California’s solar landscape changed dramatically when NEM 3.0 took effect in April 2023, reducing compensation for excess solar energy by approximately 75%. This shift has fundamentally altered how homeowners approach solar investments, making battery storage more critical than ever before. As we move through 2025, understanding NEM 3.0 is essential for anyone considering solar in the Golden State.
This comprehensive guide explains everything you need to know about NEM 3.0, from its technical workings to real-world financial impacts, helping you make informed decisions about solar energy in California’s evolving market.
What is NEM 3.0? The Complete Definition
NEM 3.0, officially known as the Net Billing Tariff (NBT), is California’s third iteration of net energy metering policy that took effect on April 15, 2023. Unlike traditional net metering that credited solar exports at retail rates, NEM 3.0 compensates homeowners based on “avoided costs” – essentially what utilities would pay for electricity elsewhere.
The policy applies to three major California investor-owned utilities:
- Pacific Gas & Electric (PG&E) – Serving Northern and Central California
- Southern California Edison (SCE) – Covering Southern California
- San Diego Gas & Electric (SDG&E) – Serving San Diego and parts of Orange County
This represents a fundamental shift from net metering to net billing, where the value of exported solar electricity is significantly lower than what homeowners pay for grid electricity.
How NEM 3.0 Works: The Technical Breakdown
Understanding NEM 3.0 requires grasping its core mechanism: the Avoided Cost Calculator (ACC). This system determines export rates based on what utilities actually save by using your solar electricity instead of generating or purchasing power elsewhere.
The Avoided Cost Calculator (ACC) Explained
The ACC creates a complex rate structure with 576 possible rate combinations that vary by:
- Hour of the day
- Day of the week
- Month of the year
- Specific utility territory
Export rates can range from as low as $0.00/kWh during periods of excess grid supply to as high as $3.50/kWh during peak demand periods in summer evenings.
Time-of-Use Export Rate Examples
Here’s how export rates typically vary throughout the day:
PG&E Sample Rates (Summer 2024):
- Midday (12 PM – 3 PM): $0.04 – $0.08/kWh
- Evening Peak (6 PM – 9 PM): $0.25 – $0.52/kWh
- Off-Peak Hours: $0.02 – $0.06/kWh
Compare this to the previous NEM 2.0 system where exports were credited at approximately $0.30/kWh regardless of timing, and the dramatic reduction becomes clear.
NEM 2.0 vs. NEM 3.0: Complete Comparison
| Feature | NEM 2.0 | NEM 3.0 |
|---|---|---|
| Export Rate Basis | Retail rates (~$0.30/kWh) | Avoided costs (~$0.08/kWh average) |
| Rate Structure | Fixed rate | 576 time-varying rates |
| Typical Payback Period | 4.6 years | 8-10 years (solar only), 7-8 years (with storage) |
| Battery Storage Value | Optional benefit | Essential for optimization |
| Monthly Fees | Minimal | $14-$16 Grid Participation Charge |
Grandfathering Provisions
Existing solar customers benefit from important protections:
- 20-year protection: Systems interconnected before April 15, 2023, remain on NEM 2.0 for 20 years
- Battery additions allowed: NEM 2.0 customers can add battery storage without losing their favorable rates
- Minor modifications permitted: System changes under 1 kW or 10% (whichever is less) won’t trigger NEM 3.0
Financial Impact: What NEM 3.0 Means for Your Wallet
The financial implications of NEM 3.0 vary significantly based on your approach to solar and energy storage. Here are real-world scenarios based on current market data:
Scenario 1: Cash Purchase of 7.6 kW System
Under NEM 2.0:
- Monthly energy bill: $18 (down from $250)
- Payback period: 4.6 years
- 25-year lifetime savings: $116,680
Under NEM 3.0 (Solar Only):
- Monthly energy bill: $96 (down from $250)
- Payback period: 8-10 years
- 25-year lifetime savings: $73,620
Under NEM 3.0 (Solar + Battery):
- Monthly energy bill: $25 (down from $250)
- Payback period: 7-8 years
- 25-year lifetime savings: $95,000+
Financing Options Impact
12-Year Solar Loan:
- NEM 2.0: Monthly payment $162, lifetime savings $110,308
- NEM 3.0: Monthly payment $239, lifetime savings $67,248
20-Year Solar Loan:
- NEM 2.0: Monthly payment $123, lifetime savings $105,844
- NEM 3.0: Monthly payment $200, lifetime savings $62,784
Battery Storage: The NEM 3.0 Game Changer
Under NEM 3.0, solar battery storage has transformed from a nice-to-have feature to an essential component for maximizing solar savings. The economics now strongly favor solar-plus-storage systems.
