What net metering is, mechanically
A residential solar PV system rarely produces electricity at the same moment the household consumes it. During the day the system exports surplus energy to the grid; at night the household imports from the grid. Net metering is the policy decision to credit those exports against subsequent imports at the same retail price.
Under traditional 1-for-1 net metering (sometimes called "NEM 1.0" or "NEM 2.0" in California parlance), a kilowatt-hour exported at noon and a kilowatt-hour imported at 8 p.m. cancel out exactly. The customer's monthly bill reflects only their net consumption. The economic effect is profound: every kWh produced is implicitly valued at the full retail rate — say, 31 ¢/kWh in California — even though the utility's underlying wholesale cost to serve that load may be 4–8 ¢/kWh.
Why utilities push back
A retail electricity rate bundles three categories of cost: (a) energy (the fuel and generation), (b) capacity (the right-sized power plants and grid), and (c) distribution (the poles, wires, transformers, and customer service that deliver electricity to your house). Roughly half of a typical residential rate is the distribution component.
When a solar customer "cancels out" a kWh import with a kWh export, they pay nothing toward the distribution system that connects their house. In utility-economics language, this is a cost shift: the fixed costs of the grid that they would otherwise have paid get reallocated to non-solar neighbours. The cost-shift critique is genuinely contested — solar arguably defers other capital investments — but it is the rhetorical foundation for every NEM rollback proceeding of the last five years.
NEM 3.0: California as the leading indicator
On December 15, 2022, the California Public Utilities Commission adopted the Net Billing Tariff, commonly called NEM 3.0. It applies to new residential solar customers of the three big investor-owned utilities (PG&E, SCE, SDG&E) whose interconnection applications were filed after April 14, 2023.
The mechanics changed in three important ways:
- Exports are compensated at avoided-cost rates, not retail. Instead of a flat 1-for-1 credit, the utility pays for exported energy at hourly Avoided Cost Calculator (ACC) values that reflect the marginal cost of grid generation at that hour. Practical effect: midday solar exports — when wholesale prices are low because of utility-scale solar abundance — are worth 4–10 ¢/kWh, not 31 ¢.
- Imports continue to be billed at full retail. The "buy expensive, sell cheap" spread is now baked into the tariff.
- Time-of-use rate structure with peak hours late in the evening. The most valuable hour to sell energy is 4 p.m.–9 p.m., when wholesale prices spike and solar production is already winding down.
The practical result for a typical California household: payback periods on solar-only installations roughly doubled, from ~6 years under NEM 2.0 to ~10–12 years under NEM 3.0. The economics now strongly favour solar plus storage: a battery shifts midday production into the high-value evening peak, recovering most of the lost value.
For a detailed explanation directly from the regulator, see the CPUC's Net Energy Metering proceeding page.
Where the rest of the country sits today
California is the first major market to fully transition to a net-billing regime, but the pattern is well-established and several other states are heading in the same direction:
- Full retail net metering (NEM 1.0/2.0 style) remains the rule in most states for now — roughly 35 states have a retail-rate mechanism on the books.
- Hawaii moved away from net metering as early as 2015 with its Customer Grid Supply and Self-Supply tariffs.
- Arizona, Nevada, and Indiana have all implemented partial rollbacks with avoided-cost crediting for new customers.
- New York uses a Value Stack tariff with both a per-kWh credit and a capacity-value adder — methodologically similar to California's ACC.
- Florida attempted a major NEM rollback in 2022 (SB 1024), which was vetoed by Governor DeSantis. The political pressure for reform remains active.
For an authoritative tracker, NC Clean Energy Tech Center's 50 States of Solar publishes a quarterly snapshot of every active proceeding.
What this means for the homeowner
The most important question to answer before signing a solar contract is:
"Will I be grandfathered under my state's current net metering rules, or will I be interconnected under whatever tariff is in force at the time my system is energised?"
The answer matters enormously. Most state NEM transitions grandfather existing customers for 10 to 20 years; those interconnected after the cutover face the new rules immediately. Your installer's quote should make clear which regime applies to your project — and if it doesn't, that is itself a useful signal about the installer's quality.
Some practical guidance:
- If you live in California or another net-billing state, model your project assuming avoided-cost export rates, not retail. Then re-run with a 10 kWh battery — that is likely the financially rational configuration.
- If you live in a state currently on full retail NEM but with active reform proceedings (e.g., Florida, North Carolina, Indiana), recognise that "your numbers" assume the current tariff is preserved for the life of your system. Build a margin of safety.
- Self-consumption (using the energy when you produce it) is increasingly more valuable than export. EV charging in the early afternoon, dishwasher and laundry timers, smart thermostats — small operational shifts can materially improve net savings under net billing.
How our calculator handles this
The site-wide calculator assumes 1-for-1 net metering — the historical baseline that still applies in most of the country. We disclose this prominently in the methodology limitations and on the main page's FAQ. If you live in California or another net-billing state, treat our payback estimate as a best case and add roughly two to three years to it. A future release will include an export-rate input for jurisdictions that need it.
Last reviewed May 2025. Net-metering policy moves quickly; verify the rules that apply to your specific utility before relying on any single source — your utility's own customer-service page is often the fastest authoritative reference.