Solar in California

The California Public Utilities Commission's April 2023 decision adopting NEM 3.0 — formally the Net Billing Tariff — was the most consequential residential solar policy change in a generation. It cut export compensation by roughly 75% compared to NEM 2.0, ending the era when a rooftop array functioned as a full-retail-priced virtual battery on the grid. Existing NEM 2.0 customers were grandfathered for 20 years, so a large installed base still operates under the older, more favorable terms, but new interconnections after April 2023 fall under net billing.

The strategic implication is clear: batteries are now central to the value proposition. Under net billing, a kilowatt-hour stored at noon and discharged at 7 PM replaces a peak-rate purchase worth several times what the grid would have paid for the export. SGIP previously accelerated this by rebating storage capacity — its equity tiers could push storage rebates to $925/kWh — but all SGIP budget categories closed to new applications on December 31, 2025 per the CPUC. The state's property tax exclusion for active solar systems (running through 2025, with extension discussions ongoing) rounds out the incentive stack.

Looking ahead, the policy question is whether net billing rates will be revisited as installations slow. The IOUs and solar advocates continue to spar over the tariff's design, and the CPUC has signaled openness to tweaks that could modestly improve export compensation. For now, the planning assumption should be that self-consumption and storage — not export — drive California's solar economics.

California averages about 5.0 peak sun hours per day statewide, but that single number hides enormous regional spread. The Imperial Valley, Coachella, and inland deserts routinely exceed 6.5 peak sun hours, while the fog-prone coast from San Francisco Bay south through Monterey can dip below 4.5. PG&E territory in the Central Valley — Fresno, Bakersfield, Stockton — sits comfortably above the state average and ranks among the most productive solar regions in North America.

Because NEM 3.0 penalizes overproduction that gets exported at a few cents per kWh, optimal sizing in California has changed. Rather than maximizing panel wattage to push the largest possible surplus onto the grid, well-designed systems now target 80–100% of annual consumption, with the array's midday peak matched to air-conditioning and EV charging load. A south-facing tilt at 20–25° still maximizes raw annual kilowatt-hours, but west-facing arrays — which push production into the 4–8 PM peak window when rates are highest — often pencil out better on time-of-use plans.

Smud and LADWP, the two largest municipal utilities, operate outside CPUC jurisdiction and set their own solar programs. SMUD maintains a simpler, flatter rate structure that makes production sizing more straightforward than in investor-owned utility territory.

At $3.05 per watt, California sits well above the $2.70/W national average, making it the most expensive of the ten largest solar markets. The premium reflects several factors stacked together: high labor rates, costly permitting and inspection regimes in many municipalities (though the state's SolarApp+ rollout is slowly streamlining this), and strong demand that keeps installer margins healthy. A typical 8 kW system runs about $23,920 before incentives.

The 30% residential federal tax credit (Section 25D) ended December 31, 2025 under the One Big Beautiful Bill Act, so owned systems placed in service in 2026 no longer receive it; leased/PPA systems may still capture Section 48E for projects that began construction before July 4, 2026. SGIP — which previously knocked thousands off a paired battery for households that qualified for the equity tier — closed to new applications across all budget categories on December 31, 2025 per the CPUC; historically, equity adders could push storage rebates to ~$925/kWh, large enough to nearly halve a battery's price. For now, leased/PPA structures remain the main lever for bringing the effective cost of a solar-plus-storage project down — which matters, because under NEM 3.0 the storage component is what actually drives the savings. Check cpuc.ca.gov/sgip for any future reopening.

On a grid-tied-only system at current rates payback runs well into the double-digit years, but that figure compresses meaningfully with storage and disciplined load-shifting. California's high retail rates also mean each self-consumed kilowatt-hour is worth more, so every panel that offsets peak usage pays back faster than the average suggests.