Net Metering Explained

If you have solar panels, your system will sometimes produce more power than your home consumes. Net metering determines what happens to that surplus — and how much your utility credits you for it. The details vary significantly by utility and state, and they directly affect whether a battery system pays off.

What net metering is and how it works

Net metering lets you export surplus solar generation to the grid and receive a credit on your bill. Your meter tracks two numbers:

• Import — power you draw from the grid
• Export — surplus solar power you push to the grid

At billing time, credits from exports offset the cost of imports. If your exports exceed your imports in a given period, you carry a credit forward (under most programs) rather than receiving a cash payment.

A simple example: your panels generate 900 kWh in July. Your home uses 1,100 kWh. Net consumption is 200 kWh. You're billed for 200 kWh, not 1,100 kWh. If you instead generated 1,200 kWh and consumed 1,100 kWh, you'd net a 100 kWh credit to carry forward.

Billing reconciliation: monthly vs annual true-up

Most utilities use one of two reconciliation models:

Monthly net metering — credits and charges settle every billing cycle. Excess credits typically expire at month end or are bought back at a low "avoided cost" rate (often $0.03–$0.06/kWh). Common in many states outside California.

Annual true-up — credits accumulate all year and settle once annually (usually your anniversary month). This lets winter surplus offset summer deficits, or vice versa. PG&E, SCE, and SDG&E in California use annual true-up for NEM 2.0 and NEM 3.0 customers.

Model	Credit accumulation	End-of-period excess
Monthly net metering	Resets each month	Bought back at avoided-cost rate or forfeited
Annual true-up	Accumulates 12 months	Settled once; excess paid at low avoided-cost rate

Practical implication: under annual true-up, oversizing your solar array slightly to cover winter months is rational. Under monthly net metering, oversizing past your monthly peak usage earns you little.

Export vs import rates: why they're often different

This is the part most installers gloss over. Your utility does not necessarily credit your exports at the same rate it charges for imports.

Full retail net metering (NEM 1.0 style): exports credited at full retail rate. 1 kWh exported = 1 kWh of bill credit. Now rare for new customers in most states.

Avoided cost / wholesale export rate: exports credited at the utility's wholesale power cost — often $0.03–$0.08/kWh — regardless of what you pay for imports. Common in states with newer programs or mandatory utility buyback rules.

California NEM 3.0 (as of 2023): exports credited at time-varying "Avoided Cost Calculator" rates that average $0.05–$0.08/kWh. Import rates remain full retail TOU ($0.30–$0.55/kWh). The gap is large and intentional — it heavily favors battery storage over export-only solar.

Program type	Export credit rate	Import rate	Battery incentive
Full retail NEM	~$0.35–$0.45/kWh	~$0.35–$0.45/kWh	Low — exporting is as good as storing
Avoided cost buyback	~$0.04–$0.08/kWh	~$0.28–$0.45/kWh	High — storage captures retail rate; export earns almost nothing
CA NEM 3.0	~$0.05–$0.08/kWh (varies by hour)	~$0.30–$0.55/kWh (TOU)	Very high — designed to push storage adoption

The rule of thumb: the bigger the gap between your import rate and your export credit rate, the more a battery is worth. Under full retail NEM, a battery's economics are mostly about backup and demand charge avoidance. Under NEM 3.0, a battery can add $800–$1,500/year in value by keeping daytime solar on-site instead of exporting it.

How TOU rates interact with net metering

TOU and net metering interact in ways that aren't obvious until you look at hourly data.

The core problem: solar generates most power from 10 AM to 3 PM. Under TOU pricing, that's typically off-peak or mid-peak time — not when electricity is most expensive. If you're on a program that credits exports at TOU rates, your daytime exports earn the cheapest rate. But your evening imports cost the most.

A concrete California NEM 3.0 example:

• 1 PM solar export: credited at ~$0.04/kWh (off-peak avoided cost)
• 6 PM grid import: charged at ~$0.50/kWh (peak TOU)
• Net cost of that 1 kWh round trip: you export for $0.04 and buy back for $0.50 — a $0.46 loss per kWh

The same kWh stored in a battery instead of exported:

• 1 PM: stored (no credit)
• 6 PM: discharged from battery instead of importing (saves $0.50)
• Net value of storage: $0.50 saved per kWh

Under time-varying export rates (NEM 3.0 and some newer programs): export credits also vary by hour. Evening solar export (if your system generates after 4 PM) earns more. Morning surplus earns less. Check your utility's export rate schedule, not just the headline number.

Under full retail TOU net metering: if you export at peak hours (say, a westward-facing array producing from 2–6 PM), you earn peak-rate credits. This is genuinely valuable. The interaction favors arrays tilted slightly west and battery systems that discharge only when grid imports would otherwise occur at peak rates.

Practical tips for home battery + solar owners

Know your export rate before assuming battery ROI. The payback calculation is completely different under $0.05/kWh export vs $0.45/kWh export. Ask your installer for the specific export tariff code, then look it up.

Size battery capacity to your evening load, not your solar output. The goal is to shift your daytime solar generation to cover the peak-rate window (typically 4–9 PM). A 10 kWh battery that covers 5 hours at 2 kW average load is sufficient for most households. Larger batteries may not earn proportionally more unless you're also doing demand charge management or vehicle charging.

Set your battery to charge from solar only, not the grid. Many inverter systems (Powerwall, Enphase, SolarEdge) have a "self-consumption" mode that charges from solar during the day and discharges during peak hours. This is usually the right setting. Grid charging during off-peak is only worth considering if your off-peak import rate is lower than your export credit rate — increasingly rare.

Understand your true-up date. Under annual true-up, your credits and debits accumulate all year. Avoid gaming the system by running high-load equipment only when you have large credit balances — utilities can flag unusual load patterns and the avoided-cost buyback at true-up is poor anyway.

Track export vs import hours separately. Your utility bill usually shows total import kWh and total export kWh. Pair this with your inverter's hourly data to understand when you're actually exporting. If most exports are happening at 11 AM (deep off-peak), that's a signal to adjust your battery charge/discharge schedule.

If you have a server or NAS running 24/7: that's typically a 50–300W continuous baseload. Under net metering with a battery, that load is served by battery overnight (peak rate avoided) and by solar during the day (zero-cost). The effective rate for server power drops significantly — often to $0.05–$0.10/kWh equivalent, even in high-rate states — making home lab operation much cheaper than the headline TOU rate suggests.