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 a solar system produces more electricity than the home is using, the excess flows to the utility grid. Under net metering, the customer receives a credit for this exported energy that can offset electricity drawn from the grid at other times.
Traditional net metering, sometimes called "full retail" net metering, credits exported electricity at the same rate the customer pays for electricity from the grid. This one-to-one credit structure has made solar economics straightforward: every kilowatt-hour generated has the same value whether consumed immediately or exported and credited.
The Shift Away from Full Retail Net Metering
As solar adoption has grown, utilities and regulators in many states have reassessed net metering structures. The core debate centers on cost allocation: critics argue that full retail net metering shifts grid maintenance costs to non-solar customers, while supporters maintain that solar provides grid benefits that justify the credit structure.
As of 2026, net metering reforms have taken various forms:
- Reduced export rates: Some states now credit exports at wholesale or avoided cost rates rather than retail rates
- Time-of-use valuation: Export credits vary by time of day, with higher values during peak demand periods
- Fixed charges: Additional monthly fees for solar customers to cover grid access
- Net billing: Instantaneous netting with separate treatment of imports and exports
California's NEM 3.0
California's Net Billing Tariff (commonly called NEM 3.0), implemented in April 2023, represents one of the most significant net metering reforms nationally. The policy substantially reduced the value of exported solar electricity, particularly during midday hours when solar production peaks but grid demand is lower.
Under NEM 3.0, export values are based on "avoided cost" calculations that vary by hour and month. Midday export values may be only a fraction of the retail electricity rate, while export values during evening peak hours remain higher. This structure creates strong incentives for self-consumption and battery storage.
For California solar customers interconnected under earlier NEM versions, the legacy tariff typically remains in effect for a specified period (often 20 years from interconnection), protecting the economics of existing installations.
Impact on Solar Economics
Net metering policy changes affect solar economics in several ways. In states with reduced export compensation, the value of a solar installation depends more heavily on self-consumption - directly using solar electricity rather than exporting it. This shifts optimal system sizing toward matching household consumption rather than maximizing generation.
Key economic considerations under reformed net metering include:
- Self-consumption value: Electricity used directly from solar avoids retail electricity purchase, retaining full value
- Export value: Excess generation receives reduced compensation, affecting system payback
- Time-of-use alignment: Value depends on when solar produces relative to rate periods
- Battery storage value: Storing solar for use during peak rate periods captures higher value
The Role of Battery Storage
Battery storage has become increasingly important under reformed net metering structures. By storing excess solar generation during the day and using or exporting it during peak rate periods, batteries can significantly improve the economics of solar installations.
In California under NEM 3.0, batteries can shift solar energy from low-value midday hours to high-value evening peak hours, capturing the value differential. Combined with the federal Investment Tax Credit and state programs like SGIP, battery storage has become a standard component of new California solar installations.
State-by-State Variation
Net metering policies vary significantly by state. As of 2026, some states retain favorable full retail net metering, while others have implemented various reforms. Policy continues to evolve, with ongoing regulatory proceedings in many jurisdictions.
Prospective solar customers should understand the specific net metering or net billing rules in their state and utility territory before making installation decisions. Grandfathering provisions for existing net metering tariffs may also affect timing considerations for those considering solar.
Looking Forward
Despite net metering policy changes, solar remains economically viable in most markets. The combination of declining equipment costs, ongoing federal tax credits, and the value of self-consumption continues to support positive economics. Understanding local policies and designing systems appropriately - potentially including battery storage - helps ensure solar investments deliver expected value.