Net Metering Explained
Two identical solar systems in two identical houses can have wildly different payback periods, purely because of what their utilities pay for exported power. It is the biggest variable most buyers never examine.
The mismatch at the heart of home solar
Solar produces most around midday. Most households consume most in the early evening — after work, when the cooking and laundry and air conditioning happen. The result is that a large share of what your panels make gets exported to the grid rather than used directly, often half or more.
What happens to those exported kilowatt-hours is entirely a policy question, and it is worth more to your payback than almost anything on your installer's quote.
The three broad structures
| Structure | What exports earn | Effect on payback |
|---|---|---|
| Full retail net metering | Same rate you pay to buy power | Best case. Every kWh produced is worth full value whether you use it or not. |
| Net billing / reduced export | A lower export rate, often well below retail | Self-consumption becomes valuable. Batteries and load-shifting start to matter. |
| Avoided cost / wholesale | A small fraction of retail | Exports are nearly worthless. Only power you consume directly really pays. |
Terminology and specifics vary by state and utility, and some jurisdictions add time-of-use pricing on top, which changes the value of a kWh by hour of day.
Why this is trending the wrong way
Full retail net metering was widely used to encourage early adoption. As rooftop solar has scaled, utilities have argued that crediting exports at retail shifts grid costs onto non-solar customers, and regulators in several states have responded by cutting export compensation. California's shift to NEM 3.0 is the most prominent example, but it is not the only one.
The practical consequence for a buyer today: do not assume the terms a neighbor got a few years ago still apply to you. Policies are frequently grandfathered for existing systems, which means earlier adopters keep better terms while new customers do not.
What to check before you sign
- Which structure applies to you — ask your utility for the residential solar tariff by name.
- The actual export rate, in cents per kWh, and whether it varies by time of day or season.
- Whether terms are locked for your system, and for how long. Grandfathering periods matter a lot over a 25-year asset.
- What your installer assumed. Get it in writing. If their projection assumes full retail credit and you are on a net-billing tariff, their savings figure is too high.
- Any solar-specific fees — some utilities add monthly charges or minimum bills for interconnected systems.
What to do when exports pay poorly
- Size to self-consumption, not to your whole bill. A smaller system that you consume directly can beat a larger one exporting at a quarter of retail. Check with the System Size Calculator.
- Shift loads to daylight — run the dishwasher, laundry, pool pump, and EV charging while the panels are producing.
- Consider storage, carefully. Batteries let you use evening power you generated at midday, but they are expensive; run the numbers in the Home Battery Payback Calculator rather than accepting that storage "makes solar work".
None of this means solar is a bad investment under reduced export rates — in high-rate, high-sun areas it often still pays back well. It means the honest calculation depends on a number your installer may not volunteer. Find it, then run your own figures in the Solar Payback Calculator.
General information, not financial or legal advice. Net-metering rules change and vary by state, utility, and tariff — verify current terms with your utility.
Frequently asked questions
What is net metering?
It is the arrangement that determines what you get for solar electricity you send to the grid rather than use yourself. Under full retail net metering, an exported kWh is credited at the same price you pay to buy one — effectively running your meter backwards. Under less generous structures, exports are credited at a wholesale or "avoided cost" rate that can be a small fraction of retail.
Why does net metering matter so much for payback?
Because a typical home cannot use most of its own solar as it is produced. Panels generate at midday; households consume most in the evening. Depending on the home, half or more of production may be exported. If those exports are credited at a quarter of retail instead of full retail, lifetime savings fall dramatically even though the system produces exactly the same electricity.
What is NEM 3.0?
It is California’s current net-billing structure, which replaced full retail net metering and sharply reduced what exported solar is worth. Its practical effect was to shift the economics toward using your own production directly and toward pairing solar with battery storage. Several other states have made or proposed similar changes.
How do I find my utility’s export rate?
Ask your utility directly for the residential solar tariff or interconnection agreement, and ask your installer to state in writing which export structure their savings projection assumes. If a proposal assumes full retail credit and your utility does not offer it, the projected savings are overstated.