California’s shift from NEM 2.0 to NEM 3.0 in April 2023 was the most significant change to residential solar economics in the US market in over a decade. Under NEM 2.0, California solar owners received credits close to the retail electricity rate for excess solar exported to the grid — typically 25–32¢/kWh. Under NEM 3.0, export credits dropped to an average of 5–8¢/kWh (the “avoided cost” rate), reducing the value of exported solar by 75–80%.
This guide explains exactly how NEM 2.0 and NEM 3.0 differ, how the change affects solar system economics, what grandfathering means for existing systems, and how battery storage changes the calculus under NEM 3.0.
How NEM 2.0 Worked
Net Energy Metering 2.0 (NEM 2.0) was California’s net metering policy from 2016 to April 2023. Under NEM 2.0:
Export credit rate: Customers received credits for exported solar at approximately the retail electricity rate — the same price per kWh they paid to import power from the grid. For PG&E, SCE, and SDG&E customers, this typically meant 25–32¢/kWh export credits depending on the rate schedule.
Net billing: Monthly excess credits rolled forward as a credit balance. Once a year (at the customer’s anniversary date), any remaining credit was paid out at the 12-month average export rate (slightly below retail). This allowed customers to build summer credit reserves that offset winter grid draw.
System size: Systems were capped at 100% of annual energy consumption (the “netting rule”). A customer using 10,000 kWh/year could install a system sized to produce 10,000 kWh/year but not substantially more.
Interconnection fee: A one-time non-bypassable charges (NBC) that varied by utility, typically $75–$150.
Economics under NEM 2.0: With export credits at retail rates, excess solar production had full retail value. System sizing for 100% offset — producing exactly as much as the home consumed annually — was standard. Payback periods under NEM 2.0 were typically 6–9 years for a 7–8 kW system, and battery storage was optional since the grid served as a free “virtual battery” through net metering.
How NEM 3.0 Works
NEM 3.0 (officially the Successor Tariff) went into effect April 15, 2023, for new solar customers in California. Key changes:
Export credit rate (NBT — Net Billing Tariff): Credits for exported solar are calculated hourly at the “Avoided Cost Calculator” (ACC) rate — reflecting what the utility avoids paying for wholesale electricity at that specific hour. This rate varies by time of day, season, and utility but averages 5–8¢/kWh — roughly one-quarter to one-third of the retail rate under NEM 2.0.
Time-of-use dimension: Unlike NEM 2.0’s flat retail-rate credits, NEM 3.0 ACC rates vary by hour. Export during the peak demand period (4–9 p.m.) earns higher credits (10–20¢/kWh) than midday export (2–5¢/kWh) when solar production is highest. This creates a strong financial incentive to shift solar export to peak hours — which is only possible with battery storage.
Monthly reconciliation: Monthly net billing instead of annual true-up. Credits do not roll forward indefinitely — unused export credits within a month pay out at the lower NBT rate rather than accumulating at retail rate for the annual true-up.
System size: No longer capped at 100% of consumption. Customers can install larger systems, but the economics of overproduction are less favorable since all exports earn avoided-cost rates.
Monthly minimum billing: SDG&E customers pay a minimum of $24/month; PG&E and SCE customers pay minimum bills of $10–$15/month regardless of how much solar they produce.
The Financial Impact of NEM 3.0 vs NEM 2.0
The CPUC estimated that the average NEM 3.0 solar customer would see a reduction in bill savings of approximately $1,000/year compared to NEM 2.0 for a similarly sized system. Independent analysis from the California Solar and Storage Association (CALSSA) and Lawrence Berkeley National Laboratory confirmed that NEM 3.0 reduces the financial return of solar-only systems by 30–50% depending on the customer’s rate plan and usage profile.
Specific impacts by system type:
Solar-only under NEM 3.0: Self-consumed solar retains full value (retail rate avoided). Exported solar earns 5–8¢/kWh instead of 25–32¢/kWh. For a typical California home exporting 30–40% of production, the reduced export value cuts annual savings by 30–40%. Payback periods for solar-only systems extend from 6–9 years to 9–14 years in most cases.
Solar + battery under NEM 3.0: Battery storage stores midday surplus instead of exporting at low rates, then discharges during the 4–9 p.m. TOU peak when retail electricity costs 35–50¢/kWh. This self-consumption strategy replaces low-value exports with high-value self-consumption. With a properly sized battery (10–13 kWh), NEM 3.0 payback periods can approach NEM 2.0 economics. CALSSA modeling showed solar + storage payback of 8–12 years under NEM 3.0 in most California markets, comparable to NEM 2.0 solar-only payback.
Who Is Grandfathered on NEM 2.0?
Customers who received a Permission to Operate (PTO) or submitted a complete interconnection application before April 15, 2023 are grandfathered on NEM 2.0 for 20 years from their interconnection date. This means:
Customers who installed solar before April 15, 2023 and are currently on NEM 2.0 remain on NEM 2.0 through approximately 2042–2043 (20 years from their original interconnection).
Customers who submitted interconnection applications before April 15, 2023 — even if the system was not yet installed — are grandfathered if PTO is received within 3 years of application (by April 15, 2026).
Grandfathering does not transfer to a new homeowner if the home is sold. The new homeowner takes over the existing solar system but is placed on the current tariff (NEM 3.0) at the time of account transfer unless the sale and transfer occurred while the previous owner was still on NEM 2.0 (interpretation of transfer rules is utility-specific — consult your utility for the current transfer policy).