Why Batteries Are Now Essential
Battery storage enables several key strategies under NEM 3.0:
- Time-shifting energy use: Store solar power during low-value midday hours and use it during expensive evening peaks
- Peak export optimization: Discharge stored energy to the grid during highest-value periods (up to $3.50/kWh)
- Self-consumption maximization: Reduce reliance on expensive grid electricity
- Backup power: Maintain electricity during outages
Battery Payback Scenarios
Analysis shows that homeowners with properly configured battery systems can:
- Earn approximately $200 per week by storing and strategically exporting solar energy
- Achieve 70-90% bill offset with solar-plus-storage systems
- Reach payback periods of 7-8 years with cash purchases
- Potentially achieve “Day 1 savings” where monthly payments are less than previous electric bills
Who is Affected by NEM 3.0?
Geographic Coverage
NEM 3.0 applies specifically to customers of California’s three major investor-owned utilities. Notably, it does not affect:
- Los Angeles Department of Water & Power (LADWP) customers
- Sacramento Municipal Utility District (SMUD) customers
- Other municipal and cooperative utilities (though they may adopt similar policies)
Application Timeline
The key dates that determine your net metering status:
- Before April 15, 2023: Grandfathered into NEM 2.0 for 20 years
- April 15, 2023 and after: Subject to NEM 3.0 rates
- April 15, 2026: Final deadline for NEM 2.0 grandfathered systems to achieve Permission to Operate (PTO)
Maximizing Savings Under NEM 3.0
Success under NEM 3.0 requires strategic thinking about energy consumption and system design. Here are proven strategies:
Energy Consumption Timing Strategies
- Shift controllable loads: Run dishwashers, washing machines, and pool pumps during midday solar production hours
- EV charging optimization: Charge electric vehicles during off-peak hours (9 AM – 2 PM) when solar production is high
- Avoid peak hours: Minimize electricity use between 4-9 PM when rates are highest
System Sizing Considerations
NEM 3.0 allows systems up to 150% of annual usage if you plan to electrify your home. This enables:
- Future-proofing for electric vehicle adoption
- Preparation for heat pump installation
- Accommodation for electric water heaters and appliances
ACC Plus Adders (Limited Time)
Early NEM 3.0 adopters can benefit from temporary rate adders:
- PG&E: 2.2 cents/kWh additional (declining 20% annually)
- SCE: 4.0 cents/kWh additional (declining 20% annually)
- SDG&E: No adder (payback already under 9 years)
- Low-income customers: Higher adders available through CARE and FERA programs
These adders are available through April 2028 but decrease each year, making early adoption more valuable.
Is Solar Still Worth It in 2025?
Despite the challenges introduced by NEM 3.0, solar remains a strong investment in California for several reasons:
Current Market Analysis
California continues to offer compelling solar economics:
- High electricity rates: Retail rates exceeding $0.35/kWh in many areas
- Abundant sunshine: 250+ sunny days annually in most regions
- Strong incentives: 30% federal tax credit through 2032
- Property value increases: Solar adds approximately 4% to home values
State and Federal Incentive Updates
Federal Incentives (2025):
- 30% Investment Tax Credit (ITC) for solar and battery systems through 2032, though Congress is considering ending it by December 2025. For the latest updates on potential changes to the federal tax credit, homeowners should stay informed about legislative developments.
- Additional battery storage incentives through the Inflation Reduction Act
- Low-interest financing options through various programs
California State Programs:
- Self-Generation Incentive Program (SGIP): $900 million available for battery storage
- California Solar Mandate: Continued support for new construction solar
- CARE/FERA programs: Enhanced benefits for low-income customers
Cost-Benefit Analysis
Even under NEM 3.0, California solar systems typically provide:
- $60,000-$75,000 in lifetime savings (solar only)
- $95,000+ in lifetime savings (solar + battery)
- 7-10 year payback periods
- Environmental benefits: 100,000+ pounds of CO2 avoided over system lifetime
Expert Insights and Industry Impact
The implementation of NEM 3.0 has created significant ripple effects throughout California’s solar industry, providing valuable lessons for the future of distributed energy.
Industry Job Impact
The California Solar and Storage Association (CALSSA) reported dramatic industry changes:
- 17,000 jobs cut by the end of 2023 (22% of all solar jobs in the state)
- 36% market shrinkage projected for 2024
- Residential sector hit hardest with installation rates down significantly
Installation Trend Analysis
Market data reveals shifting patterns:
- Battery attachment rates increased from 11% before 2023 to over 50% by April 2024, with some installers reporting 60-90% rates
- System sizes trending larger to accommodate future electrification
- Sales cycles extending as customers evaluate complex new economics
Market Predictions for 2025-2026
Industry experts anticipate:
- Stabilization of the residential solar market as customers adapt to NEM 3.0
- Continued growth in solar-plus-storage installations
- Technology improvements making batteries more affordable and efficient
- Policy refinements as regulators assess NEM 3.0’s impacts
Frequently Asked Questions
Can solar still save you money in California?
Yes, while the average solar payback period is longer under NEM 3.0, systems typically achieve payback in 8-10 years for solar-only and 7-8 years with storage. The net billing tariff makes batteries more attractive, potentially providing greater long-term savings.
