How Net Metering Actually Works (and What Replaced It)

Ask a solar salesperson how billing works and you’ll hear a lovely sentence: “Your meter spins backwards, and the utility pays you.” That sentence was roughly true in much of America for about twenty years. It is now true in fewer and fewer places, and the gap between that sentence and your actual tariff is worth thousands of dollars over a system’s life. This guide replaces the slogan with the mechanism: what net metering is, how the credits actually move across a bill and a year, what “net billing” changed, and the three line items that surprise almost every new solar owner.

The basic mechanism: banking sunshine at retail price

Your home consumes electricity continuously but unevenly, and your panels produce it on the sun’s schedule, not yours. At noon on a June Saturday your array may generate 7 kW while your house draws 1.5 kW; at 8 p.m. it generates nothing while you cook, cool and stream. The grid becomes the intermediary: surplus midday power flows out through your meter to your neighbours, and you draw power back after dark.

Under classic net metering, the utility settles the difference over the billing period, kilowatt-hour for kilowatt-hour. Export 620 kWh and import 700 kWh in a month, and you pay for 80 kWh. Because the export offsets an import one-for-one, every surplus kilowatt-hour is effectively worth the full retail price of electricity — the same 15¢, 25¢ or 31¢ you’d otherwise pay. In accounting terms, the grid acts as a free, lossless, infinite battery. That generosity is precisely why solar economics were so strong under net metering, and why utilities campaigned to end it.

Credits, true-ups and the annual cycle

Most net metering programmes don’t settle purely month to month. Surplus credits roll forward: spring overproduction becomes a bank of kWh credits that your autumn and winter consumption draws down. Once a year — on your “true-up” date, often the anniversary of your interconnection — the account resets. Two details matter enormously:

• Leftover credits usually evaporate or pay out at a token rate. If you end the true-up year with 900 banked kWh, most utilities zero them or pay a wholesale-style rate of 2–4¢ each — not the retail price you were imagining. This is the mechanical reason oversizing a system is punished: the last chunk of a too-big array produces credits that expire worthless.
• The true-up date shapes smart sizing. A system installed in spring gets a full sunny season to bank credits before winter; one installed in autumn starts in deficit. Installers rarely mention this; your first-year experience will quietly depend on it.

The charges that never go away

Even a perfect net-zero year doesn’t produce a $0 bill. Expect: a fixed customer or connection charge (typically $10–$30/month) for being attached to the grid at all; non-bypassable charges — small per-kWh levies for public programmes, wildfire funds or nuclear decommissioning that California pioneered and other states have copied, charged on every kWh you import regardless of credits; and in some territories minimum bills or demand charges. A realistic “solar eliminated my bill” outcome is usually a bill cut to $10–$40 a month, not zero. Any projection showing $0.00 monthly is working from a tariff that doesn’t exist.

Net billing: the replacement, and why it changes everything

The successor arrangement — called net billing, net energy metering successors, or “buy-all/sell-all” in some states — separates the two directions of flow and prices them differently. Imports are charged at the full retail rate. Exports are credited at a rate set by the utility or regulator, usually derived from the “avoided cost” of generation: commonly 20–40% of retail, sometimes varying hour by hour, as with California’s Net Billing Tariff, where a sunny midday export can be worth 2–3¢ while a scarce September evening hour can spike far higher.

The consequences cascade through every solar decision:

• Self-consumption becomes the product. A kWh you use yourself is worth retail; the same kWh exported may be worth a quarter of that. Running the dishwasher, pool pump and EV charger at midday stops being a nicety and becomes the economics.
• Smaller systems pay back faster. The oversized tail of an array produces mostly exports — the least valuable energy. Under net billing, a system offsetting 70–85% of usage often beats a 110% system on payback.
• Batteries acquire a financial case. Storage converts 3¢ exports into 30¢ self-supply. Whether that’s enough to justify the battery price is a maths question our battery guide works through.
• West-facing panels gain value. Late-afternoon production matches both household demand and higher-value export hours better than a pure south array’s midday glut.

Where the states stand in 2026: three bands

Every US solar tariff falls into one of three bands — and the band you live in matters more than the brand of panel you buy:

Band	How exports are credited	Where (from our state notes)
Full retail	Exported kWh offsets imported kWh one-for-one — classic net metering	Florida, for most utility customers (politically contested — check your current tariff)
Avoided cost / net billing	Exports credited at a fraction of retail — commonly 20–40% of the retail rate, sometimes varying by hour	California’s Net Billing Tariff (“NEM 3.0”); Arizona’s APS and SRP export plans
No statewide rule	No state net-metering law; buyback terms are set utility by utility or by retail provider — or not offered at all	Texas, Idaho, South Dakota, Alabama

Texas deserves its own note, because it is this site’s worked-example state: with no statewide rule, a Texan’s export price depends entirely on their provider. Municipal utilities such as Austin Energy and CPS Energy (San Antonio) run their own buyback programmes, and competitive retailers in deregulated areas — Rhythm and Pulse Power among them — sell plans that credit surplus generation. Two Texas neighbours can face different export economics from the same roof. And every state’s rules keep moving; the definitive state-by-state record is DSIRE, the Database of State Incentives for Renewables & Efficiency, maintained by the NC Clean Energy Technology Center: dsireusa.org. Check your state there before you sign anything.

A worked month, both ways

Take a household using 1,000 kWh in a month with panels producing 900 kWh, of which 600 kWh is consumed on the spot and 300 kWh exported; they import 400 kWh. At a 20¢ retail rate:

• Net metering: net usage = 400 − 300 = 100 kWh → energy charge ≈ $20, plus fixed charges.
• Net billing at a 25% export rate (5¢): imports cost 400 × 20¢ = $80; export credit = 300 × 5¢ = $15 → energy charge ≈ $65, plus fixed charges.

Same house, same panels, same weather: a $45 monthly difference, over $500 a year, roughly $13,000 across 25 years of escalating prices. Nothing about the hardware changed — only the billing rule. This is why SolarMath’s 25-Year Savings Projector asks for your export percentage explicitly, and why the first document to read in any solar decision is not a panel datasheet but your utility’s current solar tariff sheet.

How to find your own rules in 10 minutes

1. Search your utility’s name plus “net metering” or “solar billing plan” — look for the official tariff PDF, not a blog summary.
2. Find three numbers: the export credit rate (or how it’s calculated), the true-up or settlement period, and the fixed/minimum charges.
3. Check grandfathering: many rule changes protect existing systems for 10–20 years but apply immediately to new interconnections — the date you apply can be worth money.
4. Feed the export percentage into the projector and re-run your payback before signing anything.

Net metering was never really about meters. It was a price — the price the grid pays for your surplus sunshine. That price has fallen in much of the US, which doesn’t kill solar’s case; it relocates it, from exporting lots of power to using your own. Design for the tariff you actually have, and the maths in the rest of this site will hold up.