How Net Metering Works in 2026: State-by-State Guide

Last updated: February 2026

Net metering is the financial engine behind residential solar economics for most U.S. homeowners. When your solar panels produce more electricity than your home is using — which happens on sunny afternoons when you're at work — that excess power flows out to the grid, and net metering credits you at a defined rate.

How much that credit is worth, and how it's applied to your bill, varies enormously by state. The difference between a state with full retail net metering and one with reduced "avoided cost" compensation can mean a 4–5 year difference in your solar payback period.

Here's what you need to know about net metering in 2026: how it works mechanically, which states still have the most favorable policies, how California's controversial NEM 3.0 changes the math, and how to factor all of this into your solar ROI calculation.

How Net Metering Works: The Mechanics

The Basic Credit System

Under traditional net metering, your utility installs a bidirectional meter that tracks both electricity flowing from the grid into your home and electricity flowing from your solar panels out to the grid. At the end of each billing period (monthly for most utilities), the utility nets these two flows:

• If you consumed more than you produced → you pay for the net consumption at your standard rate
• If you produced more than you consumed → you receive a credit, typically applied to future bills

Example: You consume 900 kWh in June but produce 1,100 kWh from your solar panels. Net metering means you owe nothing for that month and carry forward a 200 kWh credit ($28 at 14¢/kWh flat rate) to July.

Annual True-Up

Most states with net metering use a 12-month rolling credit period with an annual "true-up." Throughout the year, credits accumulate when solar overproduces (typically spring and summer) and are drawn down when production falls short of consumption (typically winter). At the annual true-up, remaining credits are either:

1. Carried forward indefinitely (most favorable)
2. Paid out at retail rate (good outcome)
3. Paid out at avoided cost (lower — typically 3–7¢/kWh)
4. Forfeited (worst outcome — rare in major states)

Virtual Net Metering

Some states allow virtual net metering (VNM), which lets the benefits of a solar installation at one location be credited to electric bills at another location (such as a landlord crediting tenants, or a community solar subscriber receiving credits from a shared array). This is expanding access to solar economics for renters and those without suitable roofs.

Net Metering Policy in 2026: State Rankings

The following table reflects current net metering policy as of February 2026. Policies change — particularly as more utilities seek to revise legacy net metering structures as solar penetration increases.

States with Full Retail Net Metering (Most Favorable)

These states credit solar exports at your full retail electricity rate — meaning a kWh you export to the grid offsets a kWh you'd buy from the grid at the same price:

States with Modified Net Metering (Reduced Compensation)

Several states have moved away from full retail net metering to "net billing" or "export rates" that compensate solar exports at less than retail:

California — NEM 3.0 (most significant change): Under NEM 3.0, which took effect April 2023, California's investor-owned utilities (PG&E, SCE, SDG&E) now compensate solar exports at a "Avoided Cost Calculator" (ACC) rate rather than retail. This export rate varies by time of day, month, and utility — but averages approximately 5–8¢/kWh, compared to residential electricity rates of 28–45¢/kWh.

The practical impact: NEM 3.0 dramatically reduces the value of daytime solar export, making battery storage almost essential for new solar installations in California. A system designed to maximize export under the old NEM 2.0 framework may now earn $500/year in export credits instead of $1,500/year.

Arizona — Net Billing: Arizona's largest utility, APS, ended traditional net metering in 2017. New solar customers receive an "export rate" of approximately 9–10¢/kWh for exports — significantly less than the residential rate of 13¢/kWh. Existing solar customers grandfathered under old net metering rules retain those terms for 20 years.

Utah — Net Metering Phase-Out: Rocky Mountain Power (Utah's dominant utility) has been gradually reducing export compensation. Current new enrollees receive approximately 75% of retail rate for solar exports, with further reductions planned.

Indiana — Reduced Rate: Indiana moved to "net metering 2.0" in 2022, crediting exports at approximately the avoided cost rate (8–10¢/kWh) rather than retail. Existing net metering customers are grandfathered for 30 years.

Hawaii — No Net Metering: Hawaii eliminated traditional net metering in 2015. The state's Customer Self-Supply (CSS) and Smart Export Tariff (SET) programs offer solar export rates typically between 10–15¢/kWh — meaningful given Hawaii's 42¢/kWh retail rates, but below retail. Battery storage is standard practice in new Hawaii solar installations.

