Net metering is one of the best solar incentives. Is it going away?

GRID Solar and Electric via REC Group 

California has long been heralded as the top solar state. It has the largest solar capacity, the most installations, and a mandate that all new home builds include solar. But in 2023, California changed its net metering policy to something called net billing, also known as NEM 3, making solar a much less compelling offer to homeowners. 

Net metering is one of the most important solar incentives, and the way it works is pretty simple. You earn credits for supplying any solar electricity you don't use to the grid. When the sun isn't shining and you need to pull energy from your utility, it counts against your banked credits. Net metering keeps your electric bills low, or even zero with solar panels.

In 2023, four states besides California made major modifications to their net metering policies that lower compensation rates. Five more could make big changes this year. Here are the states we're watching in 2024.

According to Brian Lips, Senior Policy Analyst at the NC Clean Energy Technology Center, it all started back in 2013 when the Edison Electric Institute commissioned a report about net metering that documented the "utility death spiral." The idea is that as solar prices fall, more homeowners will go solar and rely less on utility companies. To compensate for losses, utilities will raise prices, driving even more homeowners toward solar. 

"After that report, I expected to see an avalanche coming but it kind of happened slowly at first and has ramped up over time," said Brian, regarding states shifting away from net metering. The first major blow came in 2015 when Hawaii switched from net metering to net billing. Instead of receiving net metering credits worth what they pay for electricity (the retail rate), Hawaii homeowners now earn credits worth what their utility pays for electricity supply (the avoided cost rate) which, no surprise, is a lot lower. 

In the following years, a few states tried to follow Hawaii. Some were successful, like Arizona, which started phasing down to the avoided cost rate in 2016. Others, like Maine, were unsuccessful and still have net metering in place. As of 2024, over half of states have mandatory net metering rules for certain utilities, according to DSIRE, a database powered by the NC Clean Energy Technology Center that tracks clean energy policies and incentives. DSIRE just released its quarterly 50 States of Solar report for Q4 2023 in January, which documents the latest state solar policy changes.

Now, Brian says, after several good years for solar, it has a target on its back. Some utilities argue that net metering places an unfair burden on low-income customers. Wealthier households are more likely to go solar, and when utilities raise prices, they get passed on to those without solar. Many utilities also want to push more homeowners to pair solar panels with home batteries, which help stabilize the grid and become much more attractive when net metering isn't available.

In 2023, four states approved amendments to their current net metering or net billing policies that significantly lowered compensation for homeowners going solar. 

Arkansas

If you live in Arkansas, you have until September 30, 2024 to install solar panels if you want to lock in net metering for 20 years. Last year, the state enacted legislation that required a transition to net billing. If you wait to go solar, you'll receive compensation at the avoided cost rate instead of the retail rate like in California, and you'll miss out on thousands in savings. 

Hawaii

As we mentioned earlier, Hawaii switched from net metering to net billing back in 2015. Homeowners still install solar panels, but most pair them with a battery so they're no longer dependent on the grid for electricity. 

In 2022, Hawaiian Electric faced an electricity shortage after shutting down a coal-fired power plant. To encourage its solar customers to supply electricity to the grid, the utility company created the Battery Bonus Program. Under this program, if you added a battery to your solar panel system and agreed to send electricity to the grid during two hours each night when Hawaiian Electric needed the power, they'd pay you a generous upfront bonus to install the battery and extra money every time you sent electricity to the grid.    

The program was wildly successful: In 2022, Hawaii saw a 96% battery attachment rate. But, in December 2023, it stopped accepting new applicants. Its successor Bring Your Own Device (BYOD) program begins in March 2024 and doesn't look promising. It's extremely complicated, provides significantly lower compensation, and requires you to sign up for a new time-of-use (TOU) electricity rate plan to be eligible. Every time you supply electricity to the grid, you'll actually lose money under the BYOD program, so you might be better off not signing up at all. 

Idaho

In December 2023, the Idaho Public Utilities Commission approved Idaho Power to shift from net metering to net billing, which the Sierra Club estimates reduces solar export compensation by about 32%. The new rates took effect on January 1, 2024. If you installed or purchased your system by December 20, 2019, you're grandfathered into net metering until December 20, 2045. Otherwise, you're already receiving lower compensation and might consider adding a battery. 

North Carolina

The North Carolina Utilities Commission approved Duke Energy to switch from net metering to a TOU export rate in March 2023. The new compensation rates include a grid access fee and slash electric bill savings by about 30-40% for most North Carolinians with solar. If your installer applied for interconnection before October 2023, you'll be grandfathered into net metering until 2027. 

