Solar Finance Guide
Net metering is the single most important policy variable in residential solar economics, yet it's one of the least understood by homeowners evaluating solar for the first time. In simple terms, net metering is a billing arrangement that lets you export excess solar electricity to the grid and receive a credit on your utility bill in return. How much credit you receive — and what you can do with it — determines a significant portion of your system's financial return.
With strong net metering, a solar system can offset your entire annual electricity bill even if you only generate excess power during the day and draw from the grid at night. With weak net metering, you might export your midday surplus for pennies and buy back evening electricity at retail rates — dramatically reducing your effective savings. Understanding where your state and utility stand is essential before sizing or committing to a system.
When your solar panels produce more electricity than your home is currently consuming — which happens on most sunny days, especially midday — the excess flows back through your meter onto the utility grid. A bidirectional (two-way) meter measures both the power flowing into your home from the grid and the power flowing from your panels to the grid. These two numbers are subtracted from each other, and you're billed (or credited) for the net.
Most net metering programs operate on a monthly true-up cycle: credits earned in one month can be applied to the next month's bill. Many states — including California under the older NEM 2.0 rules — also offer annual true-ups, where excess credits accumulated in high-production months (spring, summer) bank against high-consumption months (winter, or summer if you have AC). Annual true-ups are more favorable for homeowners in climates with highly seasonal production patterns.
Example: In April, your panels produce 800 kWh and you use 500 kWh. You export 300 kWh and receive a credit for 300 kWh × your retail rate. In December, you produce 300 kWh and use 700 kWh. You draw 400 kWh from the grid, but can apply your 300 kWh credit first — so you're only billed for 100 kWh.
Not all net metering programs are equal. The key variable is the rate at which exported electricity is credited.
Under full retail NEM, every kilowatt-hour you export is credited at the same rate you pay for electricity from the grid. If you pay $0.18/kWh, you get $0.18/kWh for every kWh you send back. This is the most favorable arrangement for solar customers and has historically been the standard in most U.S. states. It effectively means the grid acts as a perfect battery — you can send power in during the day and withdraw it at night for no additional cost.
Some utilities credit exported solar at the utility's avoided cost — what it would have cost the utility to generate that electricity themselves, typically from wholesale power markets. Avoided cost rates typically run $0.03–$0.08/kWh, compared to the retail rate of $0.12–$0.30/kWh that customers pay. This creates a significant asymmetry: you export electricity for much less than you pay to import it, which means midday solar production that you can't self-consume is far less valuable. Under avoided-cost NEM, self-consumption — using solar power directly in your home as it's generated — becomes much more important, and battery storage becomes more financially attractive.
California's NEM 3.0, which took effect in April 2023 for new applicants, introduced a middle-ground approach called net billing. Under NEM 3.0, the export credit rate is based on the utility's "avoided cost calculator" — a dynamic value that varies by hour, season, and utility. These rates are typically $0.05–$0.08/kWh during the day, rising to $0.15–$0.25/kWh during evening peak hours. This means exporting solar power during sunny midday hours — when panels produce the most — is worth far less than importing power during evening peaks. The policy explicitly incentivizes battery storage, which can shift daytime solar generation to the higher-value evening window. NEM 3.0 has added roughly 2–4 years to solar payback periods for California homeowners compared to NEM 2.0.
| State | NEM Type | Export Rate | Annual True-Up? |
|---|---|---|---|
| New York | Full retail NEM | Retail rate | Yes |
| New Jersey | Full retail NEM | Retail rate | Yes |
| Massachusetts | Full retail NEM + SMART | Retail + incentive | Yes |
| Arizona | NEM (grandfathered) / Export rates vary | Varies by utility | Monthly |
| Florida | Full retail NEM | Retail rate | Annual |
| Colorado | Full retail NEM | Retail rate | Annual |
| California | NEM 3.0 (net billing) | ~$0.05–$0.08/kWh daytime | Annual |
| Texas | No statewide mandate | Varies widely by utility | Varies |
| Louisiana | Avoided cost / weak NEM | ~$0.03–$0.06/kWh | Monthly |
| Alabama | No statewide NEM | Minimal / none | N/A |
Texas, Tennessee, South Carolina, and a handful of other states have no statewide net metering requirement. This means the buyback rate — and whether it exists at all — depends entirely on your specific utility. In Texas's deregulated electricity market, retail electricity providers set their own solar buyback terms. Some offer competitive rates; others offer nothing or require you to sign a separate buyback agreement. Before going solar in a non-mandate state, ask your utility or retailer for their current solar export rate in writing.
For renters or homeowners with shaded or unsuitable roofs, community solar offers a net metering alternative. You subscribe to a share of a larger solar installation — typically located elsewhere in your utility's service territory — and receive credits on your bill corresponding to your share of production. These credits work similarly to traditional net metering credits and can offset 10–20% of your electricity bill depending on program availability. Community solar programs exist in about 20 states as of 2026, with New York, Illinois, Massachusetts, and Minnesota having the most developed markets.
In states with strong full-retail NEM, adding a battery typically doesn't improve the financial return of a solar system — the grid already functions as a zero-cost battery. Adding a $12,000 battery in this scenario extends your payback period rather than shortening it, though it adds backup power capability that some homeowners value independently of the financial return.
In states with weak NEM — California NEM 3.0, Texas utilities with low buyback rates, or avoided-cost utilities — batteries change the math by allowing you to shift solar production from low-value daytime export to high-value evening self-consumption. In these markets, a solar + battery system often has a better effective return than solar alone, even though the upfront cost is higher. The break-even calculation depends heavily on the spread between daytime export rates and peak evening rates.
The sun-calc.com calculator assumes full retail net metering by default — it applies your entered electricity rate uniformly to all production. If you're in a state or utility territory with weak NEM (California NEM 3.0, Texas utilities, avoided-cost billing), enter a blended effective rate that accounts for the lower export value. A rough approach: if you estimate you'll self-consume 60% of your production and export 40% at a low rate, use a blended rate of (0.60 × retail rate) + (0.40 × export rate). For example, at a $0.25 retail rate and $0.06 export rate: (0.60 × $0.25) + (0.40 × $0.06) = $0.174/kWh effective rate.
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