The short answer
Net metering credits solar owners for excess electricity sent back to the grid. Most US states still offer 1:1 retail-rate credits. California (NEM 3.0), Arizona, Nevada, and Hawaii have moved to partial credits (~25-75% of retail). Annual true-up resets accumulated credits — most states pay residual at wholesale rate.
Net metering credits solar owners for excess electricity they push to the grid. The rules vary dramatically by state — full retail-rate credits in most states, partial credits in California's NEM 3.0, 'value of solar' formulas in a few states. The credit rate determines the entire payback math on rooftop solar. This guide walks the state-by-state rules.
How net metering works
Solar panels produce electricity during daylight hours. Some is consumed by your home in real time; the rest is exported to the grid. A bidirectional meter tracks both directions: kWh drawn + kWh exported.
At end of billing month: net usage = kWh drawn - kWh exported. If net is positive, you pay for the difference. If negative, you receive a credit applied to next month.
Annual true-up: most states reset accumulated credits at a defined date. Excess credits at true-up are paid out at wholesale rate (much lower than retail) — so size your system so net usage is roughly balanced over 12 months.
State-by-state credit rates
1:1 retail-rate credits (still the majority): Pennsylvania, Maryland, New Jersey, Texas, Connecticut, Rhode Island, Massachusetts (capped), Illinois, New York (NEM 1.0 or 2.0), and most others.
Partial credits (NEM 3.0 territory): California (export rate now ~25% of retail under NEM 3.0), Arizona (50-75% of retail), Nevada (75% retail), Hawaii (no retail credit, only avoided-cost rate). Solar paybacks in these states have lengthened 3-5 years.
"Value of solar" formula: Minnesota, Maine. The credit rate is calculated by a formula incorporating wholesale market price + capacity value + environmental benefits.
Sizing your system for net metering
In 1:1 states: size to ~100-110% of expected annual usage. Slight over-sizing builds credits in summer that pay for winter draw.
In partial-credit states (CA, AZ, NV, HI): size at 90-100% of expected usage and add a battery for self-consumption optimization. The solar-battery-backup-cost-payback guide covers battery economics.
Track production for 12 months. If true-up settlement comes out 5%+ in either direction, consider sizing adjustment.
Recap
Bottom line
Net metering is the rule that makes residential rooftop solar economically viable. Full retail-rate net metering (NJ, NY, MA, MD, IL, others) credits exported kWh at the same rate as imported kWh — making solar payback short and predictable. Reduced-rate net metering (CA NEM 3.0 at ~25 percent of retail; partial credits in AZ, NV, HI) extends payback periods and increases the value of pairing solar with battery storage.
For prospective rooftop solar customers in 2026, the net metering rule in your specific state and utility territory is the single most important variable in the payback math. Verify with your utility before sizing the array. The solar-panel-cost-by-system-size and solar-battery-backup-cost-payback guides cover the supporting economics; the community-solar-vs-rooftop-solar guide covers the alternative for households where rooftop does not work.
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