Solar Net Metering Explained (2023)

Net metering is a billing tool that allows you to send the excess energy your panels generate to the local grid in exchange for credits on your monthly electric bills. Many states offer net metering programs as an incentive for going solar, but energy credit rates may vary.

We at the MarketWatch Guides Team have researched the cost of solar systems nationwide to help you decide if solar is a worthwhile investment. Read on to see how net metering can help you save on electricity and if a program is available in your area.

Solar panels only generate electricity when exposed to sunshine, with the most energy production around noon. For example, solar owners away at work may not use all the energy their panels produce during the day, creating a surplus. But with net metering, you can sell excess, unused energy to help lower your electricity bill.

Here's a quick overview of how net metering works:

Without net metering, the only option for homeowners is to use a battery system to store surplus solar production. A home battery can cost more than $10,000, extending the payback period of your solar power system. With net metering, the local electric grid acts as your "solar battery" to absorb surplus production, and you can offset your nighttime grid consumption using net metering credits accumulated during the day. However, a battery can still be worthwhile if you live in an area prone to blackouts.

Net metering works as an incentive for solar customers since you can subtract excess electricity generation from your utility bills. Net metering policies vary by state and local utility companies, but programs are currently available in 38 states and Washington, D.C.

Generating your own electricity with residential solar panels becomes a more attractive investment when net metering is available. The following are some of the benefits you can expect:

Without net metering, you only save the value of solar electricity you directly consume. If you have excess production to send to the power grid, you are essentially giving that energy away for free. Net metering policies ensure you receive compensation for unused solar generation.

For example, assume your home solar system produces 1,000 kilowatt-hours (kWh) of energy per month. If you only use 700 kWh, the remaining 300 kWh will go to the grid.

Receiving credit for surplus solar generation increases your monthly power bill savings. You can use those savings to shorten your solar panel payback period, which increases your annual return on investment (ROI).

Since net metering uses the local grid as your "solar battery," purchasing your own battery becomes optional. An energy storage system can double the cost of a solar installation in some cases, which means your payback period can become twice as long.

A solar battery becomes necessary if you don't have access to net metering, since you will not receive credit for excess generation. In this case, a battery is your only option for storing surplus energy for later use.

Home solar systems generate electricity at the point of use, meaning energy does not travel through power lines and substations before reaching your home. When one home has excess generation from a solar panel system, the power company can purchase that energy and resell it to neighboring homes without solar panels.

Without net metering, a power company can only sell electricity from large-scale power plants. This energy must travel through transmission lines, substations and local distribution grids to reach the point of use. Net metering can reduce the reliance on distribution systems, which can help prevent energy losses as electricity travels across power lines.

Net metering makes solar panels and other clean energy sources more affordable by eliminating the need for batteries, increasing your annual energy savings and boosting your ROI. However, net metering programs have some limitations to keep in mind.

Most net metering and solar buyback programs do not issue credit at the full retail rate of electricity. For example, a homeowner typically charged 16 cents per kWh may receive a net metering compensation tariff of only 10 cents per kWh.

As mentioned above, net metering policies vary by state and utility company. While some states may compensate you for each kilowatt-hour at the full retail rate, most net metering programs offer a reduced solar buyback tariff.

Most net metering programs will not let you accumulate credits higher than your annual energy consumption. If there is a month when your solar generation credit surpasses your consumption, most programs will roll over the difference to the next billing period. In most cases, you will not be paid for excess generation accumulated over a 12-month period.

You may find a few net metering programs throughout the U.S. that pay you in cash for a billing cycle where credits exceed your consumption. However, these payments are rare and subject to limits.

You can work with a solar installer to design a system that generates enough electricity for your home, without producing too much excess energy.

There are still some parts of the U.S. where net metering is not available for solar panel owners, and storing excess energy in batteries is the only option. Some states also have a basic net metering policy required by law, but utility companies can set the terms and conditions. As a result, you may find net metering programs with unfavorable conditions, such as low compensation tariffs for unused solar energy.

The Solar Energy Industries Association (SEIA) has a detailed map that shows the availability of net metering and net billing programs throughout the U.S.

Since states have individual net metering policies, requirements for solar owners vary by location. Net metering rules can also vary within your state since local utility companies often have different terms and conditions. The best solar companies are familiar with net metering requirements in your area and can make sure your home solar system qualifies.

