Net Metering Explained: How It Works by State
Last updated: February 1, 2026
What is net metering and how does it affect your solar savings? State policies, full retail vs avoided cost credits, and the future of net metering.
Net metering allows solar homeowners to send excess electricity back to the grid and receive credits on their utility bill. When your panels produce more power than you use (typically midday), the excess flows to the grid. When you need more power than panels produce (evening/night), you draw from the grid. The net difference determines your bill. Policies vary significantly by state — some offer full retail rate credits, others offer reduced "avoided cost" credits.
Key Takeaways
- • Net metering credits you for excess solar electricity sent to the grid
- • Full retail net metering: credits at the same rate you pay for electricity (best value)
- • Net billing: credits at a lower wholesale/avoided cost rate (less valuable)
- • About 40 states have some form of net metering as of 2026
- • California shifted to NEM 3.0 in 2023, reducing credits significantly
- • Battery storage becomes more valuable when net metering credits are reduced
Frequently Asked Questions
How much does net metering save?
With full retail net metering, solar homeowners save 100% of the value of excess production. On a $200/month electricity bill, solar with net metering can reduce the bill to $10-$30 (minimum connection charges). States with reduced net metering (like California NEM 3.0) may only credit excess at $0.04-0.08/kWh instead of the full retail rate of $0.30+/kWh.
Do all states have net metering?
About 40 states have mandatory net metering policies, though terms vary significantly. States with the best policies include Massachusetts, New Jersey, New York, and Maryland. Some states (like Alabama, Tennessee) have limited or no net metering. Check your utility's specific policy, as it can differ from state-level mandates.
What happens to excess credits at year-end?
This varies by utility. Some roll over credits indefinitely, some reset annually (often in April), and some pay out excess credits at a reduced rate. Understanding your utility's true-up period is important for sizing your system correctly.
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Last updated: February 2026