Significant expansions of an existing NEM 2.0 system (adding panels or storage) may trigger a tariff change review at the utility’s discretion.
NEM 3.0 and Battery Storage — The New Economics
NEM 3.0 fundamentally changed the economics of battery storage from “optional” to “strongly recommended” for new California solar installations. The math:
Under NEM 2.0: A solar system exports excess midday production at ~28¢/kWh retail credit. The battery would store that midday production and discharge it in the evening at ~28¢/kWh retail rate. The arbitrage value of the battery (28¢ storage vs 28¢ export) was zero, and the battery could only earn value through outage protection and emergency backup. This is why battery attach rates were relatively low under NEM 2.0.
Under NEM 3.0: A solar system exports excess midday production at ~5¢/kWh (avoided cost). The battery stores that midday production and discharges in the 4–9 p.m. TOU peak at rates of 35–50¢/kWh (retail peak rate avoided). The arbitrage value of the battery is now 30–45¢/kWh for each kWh shifted from midday export to evening self-consumption. This is why California’s battery attach rate for new solar systems exceeded 80% in 2023–2024 following NEM 3.0 implementation.
The optimal battery size under NEM 3.0 is typically one that can store the full midday solar surplus (the production that exceeds daytime home consumption) and discharge it entirely before midnight. For a typical California home, this is 10–15 kWh per battery cycle. One Tesla Powerwall 3 (13.5 kWh) handles most homes; larger systems benefit from two.
NEM 3.0 Impact on Solar Market
California’s solar market contracted significantly following NEM 3.0 implementation. CALSSA reported that new residential solar interconnection applications dropped approximately 80% in the months following NEM 3.0 implementation in April 2023 compared to the pre-NEM 3.0 rush. The market stabilized through 2024 as installers adapted to marketing solar-plus-storage systems and customers accepted the longer payback periods.
The NEM 3.0 structure also changed which customers benefit most from solar:
High electricity users who can self-consume most of their production benefit the most, since self-consumed solar retains full retail value. High-rate customers (particularly SDG&E customers paying 35–55¢/kWh retail) benefit significantly. Customers with good TOU strategy and battery storage approach NEM 2.0-era economics. Low-consumption customers who export a large fraction of production benefit least from NEM 3.0 solar.
Frequently Asked Questions
Is NEM 3.0 worth it in California?
Solar is still financially viable under NEM 3.0, but with longer payback periods and a stronger financial case for battery storage. Solar-only systems payback in approximately 9–14 years vs 6–9 years under NEM 2.0. Solar-plus-storage systems payback in 8–12 years — comparable to NEM 2.0 solar-only. California’s high electricity rates (SDG&E averaging 40–55¢/kWh for many residential customers in 2026) maintain the financial case for solar even under NEM 3.0.
Can I still get NEM 2.0 in California?
No, unless your interconnection application was submitted before April 15, 2023. New solar customers must interconnect under NEM 3.0 (the Net Billing Tariff / Successor Tariff). Customers who were grandfathered on NEM 2.0 remain on it for 20 years from their original interconnection date — no action needed to maintain grandfathering.
What is the export credit rate under NEM 3.0?
NEM 3.0 export credits vary by hour and season based on the Avoided Cost Calculator (ACC). In 2026, average export rates across all hours are approximately 5–8¢/kWh. Peak export periods (summer 4–9 p.m.) can reach 10–20¢/kWh. Off-peak periods (midday) can be as low as 2–5¢/kWh. This time-varying structure makes battery storage financially compelling under NEM 3.0 by enabling export during higher-rate peak hours.
Does NEM 3.0 apply in all California utilities?
Yes. NEM 3.0 applies to all three investor-owned utilities (IOU) in California: Pacific Gas and Electric (PG&E), Southern California Edison (SCE), and San Diego Gas and Electric (SDG&E). It does not apply to municipal utilities (Los Angeles DWP, Sacramento Municipal Utility District, Modesto Irrigation District) which operate under their own net metering policies — most municipal utilities still offer retail-rate or near-retail-rate net metering.
How does NEM 3.0 affect home battery payback?
Battery storage payback periods improved significantly under NEM 3.0. Under NEM 2.0, batteries had no export arbitrage value (export and retail rates were the same). Under NEM 3.0, each kWh stored from midday surplus and discharged during the 4–9 p.m. peak effectively earns 30–45¢/kWh arbitrage (the difference between export rate and retail peak rate). A 13.5 kWh Powerwall cycling once per day generates $1,500–$2,200 in annual value from arbitrage alone in high-rate California markets, significantly improving battery payback vs the pre-NEM 3.0 era.
Summing Up
NEM 2.0 credited exported solar at retail rates (25–32¢/kWh), making solar financially straightforward without batteries. NEM 3.0 credits exported solar at avoided-cost rates (5–8¢/kWh average), reducing the value of solar-only systems by 30–50% but making battery storage highly valuable — earning 30–45¢/kWh in peak-rate arbitrage per stored kWh. Customers grandfathered on NEM 2.0 before April 2023 retain that status for 20 years. New California solar customers should strongly consider solar-plus-storage to optimize NEM 3.0 economics.
If you’re evaluating solar with or without battery storage in California — or in any other state — call (855) 427-0058 for a free consultation. Local installers can model NEM 3.0 economics for your specific utility, rate plan, and consumption at no cost.
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