Most future solar owners get excited when they learn about net metering since it helps them gain the most value out of their solar system as early as possible.
However in recent years, many states have made the transition towards net billing, a slightly different billing mechanism that has garnered mixed reviews in the solar industry.
Net metering and net billing are both incentive programs that compensate solar owners for excess solar electricity produced by their system. Hoever, they each have distinct features that have unique implications for savings and return on investment for households and businesses with rooftop solar.
In this article, we’ll explore these two billing systems and how they could impact your solar system investment.
What is net metering?
Net metering is a billing structure and incentive that helps solar owners make the most of their solar systems early on. Specifically, it helps customers receive credits for extra, unused solar energy that they send back to the grid.
When your solar system generates more energy than you need during peak generation hours (ex: in the summer, when days are longer), you can easily opt to send that energy back to the grid after which your utility will credit you for every unused kilowatt-hour. You can then use these net metering credits to reduce (and potentially eliminate) your electric bills during high usage periods, when your system underproduces relative to your expected needs (ex: during the winter or at night time).
What is net billing?
Net billing is a slightly different version of net metering. With net billing, consumers still get compensated for the leftover solar energy generated by their system, however it’s at the lower wholesale rate of electricity and not the retail rate usually paid by customers. This helps utilities gain more value for the energy they receive by paying for it at its actual cost.
Solar users are negatively impacted since they are compensated at a lower rate in a net billing program. Since the value of net billing credits is lower than the retail rate of electricity, their long term saving potential is reduced and the payback period for their solar system is extended. However, it is still an incentive program that compensates you for your solar energy!
Why are more states shifting to net billing?
A growing number of utilities and states are adopting net billing policies for a number of reasons.
- Net billing helps stabilize the grid
Net metering incentivizes clean energy use by crediting solar owners for any extra solar energy that they send back to the grid. The problem is, this influx of extra energy can destabilize the grid. Since it is already outdated, it can’t always handle the volume of extra solar energy it receives. When that happens that electricity is curtailed (in other words, cut off) and this leads to wastage of renewable solar energy.
What’s more is excess solar energy is generated during peak daylight hours which are typically low demand hours. Since the demand for energy increases later at night when a solar system is no longer producing, the grid needs to be able to kick in immediately to meet this demand. This mismatch puts additional stress on grid infrastructure as it struggles to balance the demand and supply of energy in real time.
Net billing therefore encourages solar owners to be more efficient with their energy usage. It also encourages solar owners to resort to battery use as a means to store extra solar energy, thus alleviating some of the pressure put on the grid.
- Net billing avoids regressive cost shifting
Net metering is a popular incentive because it helps solar owners save more on their future electric bills and potentially remove them completely. However, there is a downside to this. While consumers now have less to pay for grid electricity, they still rely on the grid to power their homes when their solar system is not producing (for example, at night). Somebody still has to pay for keeping the grid running so that burden falls on non-solar owners.
The leftover costs of maintaining the grid are shared amongst them and they end up having to subsidize the cost of grid electricity for solar owners. This is known as regressive cost shifting. Net billing helps to remove this cost imbalance to ensure that everybody pays their fair share.
Net billing in various states
Different states have made the shift to net billing or are currently adjusting their net metering policies to feature net billing components.
| State | Net Billing Policy |
| Arizona | Follows a net billing structure under which compensation rates can’t drop by more than 10% each year |
| California | Transitioned to NEM 3.0 system, which compensates customers at the lower wholesale rate of electricity |
| Hawaii | Offers net billing under the Smart Renewable Energy Export program |
| Indiana | Has adopted net billing as part of the state’s Excess Distributed Generation Policy |
| Kentucky | Some utilities have switched to net billing and credit customers at an avoided cost rate |
| Michigan | Utilities credit customers typically at less than half the retail price of electricity |
| Mississippi | Follows a net billing system that credits customers at less than half the retail rate |
| Utah | Largest utility, Rocky Mountain Power, offers net billing although smaller utilities still offer net metering |
| New York | Has shifted to a Value of Distributed Energy Resource (VDER) system |
| Illinois | Since January 1, 2025, has transitioned to a supply-only net billing policy |
| Louisiana | Has switched to net billing since January 2020; solar installations prior to this can still benefit from net metering for 15 years |
Final Note About Net Billing
As mentioned above, net billing is a slightly modified version of net metering so it is still an incentive to go solar. It just does so at a lower extent. Whereas with regular net metering, customers get a maximized return and savings on their solar investment thanks to their net metering credits (evaluated at the retail rate), with net billing, they are still compensated for their excess energy but at a lower rate so their return and savings are lower.
However, although net billing provides less value for solar energy credits, it also promotes cost equity and battery storage, which helps solar owners further increase their energy independence.
Despite their differences, net billing and net metering are both valid incentives for the adoption of solar energy. If you are ready to go solar and would like to learn more about your options, reach out to us for more information!
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Written By Alfreda Adote | Edited By Lauren McGregor