Below are common net metering requirements, regardless of the specific program in which you participate:

The following table provides a list of major net metering programs available in the U.S.

State

Net Metering Programs*

California

Pacific Gas & Electric (PGE)

San Diego Gas & Electric (SDG&E)

Southern California Edison (SCE)

Los Angeles Department of Water and Power (LADWP)

Colorado

Xcel Energy

Connecticut

Eversource

Florida

Duke Energy

Florida Power & Light (FPL)

Georgia

Georgia Power

Illinois

Commonwealth Edison (Comed)

Iowa

MidAmerican Energy

Interstate Power and Light / Alliant Energy

Maryland

Pepco / Exelon

Massachusetts

Eversource

National Grid

Minnesota

Xcel Energy

Nevada

NV Energy

Valley Electric Association

New Hampshire

Eversource

New Jersey

Jersey Central Power & Light / First Energy

PSEG

New Mexico

Xcel Energy

New York

Consolidated Edison

National Grid

PSEG Long Island

North Carolina

Dominion Energy

Duke Energy

Ohio

Duke Energy

Pennsylvania

PECO / Exelon

South Carolina

Dominion Energy

Duke Energy

Texas

Offers multiple solar buyback plans fromretail electricity providers, municipal powercompanies and electric cooperatives

Utah

Rocky Mountain Power

Vermont

Green Mountain Power

Virginia

Dominion Energy

Washington. DC

Pepco / Exelon

Wisconsin

Xcel Energy

*Note: This chart includes major net metering programs in each state. It does not reflect all options for solar buyback plans.

The Database of State Incentives for Renewables and Efficiency (DSIRE) has a map where you can find general information about net metering policies in any state. Note that Alabama, South Dakota and Tennessee do not have state policies or local utility programs as of 2023.

If you do not have space for solar panels, you can participate in net metering by joining a community solar project. Participation in a community garden entitles you to a fraction of the electricity generated by a shared solar array, which you can subtract from your monthly power bills.

Net metering makes solar panels more valuable for homeowners. You benefit from power bill savings for all the electricity your solar energy system generates — not only the portion you directly consume to power your home appliances, lighting and electronics. With net metering, you can send excess generation to the grid in exchange for power bill credits, and installing a solar battery becomes optional.

Net metering programs are not available in all states and have some limitations, but in most cases, the pros outweigh the cons. Many states do not pay the full retail price for each kilowatt-hour of energy you export to the grid, and you cannot accumulate credits above your annual consumption. However, this is not a problem if your solar panel system is sized optimally based on your home energy use.

Net metering can increase the ROI of your home solar system when combined with the federal solar tax credit and other solar incentives and rebates. Plus, the best solar panels come with a product warranty of up to 25 years, helping to guarantee your power bill savings for a long time.

Net metering is not available in every location across the U.S. With many net metering programs, the kilowatt-hour price you receive for excess solar energy is lower than what the utility charges to use electricity from the grid. Net metering programs also limit the power bill credits you can accumulate. Generally, utility customers cannot accumulate credit above their annual consumption.

Yes. Net metering allows you to send excess solar energy to the local grid in exchange for power bill credits, which can help lower your electricity costs. Net metering can also help you save on a solar battery, which can cost upward of $10,000. In other words, the grid performs the role of a solar battery by absorbing excess energy production.

Residential customers can benefit from net metering by selling their excess solar generation to their electricity provider in exchange for billing credits. Electric utility companies also benefit by being able to purchase and resell electricity closer to the point of use, which reduces reliance on energy transmission systems. Net metering also incentivizes rooftop solar and other renewable energy sources, which produce clean energy and help utility companies cut grid emissions.

No. California stopped accepting applications for its Net Energy Metering 2.0 (NEM 2.0) program on April 13, 2023. NEM 3.0 is now the only option for solar panel owners in California.

Leonardo David is an electromechanical engineer, MBA, energy consultant and technical writer. His energy-efficiency and solar consulting experience covers sectors including banking, textile manufacturing, plastics processing, pharmaceutics, education, food processing, real estate and retail. He has also been writing articles about energy and engineering topics since 2015.

Tori Addison is an editor who has worked in the digital marketing industry for over five years. Her experience includes communications and marketing work in the nonprofit, governmental and academic sectors. A journalist by trade, she started her career covering politics and news in New York's Hudson Valley. Her work included coverage of local and state budgets, federal financial regulations and health care legislation.