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As the solar revolution continues, homeowners are increasingly seeking ways to maximize their savings by harnessing the sun’s power. Net metering and net billing are crucial mechanisms that determine how you’re compensated for the surplus energy your solar panels generate. However, with evolving policies and diverse compensation structures across the U.S., it’s essential to stay informed about these programs in 2025.
Net Metering vs. Net Billing: Decoding the Key Differences
Both net metering and net billing allow homeowners to receive credits for the excess electricity they send back to the grid. The fundamental difference lies in the value assigned to those credits:
Net Metering
Credits are valued at the retail rate, meaning you receive the same price for your exported electricity as you pay for electricity from the grid. This maximizes your savings.
Net Billing
Credits are valued at the wholesale rate, which is typically lower than the retail rate. This means you earn less per kilowatt-hour (kWh) for your exported solar power.
The transition from net metering to net billing in many states significantly impacts solar payback periods and overall financial returns.
How Net Metering Works: Maximizing Your Solar Savings
Net metering allows you to effectively “store” excess solar energy on the grid. Here’s a breakdown:
Surplus Generation
When your solar panels produce more energy than your home consumes, the excess flows to the grid
Retail-Rate Credits
Your utility company credits you for each kWh exported at the full retail rate
Grid Consumption
When your solar system doesn’t produce enough energy (e.g., at night), your home draws power from the grid
Net Energy Calculation
Your utility offsets your grid consumption with the earned credits. If you generate more than you use, the credits often roll over to the next billing cycle
Net Metering in 2025: How Solar Energy Savings Are Changing for Homeowners
Impact on Your Bill: The Power of Net Metering
Net metering can dramatically reduce or even eliminate your electricity bill. However, where full net metering has been phased out, compensation will be reduced.
Example: If you export 500 kWh in a month and your retail rate is $0.15 per kWh, net metering credits will reduce your bill by $75.
Net metering is managed by your utility company, so any credits should be reflected on your regular electricity bill. Be sure to confirm the details with your utility provider.
How Net Billing Works: Understanding Reduced Compensation
Net billing offers a different compensation model, with credits valued at a lower rate.
Excess Generation
Your solar panels send surplus electricity to the grid
Wholesale-Rate Credits
Your utility provides credits at the wholesale rate, which is significantly lower than the retail rate
Grid Consumption Costs
You pay the full retail price when drawing electricity from the grid
Net Billing Example
A homeowner exports 500 kWh to the grid:
- With net metering: Credits at $0.15 per kWh = $75 saved
- With net billing: Credits at $0.05 per kWh = $25 saved
This illustrates the reduced compensation under net billing and the potential for a longer payback period.
Recent Policy Changes Affecting Net Metering and Net Billing
Utilities argue that net metering can shift grid maintenance costs to non-solar customers. Net billing aims to align compensation with the actual value of exported solar power.
In recent years, several states have re-evaluated their compensation structures for distributed solar generation:
Illinois
Effective January 1, 2025, Illinois is transitioning from full retail rate net metering to a system where new solar customers receive credits only on the supply portion of their bills. Additionally, these customers are eligible for a “Distributed Generation Rebate,” requiring the use of smart inverters, with a minimum rebate of $300 per kilowatt of generating capacity. Existing solar customers prior to this date will continue to receive full net metering benefits for the lifetime of their systems.
California
The state has implemented significant reforms to its net metering policy, known as NEM 3.0, which substantially reduce the compensation rates for surplus solar energy sent to the grid. This change aims to balance the financial impacts on non-solar customers and encourage the adoption of energy storage solutions.
Virginia
Proposals are underway to significantly reduce net metering compensation by more than 70%, reflecting a broader trend of states reassessing the financial structures supporting distributed solar generation.
Types of Solar Compensation Programs in 2025
As solar policies evolve, utilities and states have adopted various compensation models beyond traditional net metering. These programs impact how homeowners and businesses receive credit for surplus solar energy.
Retail Net Metering
This long-standing model allows solar owners to receive full retail-rate bill credits for excess electricity sent to the grid. It maximizes savings but reduces revenue for utilities, leading many to advocate for alternative structures. Several states, including Illinois and Virginia, are shifting away from this model.
