Compensation guide · the export-credit question

Net metering vs net billing — two paybacks for the same panels.

Updated May 16, 2026. State-level compensation policies change. Verify your utility's current tariff before locking a purchase decision.

When your rooftop produces more than your home uses at 2pm on a July afternoon, the excess kilowatt-hours flow back through the meter to the grid. The question that decides whether that backflow is worth roughly its retail value, or roughly a quarter of it, is what compensation model your utility runs. There are two main families: net energy metering(NEM, or just "net metering") and net billing. They sound similar. They aren't.

The Department of Energy's framing¹ is direct: "Whether or not your solar system qualifies for net metering payments depends on policies and practices in your state and electric utility." Below: what each model does, the canonical net-billing case study, and how to find your own utility's answer.

Net metering — retail-rate credit

Under traditional net metering, your meter runs forward when you're importing power from the grid and backward when you're exporting. The accounting is simple: 1 kWh exported offsets 1 kWh imported at the same retail rate, in the same billing period. If retail rates in your area are 17 ¢/kWh, then every kWh your roof exports during the month is worth 17 ¢ against your bill.

It's the residential-solar friendly model. The full retail value of every exported kWh is captured against import value at retail rate, so an oversized system can offset most of a homeowner's annual usage — the surplus produced in July offsets the deficit in December. Most state solar adoption through the 2010s and into the 2020s happened under some version of this model.

The variation matters. Some net-metering tariffs let credits carry forward indefinitely (banked annually); others reset at true-up; some pay out unused credits at year-end at a wholesale rate; some don't pay out at all. A "1:1 net metering utility" can still have meaningfully different economics depending on how the credits roll forward.

Net billing — avoided-cost credit

Net billing flips the accounting. Imports are billed at retail rate. Exports are credited at a separate export rate— typically the utility's "avoided cost," meaning what the utility would otherwise pay to generate or buy that electricity wholesale. Avoided cost is usually 3–8 ¢/kWh, compared to retail rates of 14–28 ¢/kWh in most US markets.

The asymmetry is the point. Under net metering, an oversized system with surplus midday production effectively gets paid retail rate for that surplus. Under net billing, that same surplus is paid about 25% of what it would have offset on the import side. The result: surplus midday production is far less financially valuable, and the rational system size shrinks.

The California case study — NEM 3.0 / Net Billing Tariff

The clearest example of this transition is California, where the California Public Utilities Commission replaced NEM 2.0 (full retail-rate net metering) with the Net Billing Tariff (NBT) effective April 15, 2023. The new tariff credits exports at an avoided-cost rate that varies hourly — often well under 10 ¢/kWh during the midday solar surplus window. Same panels, same roof, same usage: payback math under NBT is dramatically worse than payback math under NEM 2.0.

Berkeley Lab's installed-system data²shows the most striking downstream effect: residential solar systems installed under California's new net-billing tariff have battery attachment rates of roughly 60% — six in ten installations include a battery. The pre-NBT California attachment rate was about 14%, and the national average for 2023 was 12%. The compensation-model shift made batteries rational for many homeowners who would not have installed one otherwise: store the midday surplus, use it during the peak evening rate window, sidestep the avoided-cost penalty on export.

California's shift isn't unique. Several utilities in Nevada, Arizona, Hawaii, and elsewhere have moved through their own versions of the transition. The mechanism is similar wherever it happens: as solar penetration rises, utilities push regulators toward compensation structures that reflect the wholesale value of exported solar rather than its retail equivalent.

How to find your own utility's answer

Two reliable paths. Neither is the installer's salesperson.

1. DSIRE³— the Database of State Incentives for Renewables & Efficiency. Search your ZIP code. Look for the policy entry titled net metering, net billing, or interconnection. The page documents the current state-level rules and the date they were updated. State-level coverage is comprehensive; utility-level detail varies.
2. Your utility's website. Search for "net energy metering tariff," "net billing tariff," or "customer-sited generation interconnection." The active tariff schedule is usually posted as a PDF. Look for the export-credit rate and how it's computed (retail kWh, avoided cost, time-varying, etc.). If you can't find it in 10 minutes, call. Customer-service can't always answer technical tariff questions but can route you to whoever can.

Three direct questions, in writing, to the utility:

• What compensation model applies to new residential solar interconnections starting today?
• At what rate are exported kilowatt-hours credited — retail, wholesale, or some time-varying avoided-cost formula?
• Are existing customers grandfathered into a prior tariff, and for how long?

The answers, in writing, on official letterhead or a saved email thread, become the document that confirms what you can legally negotiate against in a payback discussion with your installer.

Why this changes the payback math

Most residential solar proposals implicitly assume retail-rate net metering when projecting bill savings. The 25-year savings chart shows kWh exported × retail rate × annual escalation, compounded over 300 months. If your utility actually pays wholesale rate on those exports, the savings line is roughly 50–75% lower in real economic value — because the kilowatt-hours produced beyond your home's instantaneous use are credited at a fraction of the rate the proposal assumed.

The payback year that follows from those savings can shift by three or more years on a typical residential system. A 7-year payback under retail-rate net metering is often a 10–12 year payback under net billing, for the same panels and the same roof.

For a deeper look at the four assumption errors that move payback math the most — including this one — see the solar payback mistakes guide.

What changes when you add a battery

Net billing reshapes the battery decision more than anything else. Under retail-rate net metering, a battery is mostly a backup product — it doesn't earn its own keep financially, because exports already capture full retail value. Under net billing, a battery becomes a savings product as well: storing midday surplus to discharge at evening retail rate captures part of the avoided-cost gap.

That's why California's post-NBT 60% battery attachment rate is so striking. It reflects rational homeowner response to a compensation structure that punishes export. A battery calculator that handles both compensation regimes — savings product math under net billing, resilience product math under net metering — is in the queue — building next.

The takeaway

Net metering vs net billing isn't a footnote. It's often the single largest assumption error in a residential solar proposal, and the easiest one to verify directly with the utility. Confirming which model applies — and getting the confirmation in writing — is a 30-minute task that can save a homeowner from a payback projection built on the wrong export rate.

1. 1. U.S. Department of Energy, "Homeowner's Guide to Going Solar." Lists four consumer-protection red flags: "Don't give in to pushy sales tactics," "Talk to certified installers," "Understand your financing options," and "Report bad actors." Recommends NABCEP-certified installers and points readers to FTC, CFPB, and state-utility complaint channels. Verified 2026-05-16. energy.gov/eere/solar/homeowners-guide-going-solar ↩
2. 2. Berkeley Lab, "Tracking the Sun, 2024 Edition" (Executive Summary, August 2024; data through year-end 2023; sample ~3.7M U.S. distributed PV systems). State-level median residential installed price in 2023: $3.20–5.20/W. Loan dealer-fee gap, verbatim: "a large portion of residential systems are loan-financed, and installed prices reported for these systems likely include dealer fees, adding anywhere from 5-50% to the total up-front price paid by the customer." Verified 2026-05-16. emp.lbl.gov · Tracking the Sun 2024 (PDF) ↩
3. 3. DSIRE — Database of State Incentives for Renewables & Efficiency. Maintained by the N.C. Clean Energy Technology Center at North Carolina State University. ZIP-searchable database of federal, state, and utility-level incentive programs. The canonical pointer for state- specific incentive eligibility — re-check before claiming any state-level credit, rebate, or net-metering treatment. dsireusa.org ↩

Next: Why your solar bill may not go to zero — fixed charges, seasonal mismatch, and the asterisks proposals quietly drop.