What is Net Metering?

Net metering is the tool that makes rooftop solar viable for so many Americans. Most states have net metering laws requiring utility companies to buy excess power generated from rooftop solar panels from the homeowners who installed them. That means homeowners can produce more power than they need during the day and sell it back to the utility to offset their electric bills for the power they use at night when the sun isn’t shining.

What states have net metering?

There are 43 states with net metering laws and there are utilities in parts of three of the states without laws that offer net metering programs even though the state doesn’t require it.

Those states without any net metering are: Mississippi, South Dakota and Tennessee.

How much do utility companies pay net metering customers?

Most states require utility companies to credit net metering customers at the retail rate so that every kilowatt hour of power homeowners send back to the grid earns them a kilowatt hour they can take from the grid.

Some states only require utilities to pay net metering customers the avoided cost rate, which is the wholesale price or the cost of running utility generation systems to generate a kilowatt hour of electricity. In that case, net metering customers who send power back to the grid will only be credited about a third of the cost to buy a kilowatt hour of power from the grid.

Some states require utilities to pay customers at the end of the month or at the end of the year for unspent utility credits from net metering. But most states allow the utility to keep any excess power home and business owners don’t use from their rooftop solar systems.


Net metering has come under a lot of fire lately. The Edison Electric Institute, a trade group for publicly-traded utility companies, published a report in 2013 calling net metering a major “threat” to the utility business model. As a result, utilities in several states have proposed legislation to limit or reduce net metering benefits.

The utilities argue that as net metering becomes more common, it will shift the expense of infrastructure investments to those customers who don’t have rooftop solar installations.

The solar industry counters that distributed solar generation saves utilities from having to invest in new infrastructure because the home and business owners are adding new generation capacity without increasing the need for transmission infrastructure.

The controversy has boiled over in Arizona, where debates between Arizona Public Service, the state’s largest utility, and solar advocates has become wildly contentious.

How is net metering evolving

In states like California, Hawaii and Massachusetts where the solar industry is strongest, utilities have started to hit net metering caps. That has forced those states to find ways to allow home and business owners to continue to install grid-connected rooftop solar systems. Legislators and regulators in those states are still grappling with the issue, but are working to balance a need and desire for increased distributed solar generation with reduced benefits to solar customers in order to offset the risk to utilities.

Those states are the pioneers and will serve as an example for those that follow.