Net metering is the billing arrangement that lets a homeowner with rooftop solar push excess electricity back to the grid and get credit on the utility bill for it. The details, though, are where solar payback (see our solar system quotes) math lives or dies. In 2026, the United States has roughly three different net metering regimes operating at the same time: traditional full-retail-rate net metering (NEM 1.0 and NEM 2.0 in most states), reduced-credit net metering (NV, HI, and CA’s NEM 3.0 framework), and net billing (IN and a growing list of others). The state you live in changes a 7-year payback into a 14-year payback. Here is how each model works, which states are pulling the rug, and how to read a quote that buries the policy assumptions.
The short version
- Full-retail-rate net metering: AZ (partial), CO, NM, RI, and most legacy NEM 2.0 systems still pay you the same per kWh you would have paid the utility.
- NEM 3.0 in California (effective April 2023) pays exports at avoided-cost wholesale rates, typically 5 to 8 cents per kWh versus 30 to 50 cents retail, which roughly doubles solar payback periods.
- Net billing pays exports at a fixed wholesale rate set by the utility commission, common in IN, MI, KY, and parts of the southeast.
- Aggregate net metering (MA, NY, MD, IL) lets multifamily, schools, and municipal accounts share credit from one solar array across multiple meters.
- Read every quote for the policy assumption. A “10-year payback” quoted in CA under NEM 2.0 grandfathering is honest; the same number quoted on a new NEM 3.0 install without a battery is fiction.
How net metering actually works on the meter
Net metering (see our solar policy news 2026) is a billing mechanism, not a physical electricity flow. The solar inverter on your wall sends AC power to your main electrical panel. That power is consumed first by whatever loads in your house are running. If the array is generating more than the house is using, the excess flows backward through the utility meter to the grid. A bidirectional smart meter records both the forward (consumed-from-grid) and reverse (exported-to-grid) kWh and reports them separately to the utility billing system.
Under classic full-retail-rate net metering, the utility bills you for the net kWh consumed. If you pulled 1,200 kWh from the grid in March and exported 800 kWh, you pay for 400 net kWh at the standard residential rate. Excess credit (when exports exceed imports for a billing period) typically rolls over month to month for a full year, with an annual true-up either paying you out at wholesale rate or zeroing the balance.
The retail rate matters because in most states it is 12 to 35 cents per kWh, while wholesale is 3 to 8 cents per kWh. The difference is utility overhead: transmission, distribution, customer service, billing, demand response. When you export at retail, you are essentially being paid for transmission and distribution services your panels are not actually providing. That is the policy fight underneath every NEM 3.0 debate.
NEM 1.0, NEM 2.0, NEM 3.0: the California timeline
California invented modern net metering and is now the test case for what happens when the utility commission decides to roll it back. NEM 1.0 ran from 1996 to 2016. Every solar export got credited at the full retail rate, with no time-of-use differentiation and no demand charges. NEM 2.0 ran from 2016 to April 2023. Time-of-use rates were mandatory, a small non-bypassable charge was added (2 to 3 cents per exported kWh), and interconnection fees rose. Payback stretched from roughly 5 to 7 years under NEM 1.0 to 6 to 9 years under NEM 2.0.
NEM 3.0 (officially the Net Billing Tariff or NBT) took effect April 15, 2023, for new interconnection applications. Exports are credited at the Avoided Cost Calculator rate, which is the utility’s marginal cost of buying electricity from a generator at that hour. ACC values vary wildly: at 2 a.m. on a mild spring day they can drop to 2 cents per kWh, while at 7 p.m. on a hot August evening they can spike to 30 to 50 cents per kWh. The average export credit across the year lands around 5 to 8 cents per kWh.
