Net Metering Explained: Which States Still Offer It in 2026

If you are researching solar panels, you will eventually run into the term "net metering." I want to be direct about something upfront. Net metering is the single biggest factor that determines whether residential solar pays for itself in a reasonable timeframe. Not panel efficiency, not installer pricing, not battery storage. The rate your utility pays you for excess electricity is what makes or breaks the math.

I have watched this policy policy environment shift dramatically over the past three years, and 2026 looks very different from 2023. Some states still offer generous terms. Others have gutted the program entirely. Here is what you need to know before signing any solar contract.

How Net Metering Actually Works

The concept is straightforward. When your solar panels produce more electricity than your home uses at any given moment, the excess flows back to the grid. Your meter literally runs backward. Your utility gives you a credit on your bill for that exported electricity, and you draw those credits back down at night or on cloudy days when your panels aren't producing enough.

Under traditional net metering, the credit you receive equals the full retail rate you pay for electricity. If your utility charges 18 cents per kilowatt-hour, you get 18 cents credited for every kilowatt-hour you send back. At the end of a billing cycle, you only pay for the net difference between what you consumed and what you produced. That is where the name comes from.

Most residential solar systems are designed to produce roughly what the household uses over a full year. In summer you build up a big bank of credits. In winter you draw them down. Many utilities settle up once a year in what's called an annual true-up. If you still have excess credits at that point, the utility typically pays a much lower wholesale rate for the surplus, sometimes as little as 2 to 4 cents per kilowatt-hour. The lesson is that oversizing your system doesn't help much.

Why It Matters More Than Anything Else

Take a typical 8 kW system in a state with good sun and an electricity rate of 20 cents per kWh. That system might produce about 11,000 kWh per year. If you use 60% of that directly and export the other 40%, net metering at full retail rate means those 4,400 exported kWh are worth $880 per year in bill credits.

Now change the compensation to a reduced rate of 8 cents per kWh for exports. Those same 4,400 kWh are only worth $352. That $528 difference every year adds up to $13,200 over the 25-year life of the system. On a system that cost $18,000 after the tax credit, the difference between full retail and reduced-rate compensation can mean a payback period of 7 years versus 12 years. Nothing else in the solar equation moves the needle that much.

States with Full Retail Net Metering

As of early 2026, a shrinking but still significant group of states offers full retail rate net metering. New Jersey, Massachusetts, New York, Maryland, Connecticut, Colorado, Illinois, and Oregon all maintain strong programs. Some have caps on system size or aggregate capacity limits, but for a typical residential installation these programs work the way I described above.

A handful of states never had mandatory net metering and leave it up to individual utilities. Texas falls into this category. Some Texas co-ops offer reasonable buyback rates, while others offer almost nothing. You have to check with your specific provider.

Several states have moved to what regulators call "net billing" or "avoided cost" compensation. You still get credit for exported power, but at a rate well below retail. Nevada went through this transition in 2016, reversed course after public backlash, and has since settled on a rate somewhere in between. Arizona utilities have mostly shifted to export rates around 5 to 8 cents per kWh depending on the provider and time of day.

The California NEM 3.0 Situation

California was the biggest residential solar market in the country, and its original net metering program was a major reason why. Under NEM 2.0, solar customers received close to full retail credit for exported power, often 25 to 35 cents per kWh depending on their rate plan.

NEM 3.0, which took effect in April 2023, slashed export compensation by roughly 75%. Export credits dropped to somewhere between 4 and 8 cents per kWh. The stated reasoning was that solar customers were shifting grid maintenance costs onto non-solar households. Utilities had been pushing that argument for years, and the California Public Utilities Commission eventually sided with them.

The impact was immediate. Residential solar installations in California dropped by about 80% in the months that followed. What NEM 3.0 did create was a strong incentive for batteries. Because the export rate is now so low during midday when solar produces the most, it makes more financial sense to store that energy and use it yourself during expensive evening peak hours. Battery attachment rates went from around 15% under NEM 2.0 to over 80% under NEM 3.0. The total system cost jumped by $8,000 to $12,000, which priced out a lot of homeowners who could have afforded panels alone.

Time-of-Use Rates and Net Metering Together

Even in states with full retail net metering, the picture gets more complicated when your utility uses time-of-use pricing. Under TOU rates, electricity costs more during peak hours, typically late afternoon and evening, and less during off-peak hours.

Here is the catch. Solar panels produce the most electricity during midday, which is usually the cheapest TOU period. You draw the most power in the evening, the most expensive period. Some newer rate structures are starting to differentiate between a midday export credit rate and an evening consumption rate, which narrows the effective value of net metering even when the program technically still exists. If your utility is on TOU rates, the optimal setup is panels plus a battery sized to shift your midday production into the evening peak.

The Political Fight Over Net Metering

Every state with net metering has a utility lobbying to reduce it. They say solar customers use the grid as a free battery, exporting power during low-demand hours and pulling it back during high-demand hours, while contributing less to the fixed costs of maintaining lines and transformers. There is some truth to this, though how much depends on the specific grid and solar penetration levels.

Solar advocates counter that rooftop generation reduces transmission losses, defers infrastructure upgrades, and provides clean energy during peak demand. Studies on the "value of solar" have produced numbers ranging from below retail rate to well above it, depending on who funded the research.

The trend is clearly moving in the utility direction. Since 2020, more than a dozen states have either reduced net metering compensation or begun formal proceedings to do so. If you are evaluating solar today, I would model your finances assuming that your net metering rate might decrease within the next five to ten years. If the system still makes sense under a reduced rate, that is a strong sign.

How to Check Your State's Current Policy

State net metering rules change frequently enough that any list I publish could be outdated within months. The most reliable source is the Database of State Incentives for Renewables and Efficiency, commonly known as DSIRE, at dsireusa.org. They maintain current policy summaries for every state, including net metering rules, capacity limits, and pending legislative changes.

Beyond the state-level policy, you need to check with your specific utility. In deregulated states or states where policy is set at the utility level, two households in the same ZIP code can face completely different compensation structures. Call your utility and ask about their solar buyback rate, any capacity caps, and whether they are planning rate changes in the next two years.

Net metering remains the best deal in residential solar where it's still available. If your state offers full retail credit, that's a tailwind worth taking advantage of before the rules change. If your state has already moved to reduced rates, batteries and self-consumption strategies become more important. Either way, knowing exactly what your exported power is worth is the first step in any honest solar calculation.