How Does Net Metering Work? (And Why It's Not the Same as Net Billing)
Net metering is the billing arrangement that makes residential solar economics work. Here's how it actually works, step by step.
The Concept
Solar panels don't produce electricity on a nice, matching-your-usage schedule. They produce most of their output in the middle of the day, when most households use the least. Net metering is the accounting rule that lets you export excess daytime solar to the grid and get credited for it — then pull from the grid at night and apply those credits.
How the Meter Actually Works
A bi-directional meter measures electricity flowing in both directions:
- Inflow — electricity you draw from the utility (billed).
- Outflow — excess solar you send back to the grid (credited).
At the end of each billing period, the utility calculates the net: if you sent more than you consumed, you get a credit carried to the next period. If you consumed more than you sent, you pay the difference.
Net Metering vs Net Billing
These sound identical but differ significantly:
- Net metering (NEM 1.0 and 2.0) — exports are credited at the full retail rate you pay for imports. A 1-kWh export earns you a 40¢ credit because you pay 40¢ to import.
- Net billing (NEM 3.0) — exports are credited at a lower avoided cost rate, often 5–8¢/kWh. A 1-kWh export earns 5–8¢; a 1-kWh import still costs 40¢. Imbalance favors self-consumption.
California's NEM Generations
| Version | Effective | Export Credit |
|---|---|---|
| NEM 1.0 | 2007–2016 | Full retail rate |
| NEM 2.0 | 2016–2023 | Full retail minus ~2–3¢ non-bypassable fees |
| NEM 3.0 / NBT | April 2023– | Avoided cost (~5–8¢/kWh) |
Homeowners who interconnected under NEM 1.0 or 2.0 were grandfathered into those programs for 20 years from their interconnection date. All new California residential solar after April 14, 2023 operates under NEM 3.0.
Municipal Utilities Run Their Own Rules
NEM 3.0 applies only to the three investor-owned utilities (PG&E, SCE, SDG&E). Municipal utilities — LADWP, SMUD, Roseville Electric, Glendale Water & Power, Imperial Irrigation District, Modesto Irrigation District — each run their own net-metering programs, often more favorable than NEM 3.0.
The True-Up Statement
Unlike most electric bills, net-metered solar customers get a monthly “informational” bill and one annual True-Up statement that reconciles 12 months of credits and charges. If your credits exceed your charges, you typically receive a small payout (often at a discount to retail — the “NSC” rate). If your charges exceed your credits, you owe the difference.