The math impact is brutal. A 7 kW system on a California home that produces 11,000 kWh annually with 60 percent self-consumption and 40 percent export looks like this. Under NEM 2.0, the export credit at 35 cents per kWh retail equals $1,540 per year, plus $2,310 in offset consumption, for $3,850 annual value. Under NEM 3.0, the export credit at 7 cents avoided-cost equals $308 per year, plus the same $2,310 in offset consumption, for $2,618 annual value. Same system, same household, $1,232 less per year because the export window shifted. Payback stretches from 6.5 years to about 9.5 years for cash, and from roughly 9 to 13 years for loan-financed systems.
The fix California installers push is adding a battery. A Tesla Powerwall 3 or Enphase IQ Battery 5P stores midday solar production and discharges it during the 4 p.m. to 9 p.m. peak window, when self-consumption value is highest. Battery-coupled NEM 3.0 systems can recover most of the lost economics, but the upfront cost rises by $11,000 to $15,000 net of incentives. We covered the cost side in solar installation cost in 2026.
State by state: who still has full-retail net metering
As of mid-2026, the states with the strongest residential net metering policies are Colorado (1:1 retail credit, no caps for residential), New Mexico (1:1 retail credit), Rhode Island (1:1 retail credit with monthly rollover), and Arizona for legacy Salt River Project customers grandfathered under pre-2017 rules. Massachusetts, New York, Maryland, and Illinois still offer near-retail credit but have added small grid-service fees and have caps that vary by utility territory.
States that have moved to reduced-credit or net billing models include California (NEM 3.0 since April 2023), Nevada (NEM 2.0 successor rate at 75 percent of retail), Hawaii (Customer Grid Supply Plus at roughly 14 cents per kWh against a 35-cent retail rate), and Indiana (excess generation credited at avoided cost, roughly 3 cents per kWh, after the 2017 rule change). Florida proposed a similar reduction in 2022 but the legislation was vetoed by the governor, so FL still operates under traditional 1:1 net metering as of 2026.
States with weak or no statewide policy and utility-by-utility variation include Texas (no statewide net metering law; some retail providers offer buyback programs at varying rates), Idaho, Wyoming, and the Dakotas. In Texas, the buyback rate depends entirely on which retail electricity provider you choose, and the best plans (Octopus, Chariot, Rhythm) offer 1:1 buyback for the first 1,000 kWh per month, then a step-down.
Net billing vs. net metering: the technical distinction
Net metering nets your consumption against your exports at the kWh level. If you imported 1,000 kWh and exported 600 kWh, you pay for 400 net kWh at the retail rate. The export credit and the import charge are the same dollar value per kWh.
Net billing treats imports and exports as separate transactions at separate rates. If you imported 1,000 kWh at 14 cents retail and exported 600 kWh at 4 cents wholesale, you pay $140 for imports and receive a $24 credit for exports, netting $116 owed. Same physical flow, but the dollar outcome is wildly different. The 1,000 kWh of consumption is fully charged at retail and the 600 kWh of export earns only the utility’s avoided-cost rate.
Aggregate net metering, common in Massachusetts and New York for multifamily, schools, and municipalities, lets one host meter offset multiple other meters owned by the same customer or by tenant accounts on the same property. This is what makes community solar work in those states.
Time-of-use rates and the shift problem
Most states with rooftop solar at scale now require time-of-use (TOU) rates for residential solar customers. TOU prices electricity higher during peak demand windows (typically 4 p.m. to 9 p.m. on weekdays) and lower overnight and midday. Solar production peaks at noon and tapers by 4 p.m. The result is that solar exports earn off-peak credit value, while imports during the peak window are charged at the highest tier.
Under a TOU rate with full-retail net metering, this still works if the rates are denominated in kWh credit. You bank 10 kWh of midday off-peak export and use 10 kWh of evening peak consumption, and the meter zeros out. Under TOU rates with dollar-denominated net billing (the NEM 3.0 model), the dollar value of off-peak export is much lower than the dollar cost of peak import, even if the kWh numbers match. This is the core math problem NEM 3.0 introduced.
Adding a battery sidesteps the TOU mismatch by shifting midday production into the evening peak. The economics of pairing solar with storage depend heavily on the spread between off-peak and peak rates, which is why batteries make sense in California and Hawaii but rarely pencil out in CO or NM where full-retail net metering still applies. We get into installer selection (including who recommends batteries appropriately versus reflexively) in how to choose a solar installer.
