Net metering: the biggest lever in solar ROI

What is net metering?

Net metering (also called net energy metering, or NEM) is a billing arrangement that credits a solar owner for the electricity their system exports to the grid. When your panels produce more than your home is using, the surplus flows back to the utility and your meter effectively runs backward, building a credit you draw down at night or in winter.

The three models

Full retail net metering

You receive a credit equal to the full retail rate you pay, typically 10–30¢/kWh. This is the most valuable model because every exported kilowatt-hour offsets one you would otherwise buy, at the same price. 41 states in our dataset use full retail net metering.

Partial / avoided-cost net metering

Some states credit exports at the utility's "avoided cost" - roughly what it would have paid to generate that power itself, often 4–8¢/kWh, far below retail. 8 states use a partial or avoided-cost approach, including Hawaii, California, Texas, South Carolina, and others. Under this model, using your own solar power as it is produced is worth far more than exporting it.

No mandated net metering

A few states have limited or no net-metering requirement, so exported power may earn little or nothing. In our dataset that is West Virginia and Indiana. There, the winning strategy is to maximize self-consumption and pair solar with battery storage.

California's NEM 3.0: the cautionary tale

California moved from full retail net metering (NEM 2.0) to NEM 3.0, the Net Billing Tariff, in April 2023. Exports are now compensated at hourly avoided-cost rates that average roughly 5¢/kWh, a steep drop from the ~30¢/kWh retail rate. The lesson: battery storage became far more valuable. Storing midday solar and discharging it during the 4–9 PM peak, when grid prices are highest, is how California owners protect their return, and why the SGIP storage incentive matters there.

How net metering changes your payback

Policy flows straight into the savings math. For a 6 kW system exporting surplus power:

• Full retail at 25¢/kWh: 6,000 kWh/yr × $0.25 ≈ $1,500/yr in value
• Avoided cost at 6¢/kWh: 6,000 kWh/yr × $0.06 ≈ $360/yr
• Self-consumption (70% used on-site) at 25¢: 4,200 kWh × $0.25 ≈ $1,050/yr

That spread is why the same system can pay back in single digits in a high-rate, full-retail state and stretch past a decade in a low-rate or avoided-cost one.

Where net-metering value is highest

The best returns combine full retail credit with high electricity rates, the Northeast (Maine, New Hampshire, Vermont, Massachusetts), the Mid-Atlantic with SREC income (New Jersey, Maryland, Delaware), and states pairing full retail with strong upfront incentives (New York, Illinois, Colorado, Minnesota). Check your own state's classification and rate on its profile before assuming a number.