In 2027, you'll be placed on a modified net metering rate called the Bridge Rate for 15 years after your interconnection date. With the bridge rate, you'll be subject to a minimum bill requirement and some extra charges, but you won't have to pay a grid access fee or be on TOU rates. Basically, your savings will be higher than with the TOU export rate.

If haven't already gone solar in North Carolina, there's still hope. By investing in a system before 2027, you can still choose the Bridge Rate and be grandfathered in for 15 years after your interconnection date. It's subject to annual caps though, so be sure to confirm your eligibility. We recommend going solar early in the year.

It's now been almost a year since California implemented its net billing tariff. While each state is unique, California serves as a good case study to see how transitioning away from net metering can impact the solar industry. Here's what we've seen so far in California, and what industry experts are predicting in 2024:  

Fewer solar installations and less confidence in the industry

California solar growth has already slowed and will likely drop further as a result of net billing. Wood Mackenzie, a global research group, predicts that California installations will be down 38% in 2024, while ROTH Capital Partners, LLC, an investment bank, predicts a 50% market contraction in 2024. 

We surveyed California installers and found that they anticipate sales being down an average of 23% in 2024 compared to 2023. They also expect 2023 sales to be down 15% year over year, despite a huge rush to go solar at the start of the year before net billing was officially implemented in April 2023. When asked about their confidence in the solar industry, 65% of California respondents said they were less confident compared to last year. 

More battery storage

In the first six months of 2023, California had the lowest battery storage interest of any state on EnergySage. After switching to net billing, it jumped to the fifth most interested state. Based on data from our latest Solar and Storage Marketplace report, which comes out later this quarter, about 80% of California homeowners now request storage quotes on EnergySage, up from 60% in the first half of 2023.  

California installers are poised to meet this new storage demand. When asked how they plan to adapt their business as a result of the new net billing tariff, half of California installers said they would only install solar panel systems paired with batteries. 

Job losses

Fortunately, none of the installers we surveyed said they'd exit the industry. However, the California Solar and Storage Association (CALSSA)'s much larger survey of California installers paints a different picture. It found that 17,000, or about 22% of solar jobs were lost in 2023 as a result of net metering changes. About 59% of installers anticipated even more layoffs in the future.

Despite the major blows to the California solar industry, several states are already considering similar net metering changes in 2024. If you live in one of the following states, it could be worth going solar sooner rather than later before anything's approved.

Arizona

Arizona switched from net metering to net billing back in 2016, drastically reducing the payback amounts to solar owners who send power back to the grid. In October 2023, the Arizona Corporation Commission decided to start exploring if it should further reduce compensation rates by over 10%. Nothing's been decided yet.

Illinois

Illinois will transition away from net metering in 2025. The new compensation rate plan isn't finalized so we're not sure how much lower savings will be, but we'll be tracking it throughout 2024. If you register for net metering before January 1, 2025, you'll be grandfathered in for your system's entire lifetime. So if you live in Illinois and you're considering solar, now's the time!

Oregon

In addition to southern Idaho, Idaho Power provides electricity to customers throughout eastern Oregon. The utility company is proposing to transition Oregon from net metering to net billing, just like it did this year in Idaho. Oregon previously rejected the changes, but Idaho Power will likely keep pushing for them throughout 2024.

West Virginia

In West Virginia, Monongahela Power and Potomac Edison both proposed transitioning from net metering to net billing for homeowners connecting solar panel systems on or after March 27, 2024. Regulators are currently reviewing the proposal, which would slash the amount of money you earn for sending solar electricity to the grid in half. 

The state will likely make some changes to its net metering policy, but it's possible that the changes won't be as drastic as the two utility companies have requested. The Public Service Commission of West Virginia has said it recommends cutting compensation by 32% instead of the proposed 49%.

Wisconsin

Madison Gas & Electric and Wisconsin Power & Light both filed proposals in 2023 to switch from net metering to net billing. While Wisconsin regulators rejected the changes, the Wisconsin Public Service Commission decided to conduct an investigation into the value of net metering as a result. Coming out of that investigation, we could see some new proposals to cut net metering in the state this year.

These are the states that we’re watching the closest, but there are still others that could end net metering soon. Installing panels as soon as possible is your best chance of getting the highest long-term solar savings. So far, most (but not all) states have grandfathered current solar customers into net metering for a significant period of time. So even if your state makes major changes to its net metering compensation rates, there's a good chance you won't be impacted if you already have solar. We can help with that. Sign up for our free Marketplace to compare multiple solar quotes to see how much you can save.