What Is Net Metering and How Does It Work?
Net metering is the billing arrangement that lets a solar home get credit for the electricity it sends to the grid. In the words of the U.S. Energy Information Administration, it’s a utility billing practice that lets certain customers reduce the volume of billed grid electricity by counting the energy their own system exports. A special bi-directional meter tracks power flowing both ways, and your bill reflects the net difference. This guide explains exactly how that works — and how classic net metering differs from the net billing model California now uses.
Written by Cali Energy Research Team · Fact-checked by Cali Energy, CSLB #1032379 — B, C-10, C-39 · Last reviewed: August 3, 2026
- Net metering lets a solar customer offset billed grid electricity with the energy their system exports.
- A bi-directional meter records imports and exports; you’re billed on the net.
- Classic net metering credits exports at the applicable retail rate; value varies by time period and non-bypassable charges.
- Net billing (California’s current model) values exports separately, usually below retail.
The definition
Per the U.S. Energy Information Administration (EIA), net metering refers to utility tariffs or billing programs that let certain customers reduce the volume of billed electricity supplied by the grid within a billing period. In plain terms: your solar panels sometimes make more electricity than your home is using. That surplus flows to the grid, and net metering makes sure you get credit for it against the grid power you draw at other times — at night, or on cloudy days.
Source: EIA — Glossary: Net metering.
How it works, step by step
Net metering is mostly about one piece of hardware and one simple idea.
1. A bi-directional meter
When you go solar, the utility installs a meter that records electricity flowing both ways — the power you import from the grid, and the surplus you export to it.
2. Exports earn credits
Each kilowatt-hour (kWh) your system sends to the grid earns a bill credit. Under classic net metering that credit is based on your applicable retail rate.
3. You’re billed on the net
At the end of the period the utility nets your imports against your credited exports. You pay for the difference — hence “net” metering.
“Retail rate” is not always a literal 1:1 swap
It’s common to hear net metering described as a “1:1” exchange. That’s a useful simplification, but not exact. Retail rates vary by time-of-use period, and bills include non-bypassable charges that a credit can’t erase. So a kWh you export at midday and a kWh you import in the evening may carry different values. The right way to say it: exports earn credits at the applicable retail rate, and the exact value depends on your rate plan and the hour.
Rollover and true-up
What if you export more over a month than you import? Rollover and settlement rules vary by tariff. Under California NEM 1.0 and NEM 2.0, charges and credits generally roll over during a 12-month billing period and are reconciled at an annual true-up. Under the Net Billing Tariff, charges are billed monthly while export credits can carry toward the true-up. Either way, solar from long summer days can help offset a darker December. See how the annual true-up works.
Net metering vs net billing vs gross metering
These three billing models decide what your exported electricity is worth. Toggle to compare how each treats the power you send to the grid.
Compare the billing models
How each values exported electricity.
Simplified comparison. Exact credit values depend on your utility, rate plan and tariff — confirm on your utility account.
Side-by-side: the three billing models
The single most important thing to understand in 2026 is that “net metering” is not one fixed thing — the compensation model has evolved, and the differences are large.
| Net metering | Net billing | Gross metering | |
|---|---|---|---|
| Export value | Applicable retail rate | Separate export credit (usually below retail) | Separately contracted export rate |
| Imports & exports | Netted together | Valued separately | Fully separate (buy all, sell all) |
| Rewards self-use? | Indirectly | Strongly (on-site use first) | No |
| Battery value | Tariff-dependent | Often valuable for self-consumption | Depends on whether storage can participate |
Under net billing, on-site use offsets your imports first, and only excess exports earn a separate credit — usually below retail, occasionally higher in a few hours. Source: CPUC.
Why California moved from net metering to net billing
California ran classic, retail-rate net metering for years (NEM 1.0 and NEM 2.0). For new solar customers of the big investor-owned utilities — SCE, PG&E and SDG&E — the state replaced it in April 2023 with the Net Billing Tariff (NEM 3.0), which pays a lower, time-varying value for exports. The details of that shift, and who is grandfathered, are covered across our net-metering cluster:
- NEM 3.0 explained — how the Net Billing Tariff works.
- NEM 2.0 vs NEM 3.0 — the side-by-side.
- NEM 2.0 grandfathering — how long legacy terms last.
- Do you need a battery under NEM 3.0?
Does everywhere still have net metering?
