What is net metering?

Last updated: August 30, 2022

Net metering is a policy where you are billed according to your net electricity usage. This means that if you generate 100% of your power from solar within a billing cycle, the electricity usage portion of your bill will be zero. If you generate only 90%, you pay for the remaining 10% at the normal retail rate.

The critical detail to know is that with net metering, it doesn’t matter what time of day you generate electricity from your solar panels or your home consumes power. This article will explain why.

What is net metering?

If you have net metering from your utility, you get a full credit for excess electricity that you send into the grid. “Full credit” means that for each kilowatt hour of excess electricity that you put into the grid, you get a credit equal to the retail rate of electricity. For example, if you pay 12 cents for one kilowatt hour of grid electricity, the utility will credit you 12 cents when you put one kilowatt hour of solar electricity back into the grid.

To better understand why this is important, imagine an extreme scenario: you have a utility that not only does not have net metering, but pays zero compensation for electricity that you send into the grid. Also, you happen to be a vampire who sleeps during daylight hours and uses no electricity during the day. You’re only awake and doing your vampire activities after the sun has set.

While you are sleeping during the day the solar panels on your home may generate dozens of kilowatt hours of electricity, but because your utility doesn’t credit you for that, your extra solar electricity doesn’t reduce your monthly bill at all. Then when it’s dark out, you wake up and turn on your electric stove to cook yourself a nice meal of blood sausage. Because it’s night, your panels aren’t generating any power, so your house pulls electricity from the grid. Your electric meter records this, and you get a bill at the end of the month.

If this is your situation, solar panels will never pay for themselves because of the lack of credits for your excess electricity. You don’t get paid for the solar electricity you put into the grid, but do pay for the power you use at night. Your community still benefits because you are sending renewable energy to the grid, but strictly as a financial investment, solar would be a bad deal for you.

Net metering credits you for your excess electricity. (credit)

People aren’t vampires, so this extreme case would never actually happen (and also vampires aren’t real) but it does illustrate how, in the absence of net metering, time-of-use becomes important.

Even if a utility doesn’t participate in net metering, if they allow you to interconnect your photovoltaic system with the grid, they will still compensate you for the electricity that you send into the grid, although it will be at a rate less than the retail rate of electricity. This system is called net billing.

How does net billing work?

Under a net billing model, when you generate more electricity than you are using at any point in time, the excess power is sent into the grid for your neighbors to use. Your utility meter tracks this, and at the end of your billing cycle you pay for any electricity that you draw from the grid at the normal residential rate. Credits you’ve earned for power sent into the grid is paid to you at a lower rate - often, it the same rate that the utility company pays on the wholesale market for electricity. This is often referred to as the avoided cost rate.

The avoided cost rate or net billing rate varies greatly from utility to utility, but it’s often about half the residential rate.

Getting a half credit for your solar electricity is better than nothing, but you can see how net billing changes how you calculate the financial benefits of home solar. If you’re part vampire and much of your electric usage is at night, it will take longer for solar panels to pay for themselves under net billing.

Some strategies to make net billing work for you

If net billing is your only option, solar could still be a good investment if you are able to make some adjustments to how you use electricity - specifically, shifting your power usage to during the day when your solar panels are generating lots of electrons. The goal is to use electricity while the sun is shining and to use less when its dark.

At first it might seem that changing your electricity time-of-use to coincide with the sunshine is a big inconvenience, but the biggest electricity consumer for homes with solar panels is often air conditioning. If you can shift your air conditioning use, that can go a long way toward making net billing work for you.

Precool your house with a programmable thermostat

If you have a central air conditioner, get a programmable or smart thermostat and then set it to make the house a little colder than you normally would during noon or early afternoon.

Then in the late afternoon as the sun is going down and your power generation starts to taper off, your house will be precooled and your air conditioner won’t have to work as hard in the evening. If you have a typical 9 to 5 job and aren’t home during this time, this doesn’t impact your comfort in any way.

