Net Metering 3.0: What Changes and What It Means

Net metering is the arrangement that determines how much credit a solar customer receives for the electricity their panels send to the grid. For decades, the most common arrangement was retail-rate net metering: the utility credited the customer the full retail price of electricity for every kilowatt-hour exported. That arrangement is being replaced across many states and utilities by successor tariffs that pay less for exports, charge different rates for imports, or both. These changes are often labeled with names such as “net metering 3.0” or “net billing.”

This page explains why those changes happen, what they mean for a new solar installation, and what they do to a system that is already operating. The rules are set at the state and utility level, and they vary widely. What is true in California is not true in Texas, and what is true in one utility’s territory may not be true in the next. Any decision about solar should start with the specific rules for the property’s location, not with a general description.

Why Net Metering Rules Change

The original rationale for net metering was to encourage small-scale solar by giving it a simple, fair value: the same price the customer would have paid for that electricity. As solar has grown, utilities and regulators have argued that this arrangement does not reflect the actual value of solar electricity to the grid, nor the costs that solar customers impose on the grid.

The “duck curve” is a common illustration of the issue. On a sunny day with high solar penetration, midday electricity production from solar can exceed demand, creating a surplus that depresses wholesale prices, sometimes even to negative values. In the late afternoon, as the sun sets and demand rises, the grid must ramp up other generation quickly, which is costly. Under retail net metering, a solar customer exporting at midday receives a credit based on retail rates, which include generation, transmission, and distribution costs, even though the electricity may be worth less than that at that moment.

Thus, successor tariffs aim to align the credit for exports with the actual value of that electricity to the grid, which is often lower than the retail rate. They also may change the structure of charges for solar customers, such as adding fixed fees or demand charges, to ensure that solar customers contribute to grid maintenance costs.

What Changes in a Successor Tariff

Successor tariffs vary, but they generally involve one or more of the following changes:

• Export credit rate: Instead of the retail rate, exports may be credited at a lower rate, such as the avoided cost of generation or a time-of-use rate that reflects the lower value of midday solar.
• Net billing: Instead of netting imports and exports over the billing period, the meter may run in both directions, with imports charged at the retail rate and exports credited at a separate, often lower, rate. The customer pays the difference.
• Time-of-use rates: The price of electricity may vary by time of day, with higher rates in the evening and lower rates at midday. This changes the economics of solar, as the value of self-consumption versus export changes.
• Demand charges or fixed fees: Solar customers may be charged a fee based on their peak usage or a flat monthly fee to cover grid costs.
• Grandfathering: Existing solar customers are often allowed to remain on the old net metering tariff for a period, sometimes 20 years, to protect their investment. New customers must go on the new tariff.

These changes affect the financial return of a solar system. A lower export credit means that the value of solar is more dependent on self-consumption—using the electricity on-site rather than exporting it. A time-of-use rate may make it worthwhile to orient panels to produce more in the late afternoon, even if that reduces total production, because the electricity is worth more then.

What a Change Means for an Existing System

For a system already installed, a change in net metering rules can be disruptive. If the system was sized and financed based on the expectation of retail net metering, a lower export credit can reduce the expected savings. However, many jurisdictions grandfather existing customers for a period, meaning the change does not apply immediately. The length of the grandfathering period and the terms vary; some utilities grandfather for 20 years, others for less, and some do not grandfather at all.

Even with grandfathering, there may be other changes that affect existing customers, such as changes to interconnection rules or to the terms of the net metering agreement. These are usually spelled out in the tariff documents.

If a customer is not grandfathered, or if the grandfathering period expires, the system’s economics change. The owner may need to adjust usage patterns to increase self-consumption, such as shifting electric use to midday, or may consider adding a battery to store solar electricity for use in the evening. These options are not always cost-effective, depending on the specific rates and the cost of batteries.

What to Check Locally

Because net metering rules are set by state and utility, the only reliable way to know the rules is to look them up for the specific location. The following are the key documents and sources to check:

• State public utility commission: Most states have a public utility commission that regulates investor-owned utilities. Their website often has the net metering rules and tariff sheets.
• Utility tariff: The utility’s tariff is the official document that lists rates, charges, and net metering provisions. It is usually available on the utility’s website.
• Interconnection agreement: This is the contract between the customer and the utility for connecting a solar system. It specifies the net metering terms.
• Solar installer: A reputable installer should be familiar with local rules and can provide a proposal based on the current tariff.

It is also worth checking whether the rules have changed recently, as they can change on a regular basis. A proposal from a year ago may be based on outdated assumptions.

Common Misconceptions

One common mistake is to assume that net metering is the same everywhere. A person may hear about “net metering 3.0” in California and assume it applies elsewhere, but it does not. Each state and utility has its own rules, and they can be very different. For example, some states still have full retail net metering, while others have net billing or have eliminated net metering altogether.

Another mistake is to assume that a change in net metering rules makes solar uneconomical. That is not necessarily true. The value of solar depends on many factors: the cost of the system, the amount of sunlight, the retail rate of electricity, the export credit, and the ability to self-consume. A lower export credit reduces the value of exported electricity, but if the system is sized to cover a large portion of the home’s usage, the savings from self-consumption may still be significant. In some cases, a time-of-use rate can actually increase the value of solar if the system produces during peak hours.

A third mistake is to assume that a battery is always the answer to a lower export credit. Batteries can increase self-consumption, but they add cost. Whether a battery makes financial sense depends on the difference between the retail rate and the export credit, the cost of the battery, and the usage patterns. In some cases, a battery may be worthwhile; in others, it may not.

Comparison of Net Metering Arrangements

The following table compares common net metering arrangements. The “When It Does Not Apply” column indicates situations where that arrangement is not in effect.

What People Get Wrong About Net Metering Changes

A common misdiagnosis is to blame the utility for “changing the rules” and assume that solar is no longer worth it. This is a natural reaction because the change does reduce the value of exports, but it overlooks the fact that the rules are set by regulators, not just the utility, and that the change reflects a broader policy shift. The value of solar is not solely determined by the export credit; it is also determined by the retail rate, the cost of the system, and the ability to self-consume. A change in net metering may reduce the return, but it does not necessarily eliminate it.

Another misdiagnosis is to assume that a battery is always the solution. This is a natural assumption because a battery allows the customer to store solar electricity and use it later, avoiding exports. However, the economics of a battery depend on the rate structure. If the difference between the retail rate and the export credit is small, a battery may not pay for itself. Also, if the utility has a demand charge, a battery may help reduce that charge, but that is a separate consideration.

A third misdiagnosis is to assume that the rules will not change again. Some customers may think that once they are on a net metering tariff, they are protected forever. But even with grandfathering, the tariff may have a sunset date, or the utility may change other aspects of the service. It is prudent to read the interconnection agreement carefully and to understand the duration of the grandfathering period.

Conclusion

Net metering rules are changing across the country, and the trend is toward lower export credits and more complex rate structures. Understanding the specific rules for a location is essential for evaluating the economics of solar. A change in net metering does not necessarily make solar uneconomical, but it does change the calculation. Existing customers may be protected by grandfathering, but not always. The key is to look up the local rules and to consider the system’s design in light of those rules.