A rooftop solar system produces most of its output in the middle of the day, when a typical household is using least. The surplus flows back onto the grid. What you are credited for that surplus is decided by state policy, and that policy has been the subject of a long and bad-tempered argument for fifteen years.
The two models
Net metering
The original arrangement, and the simplest. Your meter runs backward when you export. A kilowatt-hour sent out cancels a kilowatt-hour brought in, at the full retail rate, and you settle the net at the end of the billing period.
Full retail net metering is extremely favourable to solar owners because retail rates include delivery costs and policy charges as well as the energy itself. You are effectively being paid the delivery cost for using a network you are still connected to.
Net billing
The newer arrangement. Consumption is billed at retail; exports are bought at a separate export rate, usually much lower and often varying by hour. California's current tariff, Arizona's export credit and Nevada's tiered structure all work this way.
Export rates under net billing are frequently a quarter to a third of retail. That does not make solar uneconomic, but it does change the design goal: the value is now in consuming your own production rather than in selling it.
Why utilities pushed for the change
The argument is about cost shifting, and it is more legitimate than solar advocates usually concede and less decisive than utilities usually claim.
Most of a residential bill recovers fixed network costs through a per-kilowatt-hour charge. A household that halves its net consumption halves its contribution to those fixed costs, but the poles and wires serving it still exist, are still maintained, and are still needed at night. The shortfall is recovered from everyone else.
The counter-argument is that distributed solar also defers transmission investment, reduces peak-hour generation cost and lowers system losses, and that full-retail crediting was a deliberate subsidy to build an industry that now exists. Both sides have a point. The result has been a slow national drift from net metering toward net billing.
What decides whether solar pays where you live
Four variables, roughly in order of importance.
- Your retail rate. Solar displaces electricity you would otherwise buy, so a high rate makes it more valuable. At the U.S. average of 18.44¢ the arithmetic is moderate; at Hawaii's 52.00¢ it is overwhelming.
- The export rate. Under net billing this can be a fraction of retail, which shifts the design toward self-consumption and storage.
- Your production. The desert Southwest produces far more per installed kilowatt than the Pacific Northwest or New England.
- Fixed charges and minimum bills. Some utilities apply a higher fixed charge or a minimum monthly bill to solar customers, which caps how far your bill can fall regardless of production.
How the states differ
Hawaii is the strongest case in the country and not close. At 52.00¢ the rate being displaced is so high that payback is short even under restrictive export terms. Hawaii has among the highest rooftop solar penetration anywhere in the world, and the binding constraint there is grid capacity and programme availability rather than economics.
California moved from full retail net metering to an export-rate tariff that values exports far below retail. The change was fiercely contested and it materially altered payback periods. It also made batteries close to essential for a well-designed system, because storing midday output to use in the evening peak avoids buying at the highest tier.
Arizona and Nevada both moved to export credits set administratively and stepping down over time, with grandfathering by installation date. Anyone quoting you Nevada solar economics from older figures is quoting a tier that may no longer be available.
Arkansas retains one of the more workable frameworks in the South, though what applies depends heavily on which utility territory a property sits in.
Across much of the Southeast and the regulated Mountain West, export compensation is set at avoided cost, which is the utility's marginal generation cost and typically well below retail. Solar there is usually about self-consumption rather than export.
Questions to ask before signing anything
- Which tariff will my system be on, by name, and for how long is it grandfathered?
- What is the export rate, and does it vary by hour or season?
- Is there a minimum monthly bill or a solar-specific fixed charge?
- What happens to unused credits at the end of the year? Some states cash them out at a low rate, some forfeit them.
- Is my utility state-regulated, or a co-op or municipal setting its own rules?
- What share of my production does the proposal assume I consume myself, and is that assumption realistic for my household?
Be sceptical of any proposal that models savings using the full retail rate for every kilowatt-hour produced. In a net billing state that overstates the return substantially, and it is the most common flaw in sales modelling.
Where to check
Interconnection and export rules are published by your state commission, and by the utility itself for co-ops and municipals. The rules change often enough that anything more than a year or two old should be verified rather than trusted.
Your state's current retail rate, which is the number solar displaces, is on its rate page, and the average bill comparison shows what a typical household there is actually spending.