"Net metering" is the single most important policy variable in residential solar economics, and it is also the most poorly understood. The term gets used loosely to cover four genuinely different compensation regimes, each of which produces a different payback. Before you size a system, you need to know which one your utility uses.
The four regimes
- Full retail net metering. Every kWh you export to the grid is credited at the same rate you would have paid to buy a kWh. Excess credits roll forward month to month. This is the most generous regime and the closest thing to running the meter backwards that the term originally implied. Surviving examples in 2026 include most of Illinois, parts of Pennsylvania, Virginia, and Wisconsin under utility-specific tariffs.
- Net billing. Imports are charged at retail. Exports are credited at a separate, usually lower rate set by the utility commission or legislature. The split is the point — solar production is most valuable when consumed in real time, less valuable when exported. California's NEM 3.0, North Carolina's Duke tariff, and South Carolina's post-Energy-Freedom-Act tariff all fall here.
- Avoided cost / wholesale. Exports are credited at the utility's avoided generation cost — typically 2-5¢/kWh, far below retail. This regime makes export-heavy solar unprofitable and pushes households toward self-consumption with batteries. Louisiana and parts of Kentucky operate this way.
- No net metering / case-by-case. Some Texas REPs, some rural co-ops, and South Dakota fall here. Compensation is whatever your specific provider offers, which can range from generous (Green Mountain's Texas plans) to nothing.
Why the regime matters more than the rate
The intuition most homeowners have — that a high electricity rate means fast solar payback — only holds if you can actually export at that rate. A homeowner in a 30¢/kWh California utility under NEM 3.0 is only getting export credit around 5-8¢/kWh during midday hours. Their effective rate, weighted by self-consumption and export share, can be closer to 15¢/kWh than 30¢. The rate matters; the regime determines how much of it you actually capture.
The 2026 trend line
Every state that has reopened its net metering rules in the last five years has tightened them. The 2023 California NEM 3.0 transition was the most prominent, but the same direction shows up in North Carolina (Duke moved to net billing), South Carolina (Act 62), Indiana (SEA 309 phase-down), Kentucky (SB 100), Michigan (DG tariff), and several others. Even Florida, which preserved retail net metering with the 2022 veto of HB 741, is widely expected to revisit the policy on a future legislative cycle.
The pattern is consistent: legacy customers who installed before the change keep their old terms (usually for 10-25 years), and new customers move to less generous compensation. This makes the "install before the change" argument compelling in states where a legislative or PUC docket is open — but it also means that anyone running 2026 payback math on a state-by-state basis needs to use the new-customer regime, not the legacy one.
How to read your specific utility
The state-level summary above is a starting point. Within most states, individual utilities — especially co-ops and municipal utilities — set their own interconnection and compensation policies. The reliable lookup is DSIRE (Database of State Incentives for Renewables & Efficiency, dsireusa.org), maintained by NC Clean Energy Technology Center. Search your utility name and look for the specific tariff or rider that governs net metering or distributed generation.
Two questions to ask before signing an install contract:
- What is the export credit rate, and is it the full retail rate, a netted retail rate, an avoided-cost rate, or a separate buyback rate set by tariff or commission order?
- How long are you grandfathered onto today's terms if the utility changes policy after your install? (10 years, 15, 20, 25 — it varies.)
What this means for sizing
Under full retail net metering, oversizing toward annual production close to 100% of household consumption is rational, because every exported kWh banks at the same rate. Under net billing or avoided cost, the rational system is smaller — sized to your daytime baseload — paired with a battery if time-of-use rates make storage economic. Building a 12 kW system in a NEM 3.0 California household without a battery is a near-certain way to discover that your export credits are worth far less than your installer's spreadsheet implied.
Bottom line
Net metering is the policy lever that most directly determines whether residential solar makes financial sense in your specific home, and it varies more by utility than any other factor on the payback page. Run your numbers against the new-customer tariff, not the headline rate.