Net Metering Is Being Restructured Across the Country
Net metering — the policy that determines how much your utility pays you for excess solar electricity exported to the grid — is undergoing significant changes across the United States. California\’s NEM 3.0 policy, which dramatically reduced export compensation rates in 2023, signaled a broader national trend. Other states have followed or are considering similar restructuring, fundamentally changing the solar economics calculation for homeowners who have not yet installed systems and affecting the returns of those who installed recently.
Understanding how net metering works, what is changing, and how those changes affect the solar-plus-battery investment case is essential for any homeowner evaluating solar in 2026.
How Traditional Net Metering Worked
Under traditional retail-rate net metering, every kilowatt-hour your solar system exported to the grid earned a credit equal to the full retail electricity rate — typically $0.12 to $0.18 per kWh. If you exported 500 kWh in a month and imported 400 kWh, your net bill reflected only 100 kWh of grid electricity at the retail rate, with no separate valuation of exports vs imports.
This 1:1 retail-rate credit structure made solar economics straightforward: every kWh your system produced had the same value whether you consumed it directly or exported it. Systems could be sized aggressively to maximize production without worrying about the compensation rate for excess exports.
What Is Changing: Avoided Cost and Export Rates
Utilities and state regulators have increasingly challenged retail-rate net metering on the grounds that it overcompensates solar owners at the expense of non-solar ratepayers. The alternative is crediting solar exports at the utility\’s \”avoided cost\” — the cost of generating or purchasing the marginal electricity that solar exports displace — which is typically $0.03 to $0.08 per kWh, far below retail rates.
California NEM 3.0: The Most Dramatic Change
California\’s Net Energy Metering 3.0 policy, effective April 2023 for new solar installations, reduced export compensation to an \”avoided cost\” rate that averages approximately $0.05 per kWh during midday hours — compared to retail rates of $0.30 to $0.45 per kWh that NEM 2.0 customers receive. This single policy change reduced the simple payback period for solar-only systems in California from 6 to 8 years under NEM 2.0 to 9 to 12 years under NEM 3.0 for average systems without battery storage.
However, NEM 3.0 significantly increased compensation for battery storage — batteries that store midday solar and discharge during evening peak hours earn much higher export rates during those peak periods. The policy was explicitly designed to incentivize solar-plus-battery over solar-only.
Other State Trends
Several other states have reduced or are evaluating reductions to retail-rate net metering:
- Nevada: Moved to a tiered export rate structure that compensates early solar adopters at higher rates while reducing compensation for new installations
- Hawaii: Eliminated retail-rate net metering entirely in 2015 — now uses a self-supply model where battery storage is essentially required to make solar economically viable
- Arizona: Reduced net metering credits and added a fixed charge for solar customers
- Utah, Georgia, Indiana: Various modifications to net metering structures reducing export compensation
How Net Metering Changes Affect Solar Economics
The financial impact of net metering reductions depends on how much of your solar production you self-consume versus export:
- High self-consumption households: Homeowners who consume most of their solar production directly — through daytime AC use, EV charging, pool pumps, or battery storage — are largely insulated from reduced export rates. If you export only 20% of your production, a 70% reduction in export compensation reduces your total solar value by only 14%.
- Low self-consumption households: Households that export 50 to 70% of production — common in smaller homes with modest daytime loads — are significantly more affected. A reduction from $0.14 to $0.05 per kWh on 60% of production reduces total solar value by approximately 26%.
The practical implication: solar system sizing strategy has shifted in states with reduced export compensation. Rather than maximizing system size to generate maximum exports, optimizing for self-consumption — sizing the system to cover expected loads without large surplus exports — improves financial returns in low-export-rate environments.
Battery Storage as the Response to Net Metering Changes
Battery storage transforms the economics of solar under reduced net metering by converting excess midday solar production from low-value exports into high-value self-consumption during evening peak hours. In California under NEM 3.0, a solar-plus-battery system can actually produce better financial returns than a solar-only system did under NEM 2.0 for some homeowners — because the battery captures production that would otherwise export at $0.05/kWh and uses it to avoid grid imports at $0.35 to $0.45/kWh during peak hours.
This is the fundamental policy logic behind NEM 3.0 and similar restructuring nationally: utilities want solar generation paired with storage that smooths the grid\’s \”duck curve\” rather than flooding the grid with midday solar exports that are difficult to manage.
Grandfathering: Protecting Existing Solar Owners
Most net metering policy changes include a grandfathering provision that protects existing solar installations at the higher compensation rates for a defined period — typically 15 to 20 years from installation date. California NEM 2.0 customers were grandfathered at their existing compensation structure. This means homeowners who installed solar before policy changes often have significantly better economics than those who install after.
The grandfathering dynamic creates urgency for homeowners considering solar in states where net metering policy is under review — locking in current rates before a potential restructuring can preserve favorable economics for the life of the system.
What This Means for Your Solar Decision in 2026
- Check your state\’s current net metering policy before evaluating solar economics — the rate your installer uses in their financial projections should reflect current policy, not historical rates
- In states with full retail-rate net metering still in place, solar economics remain strong — and locking in before potential policy changes is a reasonable consideration
- In states with reduced export compensation, size your solar system for self-consumption rather than maximum production, and evaluate battery storage as a component that improves returns under the new rate structure
- Ask installers specifically: \”What export rate are you using in your financial projections and is that the current rate or a historical rate?\”
Bottom Line
Net metering policy is evolving nationally in a direction that reduces export compensation and increases the value of battery storage paired with solar. Homeowners in states with retail-rate net metering still in place have strong solar economics and a reason to act before potential policy changes. Homeowners in states that have already reduced export rates should right-size their systems for self-consumption and evaluate solar-plus-battery as the complete solution that policy has been redesigned to incentivize.
