermined tiers with declining compensation levels. This model is designed to encourage early adoption while controlling long-term program costs and grid impact.
Example: Nevada uses a four-tier system. Early adopters in Tier 1 received credits equal to 95% of the retail electricity rate. As more solar customers enrolled, the credit rate dropped: Tier 2 received 88%, Tier 3 earned 81%, and Tier 4 — where all new customers are placed today — provides credits at 75% of the retail rate. Each system is locked into its compensation rate for 20 years from the date of interconnection.
Virtual net metering (VNM)
For households that can’t install rooftop solar, community solar programs (like solar gardens or solar farms) offer an accessible alternative. Through virtual net metering, customers subscribe to a portion of a shared solar project and receive bill credits based on their share of energy production.
Example: New York continues to lead the nation’s community solar market and is a standout example of virtual net metering. According to data from Wood Mackenzie, the state installed a record-breaking 861 MW of new capacity in 2024, which accounted for roughly half of all community solar installed nationwide that year. Through this program, participants receive bill credits for the energy produced by their share of an off-site solar project, mirroring the savings and incentives of rooftop systems.
Benefits of net metering
Net metering offers a variety of benefits for solar energy residential customers, including cost savings and positively contributing to the environment.
Economic savings
The amount homeowners save through net metering can vary significantly based on location, utility policies, solar system size, and energy usage patterns.
To get the most accurate and up-to-date information on net metering policies and potential savings in your area, visit the Database of State Incentives for Renewables & Efficiency (DSIRE) at dsireusa.org. This resource provides detailed, state-by-state policy summaries and utility-specific net metering rules.
Environmental impact
Net metering helps the environment by allowing excess solar energy to flow back into the grid, reducing reliance on fossil fuel–based generation. This directly lowers greenhouse gas emissions and pollutants, like nitrogen oxides and particulates. It also eases strain on the grid during peak periods by distributing generation closer to consumption, reducing transmission losses and the need for new infrastructure.
Energy independence
Several states now allow solar systems paired with battery storage to qualify for net metering. When net metering credits are paired with battery storage, surplus solar energy can be stored and used during peak hours or outages, rather than sent to the grid. This combination increases your control over energy use, providing greater energy independence from the grid and resilience during power outages.
Understanding net metering policy in the U.S.
While the federal government has supported solar adoption through tax incentives, net metering rules are set at the state level and often implemented differently by individual utilities. As a result, there’s no single national standard. The financial benefits of going solar can be quite different depending on where you live and how your utility credits solar exports.
In the sections below, we’ll explore how state policies are evolving — and how, in some markets, those changes are beginning to make battery storage a more important part of the solar equation.
Recent trends in state net metering policy
Net metering remains regulated at the state level. In 2024, nearly every state took some form of policy action related to distributed solar, with many of the reforms focused on net metering. These updates often involved reducing the credit rates for exported solar power, shortening the time periods for calculating net usage, or adding new fixed monthly charges to utility bills.
Together, these shifts reflect a broader trend away from full retail-rate, “one-for-one” net metering. States and utilities are increasingly moving toward alternative compensation structures designed to balance continued solar adoption with grid maintenance costs, while also protecting traditional utility revenue models
Other key program details — like whether unused credits roll over monthly, expire annually, or are reconciled at year-end, as well as the maximum system size eligible — can also differ significantly by state and utility. Visit the DSIRE database for the latest on state and local policies.
California NEM 3.0 and the rise of battery storage
As of April 2023, California’s Net Energy Metering 3.0 (NEM 3.0) applies to new residential solar customers served by PG&E, SCE, and SDG&E. Under NEM 3.0, credits for excess solar energy sent to the grid are no longer based on retail electricity rates. Instead, they are calculated using an advanced Avoided Cost Calculator, which reflects the utility’s cost of supplying electricity at a given time.
As a result, export credit values now vary by hour, day, and season, with up to 576 different rates per year. On average, these credits are about 75% lower than retail value, significantly reducing the financial return for exported energy.
To succeed under these new rules, many California homeowners are pairing solar panels with battery storage. In fact, after the updated policy took effect, battery attachment rates for new residential solar systems jumped from around 10% to 60%. With solar exports now earning much lower credit values, batteries help homeowners save more by storing excess energy and using it later — especially during peak hours when electricity rates from the grid are highest. Instead of sending valuable solar power away for a reduced credit, you can use more of it on-site, when it benefits you most.
California’s experience underscores a crucial point for any potential solar customer: as net metering policies evolve, getting the most value from your system depends more on how you use your own energy, rather than just what you’re able to sell back to the grid.
Is net metering right for you?
Net metering can be a powerful way to lower your energy bills, but whether it’s the right fit for your home depends on your utility’s specific compensation policy. You’ll need to know if they offer full retail credits or a different structure, and how your household’s energy usage patterns align with their rates, especially if they use time-of-use (TOU) pricing.
Depending on those rules, another key consideration is whether adding a battery makes financial sense. In many areas, storing and using your own solar energy — instead of sending it back to the grid for a reduced credit — is now essential to maximizing savings.Navigating these questions can be complex, as policies vary and often involve technical details. It helps to have guidance from professionals who understand both your local policies and your household energy needs.
With Aurora Solar, you can connect with multiple vetted solar installers, get upfront estimates on pricing and bill savings, and compare your options — all in one place.