Use the time delay feature of your appliances

Although they use less electricity than a central air conditioner, many appliances have a programmable time delay feature built-in, allowing you to wash your dishes and clothes while the sun is shining. With this feature, you could set the dishwasher on your way out the door in the morning, and have it begin working a few hours later when the sun is blazing overhead.

Net metering by state in 2022

In the United States, net metering is a policy that is enacted at the state level.

The table below summarizes the current state of net metering across the United States in 2021. The Policy column describes whether a state mandates net metering, net billing or has no mandate that residents be allowed to connect a photovoltaic system to the grid at all.

However, the rules can get quite a bit more complicated than that. For example, states may have caps on the amount of net metering customers allowed by the state or individual utilities. The rules can also differ for investor-owned utilities. (Invested-owned utilities refer to those that are privately owned rather than public utilities.)

There are some other details involved as well, such as the size of system that you are allowed to connect to the grid, how excess monthly credits are paid or rolled over, how much you are paid for electricity if you generate more than 100% of your usage, and how those excess credits are handled within the billing cycle. To find out more, check with your local utility or solar installer.

State	Policy	Notes
Alabama	none	State actually levies a charge of $5.41 per kw for interconnected solar customers. The average home solar system is about 6 kW, which would be about $32/month in fixed fees.
Alaska	net metering
Arizona	net billing	Previous net metering policy was changed to net billing in 2016. Solar customers prior to the policy change are grandfathered for 20 years.
Arkansas	net metering
California	net metering
Colorado	net metering
Connecticut	net metering CL&P and UI customers are eligible for net metering, but municipal utilites are not required to offer it.
Delaware	net metering
Florida	net metering
Hawaii	none	Net billing programs are available, but with limited availability. See https://www.hawaiianelectric.com/products-and-services/customer-renewable-programs for more info
Idaho	none	Even though there is no state mandated net metering in Idaho, Avista Utilities, Idaho Power and Rocky Mountain Power all offer net metering. Check with individual utilities for details.
Illinois	net metering
Indiana	net metering	Senate Bill 309 ends net metering by July 1, 2022 or when net billing capacity for a utility reaches 1.5% of peak summer load, whichever comes first. Senate Bill 430 has been proposed to reverse SB 309, but has not been put up for a vote.
Iowa	net metering	Net metering is available to customers of MidAmerican Energy and Interstate Power and Light
Kansas	net metering
Kentucky	net metering
Louisiana	net metering
Maine	net billing	Maine's program is called a "Distributed Generation Buy-All, Sell-All Program"
Maryland	net metering
Massachusetts	net metering	Only state-owned utilities in MA are required to provide net metering. Municipal utilities may offer net metering, but are not required to do so.
Michigan	net metering
Minnesota	net metering
Mississippi	net billing
Missouri	net metering
Nebraska	net metering
Nevada	net billing	Net metering in Nevada pays only 75% of the retail rate, and will drop over time according to this schedule: http://puc.nv.gov/Renewable_Energy/Net_Metering/
New Hampshire	net metering
New Jersey	net metering
New Mexico	net metering
New York	net metering
North Carolina	net metering
North Dakota	net metering	Net metering is available to customers of investor-owned electric utilities (Montana-Dakota Utilities, Xcel, and Otter Tail), but not municipal utilities or electric cooperatives.
Ohio	net metering	Offering net metering is required for investor-owned electric utilities, but optional for cooperatives and municipal utilities.
Oklahoma	net metering
Oregon	net metering
Pennsylvania	net metering
Rhode Island	net metering
South Carolina	net metering	Net metering must be offered by utilities with more than 100,00 customers. Excludes cooperatives.
South Dakota	none
Texas	none	No state policy, but some utilities offer net metering.
Utah	net billing
Vermont	net metering
Virginia	net metering
Washington	net metering
West Virginia	net metering
Wisconsin	net metering
Wyoming	net billing

Next steps

Now that you’ve got a handle on net metering, the next important consideration is to find out what incentives are available to you. That’s covered in the next article.