How to read a solar quote for the policy assumption
Every solar quote contains a production estimate (kWh per year), a value-of-solar number (dollars saved per year), and a payback calculation. The value-of-solar number is where installers can fudge the policy assumption. Demand to see the assumption explicitly.
Three things to verify: (1) the export credit rate used in the calculation, stated in cents per kWh; (2) the assumed self-consumption ratio, typically 30 to 60 percent for households without batteries; and (3) any utility-rate-escalation assumption applied to future years. A 3 percent annual rate escalation compounded over 25 years roughly doubles the projected savings, so a quote claiming 25-year savings of $80,000 may be assuming aggressive escalation that has not historically matched reality.
The honest quote shows two scenarios: the first-year value-of-solar in 2026 dollars at today’s rates, and the assumed 25-year cumulative value at the stated escalation. If the installer cannot produce both numbers, the quote is hiding something. We list this in our broader vetting framework alongside questions to ask any roofing contractor.
Solar Renewable Energy Credits (SRECs) on top of net metering
In states with renewable portfolio standards that include solar carveouts, your system also generates SRECs (Solar Renewable Energy Credits). One SREC is one megawatt-hour of solar electricity generated, tracked through a state registry, and sold separately from the electricity itself. New Jersey, Massachusetts, Pennsylvania, Maryland, Delaware, Washington DC, and Illinois have active SREC markets. New Jersey’s successor program (SUSI) caps prices at $90 per SREC. Massachusetts SMART pays a fixed declining-block incentive over 10 years. The 2026 spot price for PA SRECs is around $35 to $45.
SREC revenue stacks on top of net metering credit and the federal Investment Tax Credit. A 7 kW system in NJ generating 9,000 kWh per year produces 9 SRECs annually, worth roughly $720 to $810 at recent prices, on top of net metering offset. SRECs typically last for 10 to 15 years depending on the state program. The federal Section 25D Investment Tax Credit covers the system itself, which we cover in detail at the 2026 solar tax credit guide.
Grandfathering and what happens when your state changes the rules
The most important policy detail in any net metering decision is how long the current rules apply to your specific system. California NEM 2.0 customers who interconnected before April 15, 2023, are grandfathered at NEM 2.0 rates for 20 years from their interconnection date. That is the difference between $25,000 in lifetime savings and $50,000 in lifetime savings.
Most state net metering policies include grandfathering clauses of 10 to 25 years from the interconnection date. Nevada’s 2015 rule change grandfathered existing customers at the original retail rate for 20 years. Arizona Public Service grandfathered pre-2017 customers for 20 years. The lesson: if your state’s commission has hinted at a policy review, getting interconnected before the new rule takes effect can lock in better economics for decades.
Verify the grandfathering clause in writing before signing. Ask the installer for the exact text of the tariff section that defines the grandfathering window, and confirm the interconnection-application date that triggers it. The application date matters more than the install date in most states, so a fast-moving installer who can submit interconnection before a deadline is worth a premium during a policy transition window.
The bottom line
Net metering is the single biggest variable in solar payback math after system cost itself. A system that pencils out at 6 years in Colorado may pencil out at 12 years in California under NEM 3.0 without a battery, and 8 years with one. Indiana net billing math runs closer to the NEM 3.0 numbers than the legacy 1:1 numbers most online calculators still assume. Before you accept any payback claim from a solar quote, verify the state policy, the export-credit rate used in the assumption, and the grandfathering window. The 25-year financial outcome depends on those three numbers more than on which panel brand you pick.
For the installation-cost side of the math, see solar installation cost in 2026. For the federal 30 percent credit on top of net metering value, see the solar tax credit guide. For broader context on solar shingles versus rack-mounted panels, see solar shingles vs panels. And for help reading installer quotes, see how to choose a solar installer. The learning hub has the full Solar cluster index.