Solar panels produce the most power in the middle of the day, when most homes use the least. That mismatch means a typical rooftop system sends more than half its output to the grid rather than into the house. What your utility pays you for that exported electricity is, in many cases, the single largest variable in whether solar pays off — and it's the number most often glossed over in a sales pitch.
Two very different policies govern it. Which one applies to you can change the value of an identical array by hundreds of dollars a year.
Full Retail Net Metering: One Exported kWh Cancels One Imported kWh
Under classic net metering, your meter effectively runs backwards. Export a kilowatt-hour at noon and you bank a credit worth exactly what you'd pay to buy a kilowatt-hour back at 8pm. The grid functions as a free, lossless, unlimited battery.
This arrangement is unusually generous to homeowners, and that's precisely why utilities and regulators have been revisiting it. Under full retail net metering, the timing of your usage barely matters financially — you can produce all your power in June and spend the credits in December.
Net Billing: Exports Credited at Avoided Cost Instead
Net billing separates the two transactions. You buy grid power at the full retail rate, and you sell exports at a much lower rate meant to approximate what it would have cost the utility to source that power elsewhere — the "avoided cost." In practice that credit commonly lands somewhere in the range of 4 to 8 cents per kWh.
California's NEM 3.0, which took effect in April 2023, is the highest-profile example and cut export credits by roughly 75% for new customers. Arizona's APS moved to a similar structure, where the excess generation credit sits at roughly half the retail rate. Several other states have opened or completed proceedings along the same lines, while many states still offer full retail net metering.
Why Self-Consumption Matters More Than the Policy
Here's the part most coverage of NEM 3.0 buries, and it's the most useful thing to understand: a change in export policy does not touch the value of solar power you consume yourself.
Every kilowatt-hour your panels produce that your house uses at that moment is a kilowatt-hour you didn't buy from the utility. It's worth your full retail rate, and no regulator can reduce that. Only the surplus is exposed to the export rate.
So the real question isn't "which policy am I on" — it's "what share of my production do I use directly?" A household exporting 80% of its output is highly exposed to net billing. A household exporting 20% barely notices it.
Consider a 9,000 kWh/year system in an 18¢/kWh market under net billing at roughly 4.5¢:
- At 35% self-consumption (typical, no battery): about $567 from self-consumed power plus $263 from exports — roughly $830/year, a blended 9.2¢ per kWh produced.
- At 80% self-consumption (battery, or heavy daytime load): about $1,296 from self-consumed power plus $81 from exports — roughly $1,377/year, a blended 15.3¢ per kWh.
Same panels, same sunshine, same utility policy. The difference is entirely about when the power gets used. You can model your own numbers with our net metering calculator.
What This Means for System Sizing
Under full retail net metering, oversizing an array is close to harmless — surplus banks at full value. Under net billing, the logic inverts. Every kilowatt of capacity beyond what your home can absorb during daylight hours produces power worth a quarter of retail rather than full retail.
That argues for sizing closer to your daytime load rather than your total annual consumption, and for shifting flexible loads into daylight hours. Running the dishwasher, doing laundry, pre-cooling the house, and charging an EV at midday all convert low-value exports into full-value self-consumption at zero cost. Our panel count calculator helps with the sizing side.
The Battery Question
Battery storage changed character under net billing. It used to be primarily a backup-power purchase; it's now also a financial one.
A battery doesn't generate energy. It moves your production from the export bucket to the self-consumption bucket. Its financial value is therefore straightforward to estimate: the gap between your retail rate and your export rate, times the kilowatt-hours it shifts each year.
In the 18¢ retail / 4.5¢ export example, that gap is 13.5¢ per kWh. A battery shifting 4,000 kWh a year is avoiding roughly $540 in purchases annually. Whether that justifies the installed cost depends on the quote in front of you and the battery's expected lifespan — but it's a real, calculable number rather than a vague claim. Our battery storage calculator works through sizing.
Under full retail net metering, the same battery captures far less financial value, because the grid is already crediting exports one-for-one. There, backup power during outages is usually the honest justification.
How to Verify Your Own Situation
Three checks, in order of reliability:
- Your utility's published rate sheet. Search it for "net metering," "net billing," "excess generation credit," or "avoided cost." The export rate will be stated in cents per kWh. Compare it to your retail rate — if they match, you have full retail net metering.
- Your state public utility commission. These tariffs are approved there, and pending changes are posted publicly. Worth checking for open proceedings that could affect your terms.
- The solar bid itself. Ask the installer in writing what export rate their savings projection assumes, then verify it independently. If their assumed rate exceeds the published tariff, every savings figure in the proposal is overstated.
Ask about grandfathering too. Many states lock customers onto the policy in force at interconnection, commonly for 20 years. That makes the energization date financially meaningful, particularly if your state has a proceeding underway.
The Bottom Line
Net billing makes solar less lucrative than full retail net metering, but it doesn't make it a bad investment — particularly in high-rate states where the power you displace is expensive. What it does is change the optimal shape of the decision: size closer to daytime load, shift usage into daylight, and evaluate storage on arithmetic rather than instinct.
The most expensive mistake is accepting a savings estimate built on an export rate you never verified. That number is public, it takes ten minutes to confirm, and it determines a large share of what your system will actually return. For the whole-system picture including installation cost and payback timeline, pair this with our solar panel ROI calculator and the 2026 solar cost breakdown.