Net Metering vs Net Billing: What Your Utility Actually Pays You

How Net Metering Works

Net metering is a billing arrangement where your utility credits you for excess solar electricity you send to the grid. When your panels produce more than you use (typically midday), the excess flows to the grid and your meter effectively runs backward. At night, you draw from the grid and use those credits.

Think of it as using the utility grid as a free battery. On a sunny Saturday when you are out of the house, your system might produce 50 kWh but you only consume 10 kWh. The extra 40 kWh flows to the grid and earns you credits. That evening when you cook dinner and watch TV, you draw 8 kWh from the grid and your credits cover it at the same retail rate you would otherwise pay. Over the course of a month, your net consumption is what matters — production minus usage — and you only pay for the net amount.

This billing structure is why solar works so well without battery storage in net metering states. You do not need to time your usage to match solar production because the grid balances everything automatically. The utility acts as your storage, and you pay nothing for that service as long as your annual net consumption is zero or negative.

Retail Credit vs Avoided Cost: The Real Dollar Impact

The difference between retail net metering and avoided cost net billing is enormous. In Massachusetts, the retail electricity rate is $0.28/kWh. Your solar panels produce 1,000 kWh of excess electricity in June. Under retail net metering, you receive 1,000 kWh × $0.28 = $280 in credits. Under avoided cost net billing, you receive 1,000 kWh × $0.09 = $90 in credits. That is a $190 difference in one month alone.

Multiply that over 12 months: a 10 kW system in Massachusetts produces roughly 12,000 kWh/year. If half of that is exported (6,000 kWh), retail net metering earns you $1,680/year in credits while avoided cost net billing earns you $540/year. Over 25 years, that is a $28,500 difference in total value — enough to pay for an entire battery storage system.

The reason for this gap is that retail rates include transmission, distribution, and grid maintenance fees. When you export solar, the utility avoids the cost of generating that electricity ($0.06–$0.09/kWh) but still has to maintain the infrastructure. Under net billing, the utility argues they should only pay you what they saved in generation costs, not the full retail rate. Under net metering, you receive the full retail credit because you are a customer who sometimes produces and sometimes consumes, and the billing system treats both equally.

Net Metering vs Net Billing

Time-of-Use Rates and Net Metering

Time-of-use (TOU) rates add another layer to net metering. Instead of a flat $0.28/kWh all day, you might have peak ($0.38/kWh from 4–9pm), mid-peak ($0.28/kWh from 9am–4pm), and off-peak ($0.14/kWh from 9pm–9am). If your state has retail net metering with TOU, your exported solar earns credits at the rate in effect when you export — typically mid-peak during solar production hours.

This creates arbitrage opportunities. Export solar at mid-peak ($0.28/kWh) and use grid power at off-peak ($0.14/kWh) to charge your EV overnight. You effectively earn $0.14/kWh profit on every kWh of solar production. Even without a battery, you can shift discretionary loads (laundry, pool pumps, EV charging) to off-peak hours and let solar credits offset peak usage.

In net billing states, TOU rates work against you. You export solar at avoided cost ($0.09/kWh) but buy back from the grid at peak retail ($0.38/kWh). This is why battery storage becomes essential in net billing markets — you store midday solar and discharge it during peak hours to avoid buying expensive grid power.

How Policy Changes Affect Existing Solar Owners

When a state changes from net metering to net billing, existing solar customers are almost always grandfathered under the old policy for 10–20 years. For example, California's NEM 3.0 transition in 2023 moved new customers to net billing at $0.08/kWh, but customers who went solar under NEM 2.0 kept full retail credits until 2039. New Jersey is proposing a similar transition, but existing SREC customers would keep their current terms.

This grandfathering is why timing matters. If your state is debating net billing legislation, going solar now locks in retail net metering for the system's lifetime. Once the policy changes, new customers see 30–50% lower lifetime savings. The difference is often $15,000–$30,000 over 25 years for a typical residential system.

If you are already under net metering and the policy changes, your contract with the utility remains intact. Your system continues earning retail credits even as new solar customers receive lower avoided cost credits. This locked-in value increases your home's resale value because the next buyer inherits the favorable net metering terms.

Common Net Metering Mistakes

State-by-State Net Metering Policies

How to Maximize Your Net Metering Value

• Size your system to match annual usage: Overproduction at year-end is often credited at a lower rate.
• Shift usage to match production: Run dishwashers, laundry, and EV charging during peak solar hours.
• Consider a battery: If your state moves to net billing, a battery lets you store solar for evening use instead of exporting at low credit rates.
• Monitor your production: Track monthly production vs consumption to ensure optimal sizing.

Seasonal Credit Banking and True-Up

Most net metering programs allow monthly credit banking with an annual true-up. In June, your system produces 1,500 kWh and you use 800 kWh, earning 700 kWh in credits. In December, your system produces 400 kWh and you use 1,000 kWh, drawing 600 kWh from the grid. Your banked credits cover it, and you pay nothing. This is how solar systems sized to 100% annual offset achieve near-zero electric bills.

The annual true-up happens 12 months after your system is activated. Any remaining credits are either paid out at wholesale rates (CA, AZ) or simply expire (MA, NJ). If you have 2,000 kWh in banked credits at true-up, you lose most of that value. This is why accurate sizing is critical — you want to reach the true-up date with close to zero banked credits.

Explore Your State's Net Metering Policy