Designed for participants in community solar projects, virtual net metering enables customers to receive the same compensation benefits as traditional net metering without needing a system on their own property. This model is common in states like New York, Minnesota, and Maryland, where community solar programs are expanding.
Avoided-Cost Compensation
Some utilities use the avoided-cost model, compensating solar customers based on the utility’s cost savings rather than the retail rate. Since it reflects a monetary credit rather than a one-to-one energy exchange, avoided-cost rates are considered a form of net billing. States like California and Arizona have transitioned to this approach.
These compensation structures directly impact solar savings, system payback periods, and the feasibility of residential solar investments. Homeowners should check with local utilities to understand which compensation model applies in their area before making solar decisions.
How Solar Compensation Programs Impact Savings in 2025
The type of solar compensation program you enroll in – whether net metering, net billing, or another incentive model – can significantly impact your energy savings and return on investment. Here’s how different programs affect the financial benefits of going solar.
Credit Value: Retail vs. Wholesale Compensation
One of the biggest factors influencing savings is the value of the credits you receive for excess electricity.
Net Metering
Offers full retail-rate credits, meaning every kWh you send to the grid is worth the same as the electricity you consume. This maximizes savings by effectively “banking” energy for later use.
Net Billing
Provides credits based on the wholesale rate (what utilities pay for electricity), which is lower than retail rates. This reduces compensation for surplus energy, making solar savings less predictable compared to net metering.
Offsetting Energy Costs
With net metering, you can use stored credits to offset future electricity usage, significantly lowering your monthly utility bills.
Net billing still provides savings but often leaves homeowners with a balance to pay due to the lower credit rate.
Impact on Solar Payback Period
Net metering shortens the payback period, allowing homeowners to recover their investment faster through higher savings.
Net billing may extend the payback timeline since compensation is lower, meaning it takes longer to break even on solar system costs.
Long-Term Financial Benefits
Net metering provides more stable and predictable savings since credit values remain consistent.
Net billing is subject to market fluctuations and utility pricing changes, leading to variable long-term savings.
Availability and Policy Changes
The availability of these programs varies by state and utility. Many states, including California, Arizona, and South Carolina, have already shifted from net metering to net billing, impacting homeowner savings. As policies continue to evolve, it’s crucial to research your state’s current solar incentives before making a decision.
Net Metering & Net Billing Policies by State (2025 Update)
Utilities often oppose net metering programs, leading to frequent changes in state and local policies. These policies vary widely by state and utility. For example, Idaho and Texas don’t mandate net metering, but some utilities still offer it. To understand the programs available in your area, it’s best to consult a trusted local installer.
| State | Compensation policy |
|---|---|
| Arizona | Net Billing |
| California | Net Billing (NEM 3.0) |
| Colorado | Net Metering |
| Florida | Net Metering |
| New York | Net Metering |
| Texas | Varies by Utility |
| Illinois | Transitioning to Net Billing |
| Hawaii | Reduced Compensation, or No Compensation. |
| South Carolina | Net Billing |
| Nevada | Net Metering & Net Billing |
| Michigan | Net Billing |
| Washington | Net Metering |
Disclaimer: The information presented here is intended to provide a general overview of net metering policies and their potential benefits for homeowners with solar installations. All data is taken from open sources. However, this information should not be considered as official financial, legal, or technical advice. Net metering policies, utility rates, and incentive programs can vary significantly by location and are subject to change over time.
Key Points
- Net metering and net billing determine your solar savings.
- Net metering offers higher compensation.
- Net billing reduces financial benefits and extends payback.
- State policies vary widely.
- Research local policies and incentives.
Navigating the Solar Landscape in 2025
Understanding your state’s solar compensation policies is crucial for making informed decisions. While net metering offers the greatest financial benefits, the shift to net billing necessitates exploring alternative strategies, such as battery storage, to maximize your solar investment.
Actionable Steps
- Stay informed about policy changes.
- Consult with a local solar expert.
- Use a solar calculator to estimate your savings.
By staying informed and proactive, you can make the most of your solar investment in 2025 and beyond.