How much is the monthly fee with NEM 3.0?
The monthly Grid Participation Charge is approximately $14-$16, replacing the traditional minimum monthly bill structure.
Do I need a battery with NEM 3.0?
While not required, battery storage significantly improves the economics of NEM 3.0 systems. Solar-plus-storage systems often have shorter payback periods than solar-only installations.
Is NEM 3.0 retroactive?
No, NEM 3.0 only applies to systems interconnected after April 15, 2023. Existing systems remain on their original net metering terms for 20 years.
Can I add a battery to my existing NEM 2.0 system?
Yes, adding battery storage to an existing NEM 2.0 system typically doesn’t affect your grandfathered status, allowing you to enhance your system while maintaining favorable rates.
Which utilities are affected by NEM 3.0?
NEM 3.0 applies to PG&E, SCE, and SDG&E customers. Municipal utilities like LADWP and SMUD maintain their own separate policies.
How do NEM 3.0 export rates compare to NEM 2.0?
NEM 3.0 export rates average around $0.08/kWh compared to approximately $0.30/kWh under NEM 2.0, representing a 75% reduction in compensation.
What are the best times to export energy under NEM 3.0?
The highest export rates typically occur during evening peak hours (6-9 PM) and summer months, when grid demand is highest. Battery storage helps capture these premium rates.
Can I oversize my solar system under NEM 3.0?
Yes, NEM 3.0 allows systems up to 150% of your annual usage if you plan to increase consumption through electrification (EVs, heat pumps, etc.).
How long do ACC Plus adders last?
ACC Plus adders are available for early NEM 3.0 adopters through April 2028, but they decrease by 20% each year, making earlier adoption more valuable.
Will NEM 3.0 be overturned?
Legal challenges to NEM 3.0 have been unsuccessful. In December 2023, the California Court of Appeals upheld the CPUC’s decision, confirming NEM 3.0 will remain in effect.
How does NEM 3.0 affect property values?
Solar systems continue to add value to properties, though the premium may be slightly lower under NEM 3.0. Studies suggest solar adds approximately 4% to home values.
What happens to excess credits under NEM 3.0?
Excess credits roll over month to month and are paid out annually at wholesale rates, similar to previous net metering programs.
Are there special provisions for low-income customers?
Yes, customers enrolled in CARE or FERA programs receive higher ACC Plus adders and reduced Grid Participation Charges, making solar more accessible.
How do I know if my system qualifies for NEM 2.0 grandfathering?
Systems that received Permission to Operate (PTO) before April 15, 2023, automatically qualify for 20-year NEM 2.0 grandfathering. Check with your utility for confirmation.
Next Steps and Action Items
If you’re considering solar in California under NEM 3.0, here’s your roadmap to success:
Evaluating Your Situation
Assess Your Energy Profile:
- Review 12 months of electricity bills to understand usage patterns
- Identify peak usage times and controllable loads
- Consider future electrification plans (EVs, heat pumps, etc.)
- Evaluate your roof’s solar potential
Financial Analysis:
- Calculate potential savings with and without battery storage
- Compare financing options (cash, loan, lease)
- Factor in available incentives and tax credits
- Consider long-term electricity rate projections
When to Consider Solar + Battery
Solar-plus-storage makes the most sense when you:
- Have high electricity bills ($200+ monthly)
- Use significant electricity during peak hours (4-9 PM)
- Want backup power for outages
- Plan to electrify transportation or heating
- Can take advantage of current incentive programs
Finding Qualified Installers
When selecting a solar installer:
- Verify credentials: Ensure proper licensing and certifications
- Experience with NEM 3.0: Choose installers familiar with new regulations
- Battery expertise: Prioritize companies experienced with energy storage
- Local references: Check reviews and local project examples
- Comprehensive quotes: Ensure proposals include NEM 3.0 analysis
Timeline Considerations
Act Soon for Maximum Benefits:
- ACC Plus adders decrease 20% annually through 2028
- Federal tax credit remains at 30% through 2032, though may end by December 2025
- SGIP battery incentives are limited and declining
- Electricity rates continue rising, improving solar economics
Typical Project Timeline:
- Consultation and design: 2-4 weeks
- Permitting: 4-8 weeks
- Installation: 1-3 days
- Interconnection: 2-6 weeks
- Total project duration: 3-5 months
California’s solar market continues to evolve under NEM 3.0, but the fundamentals remain strong: abundant sunshine, high electricity rates, and substantial incentives still make solar a compelling investment. The key is understanding the new rules and optimizing your system design accordingly.
By combining solar with battery storage and implementing smart energy usage strategies, California homeowners can still achieve significant savings while contributing to a cleaner, more resilient energy grid. For those exploring solar financing options and understanding payback periods under the new regulations, working with experienced installers who understand NEM 3.0 is crucial. The solar revolution continues – it just requires a more strategic approach in the NEM 3.0 era.