What is Net Metering?

What Is Net Metering?

An important factor to consider when deciding to go solar is whether your local utility offers net metering that allows residential and commercial customers to be credited for any excess energy their solar panels may generate.

How Does it Work?

On a sunny day, your solar system might generate more energy than your home is consuming. In that case, it would send energy back to your utility and the electric grid for others who might need it. At night your system won't be producing. You will need to draw from the utility and pay for that energy, like you would do if you didn't have solar. Essentially, a special meter installed by your utility measures the difference between the amount of energy your household consumes and the amount of energy your solar feeds back into the electric grid. However, various net metering policies by each state and utility can result in a more complicated equation for your energy bill.

What’s the Catch?

While many states (such as Washington and California) offer a direct 1:1 credit in your bill for any excess energy your system can generate, others such as Kansas offer different compensation at the utility’s monthly average cost (which is much less than a retail 1:1 credit). Utah, for example, only offers $0.056 per kWh produced, while the retail rate to homeowners is $0.12 per KWh. The way these credits carry forward can differ, too, with California maintaining a 1:1 ratio month to month and then converting to a lower wholesale rate at the end of the year. Arizona, for instance, doesn’t bank credits monthly.

The calculations can change, too, when factoring in various fees the utility in question can impose on a homeowner’s solar system usage. For example, utilities claim residential solar imposes huge costs during peak usage on the grid as the constant back-and-forth stresses it; thus, “demand charges” are costs passed on to the consumer in states, such as, but not limited to, North Carolina and Montana. Other states, such as Georgia (and potentially California), impose solar system-owning specific fees that are especially punitive and make acquiring solar much less financially rewarding.

You can check the net metering policies in your state by visiting the DSIRE Detailed Summary Maps. 

Check your state's net metering policies.

Times Are Changing, Always

Speaking of change, California, which has had a fairly generous net metering policy these past few years and one of the largest solar markets in the country, is looking to change that; the California Public Utilities Commission recently proposed changes to its existing set of laws, dubbed “NEM 3.0.” 

Among other things, NEM 3.0 introduces a monthly solar fee for $8 per kW of installed solar capacity (an average system is usually sized anywhere between 5–12 kW, depending on usage, and as one can see, this fee would be quite significant) and changes the export value of energy credits from a 1:1 ratio as previously mentioned to the utility’s avoided cost rate. According to CALSSA (California Solar and Storage Association), this would reduce the value of a credit “from 20–30 cents/kWh today for residential customers … to approximately five cents.” This proposal will be voted on January 27, 2022.

Indiana, too, is also phasing out net metering. After 2022, the state will be compensating solar homeowners at the utilities' marginal cost plus 25%. Conversely, the Kansas Supreme Court ruled in 2020 that demand charges are illegal (although Evergy, the state utility, has yet to update their policy on that), and in June 2020, the APSC (Arkansas Public Service Commission) approved rules allowing residents with new rooftop solar systems to continue to receive a 1:1 net metered retail credit grid until at least 2023. 

While policies can vary wildly state by state, nothing is ever set in stone, and homeowners going solar or those who already have should be mindful of the developments their state and utility are proposing and let their voice be heard as well. Check your utility’s website for the most up-to-date information about your local net metering situation.


“Understand Net Energy Metering and Your Bill,” Net Energy Metering (NEM) and Your Bill, https://www.pge.com/en_US/residential/solar-and-vehicles/green-energy-incentives/solar-and-renewable-metering-and-billing/net-energy-metering-program-tracking/understand-net-energy-metering.page

“What is Net Metering?” EnergySage, Nov. 5, 2021, https://www.energysage.com/solar/solar-101/net-metering/

“Net Metering in the States: A 2020 Update,” State Government Leadership Foundation, Dec. 17, 2020, https://www.sglf.org/blog/net-metering-in-the-states-a-2020-update

“NEM-3 Proposed Decision — CA Solar & Storage Association, CA Solar & Storage Association, Dec. 13, 2021, https://calssa.org/blog/2021/12/13/nem-3-proposed-decision

“The State of Net Metering in the United States in 2021,” Solar Reviews, Jan. 26, 2021, https://www.solarreviews.com/blog/the-state-of-net-metering-usa-2021