California NEM 3.0: The Detailed Impact

Because California accounts for roughly 30% of U.S. residential solar installations, NEM 3.0 deserves deeper analysis.

What Changed

Under NEM 2.0 (the previous system), PG&E customers who exported solar power during peak hours (4 PM – 9 PM) received credits at peak retail rates — sometimes exceeding 50¢/kWh. This created strong economics for systems sized to maximize export.

NEM 3.0 replaces those retail export credits with time-varying "Avoided Cost Calculator" (ACC) rates that reflect what it actually costs the utility to generate or procure power at that hour. These rates are:

• Peak hours (4–9 PM): ~$0.08–0.12/kWh export credit
• Off-peak daytime (8 AM – 4 PM): ~$0.05–0.07/kWh export credit
• Overnight: ~$0.03–0.06/kWh export credit

Compared to retail rates that range from $0.28–0.55/kWh depending on the tier, the export value collapse is dramatic — 65–85% reduction in per-kWh export compensation.

How Battery Storage Changes the Calculation

The CPUC (California Public Utilities Commission) designed NEM 3.0 explicitly to encourage battery storage pairing. The incentive structure under NEM 3.0 includes a Net Billing Tariff (NBT) adder for solar-plus-storage systems — a modest uplift, but more importantly, batteries allow you to shift solar production to self-consumption during peak hours rather than exporting at low ACC rates.

The strategy under NEM 3.0: size your solar system for self-consumption (not overproduction), add a battery to capture midday solar surplus and discharge during peak hours (4–9 PM), and buy grid power only from off-peak TOU windows when rates are lowest.

According to Lawrence Berkeley National Laboratory's 2025 analysis, solar-plus-battery systems in California under NEM 3.0 have payback periods of 9–12 years — longer than under NEM 2.0 but still financially viable given California's high electricity rates and the lack of the residential federal tax credit.

How Net Metering Affects Your Solar ROI

The value of net metering in your solar ROI calculation comes down to three variables:

1. Export rate vs. retail rate gap: The smaller the gap, the less battery storage you need and the simpler your system design. In Massachusetts (full retail at 24¢/kWh), you don't need a battery to achieve strong economics. In California under NEM 3.0 (5–8¢ export vs. 28¢+ retail), a battery is essentially required for optimal returns.

2. Export volume: How much of your solar production you export vs. self-consume matters significantly. A household that's home during the day (retirees, remote workers) self-consumes more and exports less, making reduced export rates less impactful. A household that's away during peak solar production hours exports more — making a favorable net metering policy or battery storage more important.

3. Annual credit carryover rules: States that allow unlimited credit carryforward let you bank summer surplus against winter deficit at full value. States that pay out annual surplus at avoided cost (rather than retail) effectively reduce your compensation for over-sizing your system.

Net Metering and System Sizing: The Key Relationship

In states with full retail net metering, the traditional advice is to size your solar system for 100–110% of your annual consumption — produce roughly what you use, with a slight buffer. Any surplus earns full retail credits.

In states with reduced export compensation (California NEM 3.0, Arizona, Hawaii), the math shifts significantly:

• Right-size for self-consumption: Match production to your daytime usage rather than your annual total
• Add battery storage to capture solar surplus and displace peak grid purchases
• Avoid over-sizing — excess production that can't be self-consumed or stored earns low export credits and doesn't justify the additional panel cost

What to Ask Your Solar Installer About Net Metering

Before signing any solar contract, ask these specific questions:

1. What is the current export rate under my utility's net metering program? (Get the specific tariff name and rate)
2. Is my utility considering changes to its net metering program? (Many states have active utility commission proceedings)
3. How did you size this system — for self-consumption or for maximum production? (Critical in reduced-NM states)
4. Does your proposal account for NEM 3.0? (In California — many proposals still use outdated assumptions)
5. Am I grandfathered under any existing net metering policy if I sign now? (Relevant in states with changing policy)

The Solar ROI calculator below incorporates current net metering policy for your state, updated with February 2026 tariff data. Use it to model your specific scenario before requesting installer quotes.

---

Data sources: CPUC Net Energy Metering 3.0 Decision, 2022; DSIRE Database of State Incentives for Renewables & Efficiency, February 2026; Lawrence Berkeley National Laboratory Tracking the Sun 2025; EIA Electric Power Monthly February 2026; NREL Solar-Plus-Storage Research