No — and this is a common misconception. According to the EIA, the policies that compensate behind-the-meter generation vary widely by state. Some states retain full retail-rate net metering; others have moved to net billing or other avoided-cost structures, as California did. If you read national advice about “net metering,” always check what actually applies in your state and utility.
Source: EIA — Policies for compensating behind-the-meter generation vary by state.
What about LADWP and other municipal utilities?
The Net Billing Tariff applies to the investor-owned utilities. Municipal utilities like LADWP set their own rules and run their own solar rate schedules, separate from the CPUC. If you’re an LADWP customer, your net-metering terms come from LADWP, not NEM 3.0. See LADWP net metering.
Glossary
- Bi-directional meter: a meter that records electricity flowing both to and from the grid.
- Behind-the-meter (BTM): generation located on the customer’s side of the utility meter, like rooftop solar.
- Non-bypassable charges: per-kWh charges (for public programs, etc.) that a net-metering credit does not offset.
- True-up: the periodic (often annual) reconciliation of accumulated credits and charges.
- Avoided-cost / export credit: the value a utility assigns to exported energy under net billing, typically below retail.
Sources & methodology
Primary sources: U.S. EIA — Glossary: Net metering · U.S. DOE — Homeowner's Guide to Going Solar · CPUC — Net Energy Metering and Net Billing · U.S. EIA — Compensation for behind-the-meter generation varies by state. Definitions follow the EIA glossary and DOE; California-specific tariff mechanics follow the CPUC. Compensation rules for customer (behind-the-meter) generation are set at the state and utility level and change over time — confirm the current tariff with your own utility.
Frequently asked
What is net metering in simple terms?
Net metering is a billing arrangement that gives solar customers credit for the electricity they send to the grid. A bi-directional meter records the power you import and the surplus you export, and you’re billed on the net difference. Per the EIA, it lets certain customers reduce the volume of billed grid electricity using their own generation.
How does net metering work?
When your solar produces more than your home uses, the surplus flows to the grid and earns a bill credit — under classic net metering, at your applicable retail rate. When you need more than your panels make, you draw from the grid. At the end of the period the utility nets exports against imports, rollover and settlement rules depend on the tariff. Under California NEM 1.0 and NEM 2.0, charges and credits generally accumulate during a 12-month billing period and are reconciled at an annual true-up; under the Net Billing Tariff, charges are billed monthly while eligible export credits can carry toward the true-up.
Is net metering a 1:1 exchange?
Roughly, but not exactly. Exports are credited at the applicable retail rate, and because retail rates vary by time-of-use period and bills include non-bypassable charges, one exported kWh doesn’t always offset one imported kWh at a different hour. “1:1” is a helpful simplification; the precise value depends on your rate plan and the time of day.
What's the difference between net metering and net billing?
Net metering credits exports at the retail rate and nets imports and exports together. Net billing (California’s NEM 3.0 model) uses your solar to offset on-site use first, then pays a separate export credit for the excess — usually below retail and time-varying. Net billing rewards self-consumption and storage far more, which is why batteries became central under it.
Does California still have net metering?
Legacy customers on NEM 1.0/2.0 keep retail-rate net metering for their grandfathering period. But new solar customers of SCE, PG&E and SDG&E take service on the Net Billing Tariff (NEM 3.0), a net-billing model, not classic net metering. LADWP and other municipal utilities set their own separate rules.
Do all states have net metering?
No. The EIA notes that policies for compensating customer (behind-the-meter) generation vary widely by state. Some states keep full retail-rate net metering; others use net billing or avoided-cost structures. Always confirm the current rule for your specific state and utility rather than assuming national “net metering” advice applies.
Related reading
About this guide
This is an educational reference maintained by Cali Energy's research team. Net-metering rules are set by each state and utility and change over time — always confirm the current tariff with your own utility. See the linked cluster above for California specifics.
Prepared by Cali Energy, August 2026. This article is for general educational purposes only and is not legal, tax, financial, engineering, or utility advice. Rates, incentives, codes, permit requirements, equipment specifications, prices, and program terms may change; figures and timelines are estimates, not guarantees. Confirm current requirements with the applicable utility, AHJ, program administrator, manufacturer, or a licensed professional. See our Content Disclaimer. Cali Energy · 19201 Parthenia St Unit E, Northridge, CA 91324 · CSLB #1032379 (B, C-10, C-39)