Short answer: Net metering is a utility billing rule that credits solar homeowners for every kilowatt-hour of electricity their system exports to the grid, usually at the same retail rate they pay for power. In 2026, 38 states plus D.C. still offer some form of net metering, but only about 29 offer full-retail — states like California (NEM 3.0), Hawaii, and Nevada have moved to lower "avoided-cost" rates that pay exports at 20–40% of retail.
How net metering works — the 30-second version
Your utility installs a meter that can spin in both directions. When your panels produce more than your home is using, the excess flows to the grid and your meter runs backward, banking a credit. When you pull power from the grid (night, cloudy days), it runs forward. At the end of the billing period (usually monthly), the utility nets the two:
- Consumed 900 kWh and exported 1,100 kWh this month? Net export: 200 kWh credited to next month.
- Consumed 1,100 kWh and exported 900 kWh? Net draw: 200 kWh, billed at your retail rate.
At the end of the year (the "true-up" date), any remaining excess credits are either paid out at a lower wholesale rate or rolled forward, depending on your utility's policy.
A real example using 2026 rates
Assume a California PG&E customer under the old NEM 2.0 rules with a 7 kW system producing 10,500 kWh/year. The home uses 9,800 kWh/year. Retail rate: $0.32/kWh.
- Imports 3,500 kWh during night/peak → cost: $1,120
- Exports 4,200 kWh during daytime → credit: $1,344 (full retail)
- Net: $224 credit at year-end → paid out at wholesale (~$0.08/kWh) on excess kWh, or carried forward
Under NEM 3.0 (active for new interconnections since April 2023), the same home earns only about $0.08/kWh for exports — cutting the export credit by ~75%. This is why storage has become essential for new California solar customers.
Full-retail vs. avoided-cost net metering
- Full-retail net metering: Exports credited at the same per-kWh rate you pay for imports. Best-case economics for solar — every exported kWh offsets a consumed kWh one-for-one. Most states still use this model.
- Avoided-cost / net billing: Exports credited at the utility's wholesale generation cost (typically $0.04–$0.12/kWh), not retail. Payback periods roughly double versus full-retail. Used in CA (NEM 3.0), HI, NV (tier 4), and AZ.
- Hybrid/time-varying: Export credit rate varies by time of day. High during evening peak, low during midday solar surplus. Encourages storage.
State net metering status in 2026
| State | Policy | Notes |
|---|---|---|
| California | Net billing (NEM 3.0) | Exports at ~25% of retail; storage essential for new systems |
| Texas | Utility-by-utility | No statewide policy; Oncor and CenterPoint offer 1:1, most retail providers offer plans |
| Florida | Full retail (<10 kW) | Protected by 2008 legislation; larger systems metered differently |
| New York | Net metering + VDER credits | Full retail for residential <25 kW through 2026 |
| New Jersey | Full retail + SuSI TRECs | Among the strongest combined incentives in the country |
| Massachusetts | Full retail (SMART program) | Cap-based; check local utility availability |
| Pennsylvania | Full retail | Small solar protected by state law through at least 2028 |
| Illinois | Full retail + SREC adjustable block | Statewide mandate under Climate and Equitable Jobs Act |
| Colorado | Full retail | State mandate across all utilities >40 customers |
| Arizona | Tiered export rate | APS and SRP pay 6–9¢/kWh; declines annually |
| Nevada | Tier-4 (reduced) | Currently ~75% of retail; tier-5 pending once state cap fills |
| Georgia | Full retail (capped) | Georgia Power net metering program capped at 5,000 customers per year |
| Washington | Full retail | Utility-by-utility; most major utilities at 1:1 through 2028 |
| Virginia | Full retail | State mandate through Dominion and Appalachian Power territories |
| North Carolina | Modified full-retail | Bridge rate in effect; full time-of-use structure launching mid-2026 |
| Hawaii | CSS + Battery Bonus | No export credit; batteries mandatory for new grid-tied solar |
| Michigan | Distributed generation tariff | Modified — exports at ~60% of retail |
States that have weakened or ended net metering
Five major policy changes since 2023 have reduced solar export value:
- California — NEM 3.0 (April 2023): Cut export credit by ~75% for new installs. Storage attach rate has since jumped from 15% to over 60%.
- Hawaii — Customer Self-Supply (active since 2015): No export credit at all; all solar must be self-consumed or stored. Makes batteries mandatory.
- Nevada — Tier 4 rollback (2020+): Export credit stepped down to ~75% of retail and continuing to decline.
- Arizona (APS & SRP): Export credit now 6–9¢/kWh vs. retail rates of 13–17¢/kWh.
- Indiana — 1:1 net metering eliminated (2022): New installs credited at roughly avoided-cost; major suppression of the market.
Do you need net metering to go solar?
No — but economics are dramatically different without it. In states with full-retail net metering, a residential system pays back in 6–9 years. In states with avoided-cost tariffs and no storage, payback stretches to 10–14 years. Pairing solar with a battery restores most of the economic case even under unfavorable policies.
To see current incentive and net metering policies by state, see our 2026 solar incentives guide. When you're ready, browse verified installers in your state or get three free quotes in under 24 hours.
Frequently asked questions
What is net metering in simple terms?
Net metering is a utility billing rule that credits solar homeowners for every kilowatt-hour of electricity they send back to the grid. Under full-retail net metering — the version used in about 29 U.S. states in 2026 — every exported kWh offsets one consumed kWh at the same retail rate.
Which states have the best net metering in 2026?
Full-retail net metering with strong supporting incentives is currently available in New Jersey, Illinois, Massachusetts, New York, and Colorado. New Jersey adds TREC payments on top of net metering, producing the highest combined returns in the country.
What is California NEM 3.0?
NEM 3.0 — formally the Net Billing Tariff — took effect for new California solar installations in April 2023 and replaced full-retail net metering with export credits of roughly 8¢/kWh, about 25% of the retail rate. It also introduced time-varying export values. Storage attach rates have jumped from 15% to over 60% of new systems as a result.
Can I still make solar worthwhile without net metering?
Yes, but you will typically need a battery. Pairing a solar array with a 10–13 kWh battery lets you self-consume most of your production instead of exporting at low rates. Payback periods for solar-plus-storage in avoided-cost states run 9–13 years versus 6–9 years for solar-only in full-retail states.
Ready to get solar quotes?
Tell us about your project — we'll match you with up to 5 vetted solar contractors in your area within 24 hours. Free, no obligation.
Get Matched Browse contractors