The way your local utility compensates solar export shapes every major decision in your project — system size, storage strategy, and financial returns. Net metering and feed-in tariffs are the two dominant mechanisms globally, but the details vary enormously by market and are subject to ongoing regulatory change.
Net metering: export credit at retail rates
Under net metering (NEM), a bi-directional meter measures the difference between generation and consumption. When solar output exceeds on-site demand, excess electricity flows to the grid and the meter runs backward — crediting the customer at the retail electricity rate. When consumption exceeds generation (at night, on cloudy days), the customer draws from the grid and pays the normal retail rate.
At the end of the billing period, the customer pays only the "net" — consumption minus generation credits. The key feature of net metering is that exported electricity is valued at the full retail rate, which in most markets is $0.10–0.30/kWh. This makes net metering highly favourable for solar economics.
Net metering is widely available across the US (though with significant state-by-state variation), in parts of Australia, South Africa, the Philippines, India, and other markets. It is being progressively revised or reduced in many markets as grid operators seek to better align solar compensation with the actual value of exported generation at different times of day.
Feed-in tariff: fixed payment for exported generation
A feed-in tariff (FiT) pays a fixed rate for every unit of solar electricity exported to the grid, independent of the retail electricity rate. Early FiT schemes (Germany's Erneuerbare-Energien-Gesetz, UK's original FiT scheme, Japan's FiT programme) paid premium rates — $0.30–0.60/kWh — far above retail prices, which drove massive solar deployment but created significant subsidy costs for governments.
Most contemporary FiT schemes pay at or below retail rates — essentially a Smart Export Guarantee (UK's current system), which pays a small premium for exported units but does not provide the full retail rate credit. Contemporary FiTs in most markets are now significantly less generous than early schemes.
Direct comparison
| Feature | Net Metering | Feed-in Tariff |
|---|---|---|
| Rate for export | Retail rate (often $0.10–0.30/kWh) | Fixed rate (varies; often $0.03–0.15/kWh currently) |
| Rate certainty | Varies with retail rate | Fixed for a term (10–20 years in classic schemes) |
| Export size incentive | High — more export = more credit | Lower in most current markets |
| Storage incentive | Low when NEM rate is high | High when FiT < retail rate (store for self-consumption) |
| System sizing | Size to consumption; larger arrays export profitably | Size to self-consumption when FiT < retail rate |
| Markets (examples) | USA, India, Philippines, South Africa | UK (SEG), Germany (current reduced EEG), Australia (small) |
How export compensation affects system sizing
The optimal system size depends critically on export compensation. Under full net metering (export at retail rate), oversizing is economically attractive — a 200 kWp system on a 150 kW load profile can export the surplus profitably. Under a low FiT (export at $0.04/kWh but retail is $0.20/kWh), the optimal strategy is to size the system to match consumption and minimise export — with battery storage capturing excess generation for evening use rather than exporting it at low rates.
This is exactly the shift NEM 3.0 caused in California: systems sized to consumption (not to maximise export), co-installed with BESS to capture midday surplus generation, replaced the large "export-first" arrays that characterised NEM 2.0 economics.
The self-consumption maximisation imperative
In markets where export rates are below retail rates — the majority of current markets globally — self-consumption maximisation is the correct economic strategy. Every kWh consumed from solar generation rather than exported avoids paying the retail rate (an "avoided cost" saving). Every kWh exported earns only the low FiT rate. The arithmetic strongly favours consumption over export.
Strategies to maximise self-consumption:
- Battery energy storage: Store midday surplus for evening use — the most effective tool in sites with a significant evening load
- Load shifting: Move flexible loads (HVAC pre-cooling, EV charging, hot water heating) to midday solar peak hours
- Demand response: Coordinate with grid signals to increase consumption during high-generation, low-tariff periods
- System right-sizing: Do not significantly oversize — match array generation to daytime consumption profile