NEM 3.0 Survival Guide for California Homeowners
On April 15, 2023, California's Net Billing Tariff (NBT) — commonly called NEM 3.0 — went into effect for new solar customers of PG&E, SCE, and SDG&E. It cut the compensation rate for exported solar energy by roughly 75%, fundamentally changing the economics of rooftop solar in the state. If you're a California homeowner considering solar in 2026, this guide explains exactly what changed, why solar-only is no longer optimal, and what you should do instead.
What Is NEM 3.0 (Net Billing Tariff)?
NEM 3.0, formally known as the Net Billing Tariff (NBT), replaced the previous NEM 2.0 (Net Energy Metering) rules for new solar interconnections on or after April 15, 2023. Under NEM 2.0, homeowners received a near-retail credit for every kilowatt-hour they exported to the grid — typically $0.20–$0.30/kWh depending on the utility and time of year. Under NEM 3.0, that credit dropped to an "avoided cost" rate, which averages $0.05–$0.08/kWh.
The California Public Utilities Commission (CPUC) justified the change on the grounds that NEM 2.0 shifted grid maintenance costs onto non-solar customers and that solar adopters (who tend to be wealthier) were being subsidized by those who couldn't afford panels. The result: solar export revenue collapsed, and the payback math for solar-only systems deteriorated significantly.
How Export Rates Changed
Under NEM 2.0, exported solar earned credits at or near the retail electricity rate. Under NEM 3.0, exports earn the "avoided cost" rate, which varies by hour, season, and utility. Here's a comparison for a typical summer weekday:
| Period | NEM 2.0 Rate | NEM 3.0 Rate | Reduction |
|---|---|---|---|
| Midday (10am–2pm) | $0.22/kWh | $0.04/kWh | –82% |
| Afternoon (2pm–5pm) | $0.25/kWh | $0.08/kWh | –68% |
| Evening peak (5pm–8pm) | $0.35/kWh | $0.12/kWh | –66% |
| Off-peak (8pm–10am) | $0.18/kWh | $0.03/kWh | –83% |
The critical insight: midday solar exports — when your panels produce the most — are now worth almost nothing. You're selling electricity for $0.04/kWh and buying it back in the evening for $0.35–$0.55/kWh.
Why Solar-Only No Longer Works in California
Under NEM 2.0, a typical 7kW solar system in PG&E territory exported roughly 40% of its production and imported electricity in the evening. The generous export credits made this work — you essentially used the grid as a free battery. Under NEM 3.0, that "free battery" now charges you a 5–10x markup.
The numbers tell the story:
- NEM 2.0 solar-only payback: 5–7 years
- NEM 3.0 solar-only payback: 12–16 years
- NEM 3.0 solar + battery payback: 8–11 years
The battery changes the math because instead of exporting cheap midday solar, you store it and use it during expensive evening peak hours. That's the core strategy of NEM 3.0 survival: maximize self-consumption, minimize grid exports.
What Homeowners Should Do Now
1. If You Already Have Solar (NEM 2.0 Grandfathered)
Good news: NEM 2.0 customers are grandfathered for 20 years from their interconnection date. If you went solar before April 15, 2023, your export rates remain favorable until your 20-year window expires. There's no urgent action needed, but consider adding a battery before your grandfathering expires to lock in the transition.
2. If You're Considering Solar Now (NEM 3.0)
Solar-only under NEM 3.0 is a tough deal. You should strongly consider a solar + battery system. The battery lets you:
- Store midday solar and use it during peak evening hours (avoiding $0.35–$0.55/kWh rates)
- Reduce grid dependence to near-zero on most days
- Participate in Virtual Power Plant (VPP) programs for additional revenue
- Have backup power during PSPS (Public Safety Power Shutoff) events
Use our Battery Storage ROI Analyzer to model the exact payback for your situation, and read our Battery Sizing for TOU Arbitrage guide to choose the right capacity.
3. Size Your System for Self-Consumption
Under NEM 2.0, oversizing your system was profitable — more exports meant more credits. Under NEM 3.0, oversizing wastes money because the excess production earns almost nothing. Instead, size your system to match your daytime consumption and add a battery sized to cover your evening/nighttime usage. Our Peak-Rate Avoidance Math guide walks through the exact calculations.
4. Optimize Your TOU Rate Schedule
Under NEM 3.0, your import and export rates vary dramatically by time of day. PG&E's EV2-A rate plan, for example, charges $0.38–$0.55/kWh during peak (4pm–9pm) but only $0.28/kWh off-peak. Matching your battery discharge to the peak window is the single highest-impact optimization. See our TOU Arbitrage Sizing Guide for the specific schedules and rates for PG&E, SCE, and SDG&E.
5. Explore VPP Programs
California has several active Virtual Power Plant programs that pay homeowners with batteries to discharge during grid stress events. Tesla's VPP program through PG&E and SCE pays $2/kWh during emergency discharge events — potentially $50–$100 per event. Our VPP Enrollment Guide covers every active program in the state.
The NEM 3.0 Timeline
| Date | Event |
|---|---|
| Dec 2022 | CPUC approves NBT (NEM 3.0) decision |
| Apr 15, 2023 | NEM 3.0 takes effect for new interconnections |
| Apr 2023–Apr 2024 | "Glider path" transition — reduced rates phased in over 12 months |
| Apr 2024+ | Full avoided-cost rates in effect |
| 2026 | VPP programs expanding; SGIP rebate funding renewed |
Other States: What to Watch
California's NEM 3.0 is a bellwether. Several states are considering similar net metering reforms:
- Arizona: APS and TEP have moved toward lower export rates for new solar customers
- Nevada: NV Energy's net metering rate has been reduced from retail to ~75% of retail
- North Carolina: Duke Energy proposed an avoided-cost model similar to NEM 3.0
- Kentucky & Louisiana: Recent legislation allows utilities to propose alternative rate structures
If your state is considering net metering changes, the California playbook applies: add battery storage, optimize for self-consumption, and lock in favorable rates while they last.
Related Guides
- Battery Sizing for TOU Arbitrage — Calculate the ideal battery capacity for your TOU rate plan
- VPP Enrollment Guide — Earn money from your battery through Virtual Power Plant programs
- State-Specific Battery Rebates — Find rebates and incentives for home battery installation
- Peak-Rate Avoidance Math — The exact math behind using batteries to dodge peak electricity rates
Calculate your battery ROI under NEM 3.0
Our free Battery Storage ROI Analyzer models NEM 3.0 export rates, TOU arbitrage savings, SGIP rebates, and VPP revenue — all specific to your California utility and rate plan. No signup required.
Analyze My Battery ROI →Sources: CPUC Decision 22-12-056 (Net Billing Tariff), PG&E Rate Schedules EV2-A and E-ELEC, SCE TOU-D-PRIME Rate Schedule, SDG&E TOU-DR1 Rate Schedule, NREL Solar Market Report 2025, California SGIP Program Data.