What is Net Metering?
Net metering is a billing mechanism that credits solar energy system owners for the electricity they add to the grid. When your solar panels produce more electricity than you use, the excess is sent to the grid and you receive credits on your utility bill.
Simple Example: If you produce 500 kWh in a month but only use 300 kWh, you'll receive credits for the 200 kWh excess. These credits offset electricity you draw from the grid when your panels aren't producing (at night, for example).
How Net Metering Works
1. Production vs Consumption
Your utility meter tracks both electricity you consume from the grid and excess electricity you send back. The meter runs backward when you're producing more than you use.
2. Credit Calculation
Credits are typically calculated at the retail rate (what you pay for electricity) or at the avoided cost rate (what the utility pays for power). Retail rate net metering is more favorable.
3. Billing Period
Most states use monthly billing with an annual "true-up" where remaining credits are either paid out at a lower rate or expire. Some states allow credits to roll over indefinitely.
Types of Net Metering
Retail Rate Net Metering
You receive credits equal to the full retail price of electricity (typically $0.10-$0.20/kWh). This is the most favorable type and provides the best ROI for solar systems.
States with retail rate: California (NEM 3.0), New York, Massachusetts, and many others
Avoided Cost Rate
You receive credits at the utility's avoided cost (what they pay for wholesale power, typically $0.03-$0.06/kWh). This is less favorable but still provides some value.
States with avoided cost: Some utilities in Texas, Florida, and other states
Time-of-Use (TOU) Net Metering
Credits vary by time of day. Excess production during peak hours (afternoon) earns higher credits than off-peak hours. This can be beneficial if your panels produce during peak times.
State-by-State Net Metering Policies
Net metering policies vary significantly by state and even by utility. Here's an overview:
| State | Net Metering Type | Notes |
|---|---|---|
| California | NEM 3.0 (Retail) | Monthly true-up, credits at retail rate |
| New York | Retail Rate | Annual true-up, credits roll over monthly |
| Texas | Varies by Utility | Some retail rate, some avoided cost |
| Florida | Retail Rate | Monthly billing, annual true-up |
| Massachusetts | Retail Rate | SMART program with additional incentives |
Check with your local utility for current net metering policies. Regulations change frequently.
Maximizing Net Metering Benefits
- Size Your System Appropriately: Don't oversize - excess credits may expire or be paid at lower rates
- Understand Your Billing: Know whether credits expire monthly, annually, or roll over indefinitely
- Time Your Consumption: Use more electricity during peak production hours (10 AM - 4 PM)
- Monitor Your Production: Track your system's output to ensure it's performing as expected
- Consider Battery Storage: Store excess energy instead of sending to grid if credits are low-value
Net Metering vs Other Compensation Models
Important: Some states are transitioning away from traditional net metering to alternative compensation models like "net billing" or "buy-all, sell-all" programs. These typically provide lower compensation for excess generation.
Always check current policies with your utility before installing solar, as grandfathering provisions may protect existing systems.