Net Metering in California
How NEM 3.0 changed solar economics -- and what it means for your savings.
What Is Net Metering?
Net metering is the billing arrangement between solar homeowners and their utility company. When your solar panels produce more electricity than your home uses during the day, the excess energy flows back to the electrical grid. In return, you receive credits on your utility bill that offset the cost of electricity you draw from the grid at night or on cloudy days.
Think of it as a two-way relationship with the grid. Your electric meter tracks energy flowing in both directions. When you send power out, you earn credits. When you pull power in, you spend them. At the end of each billing cycle, you only pay for the difference -- your "net" energy use.
In California, this arrangement has been governed by a series of policies known as NEM (Net Energy Metering). Each version has changed how credits are calculated, directly affecting the financial return on a solar investment. Understanding these changes is essential for anyone considering solar today.
The Evolution of Net Metering in California
California has gone through three distinct net metering policies. Each revision reduced the value of exported solar energy, shifting the economics of residential solar.
NEM 1.0
1996 - 2016
The original and most generous policy. Solar exports were credited at the full retail electricity rate -- typically 25-35 cents per kWh. Every kilowatt-hour you sent to the grid offset one kilowatt-hour you purchased later, dollar for dollar. This made the payback period short and the return on investment substantial.
NEM 2.0
2016 - April 2023
Credits were still close to retail rate, but non-bypassable charges of 2-3 cents per kWh were added to every unit of electricity consumed from the grid. Solar customers were also moved to time-of-use (TOU) rate plans, meaning electricity costs varied by time of day. The economics were still strong, but slightly less favorable than NEM 1.0.
NEM 3.0 (Net Billing)
April 2023 - Present
A fundamental shift in how solar exports are valued. Instead of retail-rate credits, exports are compensated at the "avoided cost" rate -- what it would cost the utility to generate that power themselves. This drops export values to roughly 5-8 cents per kWh on average, compared to retail rates of 30+ cents. This policy makes self-consumption and battery storage far more important.
How NEM 3.0 Actually Works
Under NEM 3.0, officially called the Net Billing Tariff, the value of your exported solar energy is no longer tied to the retail electricity rate. Instead, each kilowatt-hour you send to the grid is credited at an "avoided cost" rate that varies by the hour and by the month.
During midday hours when the grid is flooded with solar energy, export rates can drop to as low as 3-4 cents per kWh. During late afternoon and evening peak hours, when grid demand is high and solar production drops, rates are higher -- but your panels typically are not producing much at that time.
The practical result: the average export credit under NEM 3.0 lands between 5 and 8 cents per kWh, compared to the 30+ cents per kWh you pay to buy electricity from the grid. That gap is why system design strategy has become so critical.
NEM 2.0 vs. NEM 3.0 at a Glance
| Factor | NEM 2.0 | NEM 3.0 |
|---|---|---|
| Export Credit Rate | ~25-35 cents/kWh | ~5-8 cents/kWh |
| Credit Type | Near retail rate | Avoided cost rate |
| Rate Structure | Time-of-use | Hourly varying |
| Battery Importance | Optional | Strongly recommended |
| Typical Payback | 5-7 years | 6-9 years |
| Self-Consumption | Less critical | Essential |
Why Batteries Matter More Than Ever Under NEM 3.0
Under NEM 3.0, the math is simple: every kilowatt-hour you use yourself is worth 30+ cents, but every kilowatt-hour you export is worth only 5-8 cents. Battery storage bridges that gap.
Store Daytime Production
Instead of sending excess midday solar to the grid for pennies, batteries capture that energy for use later. You keep the full retail value of every stored kilowatt-hour rather than accepting the reduced export rate.
Power Through Peak Hours
Electricity rates are highest between 4 PM and 9 PM, precisely when solar production drops. Batteries let you use your stored solar energy during these expensive peak hours, avoiding the highest grid rates entirely.
Energy Independence
Batteries provide backup power during grid outages -- a growing concern in California. Beyond the financial benefits, battery storage gives you resilience against Public Safety Power Shutoffs and grid instability.
What NEM 3.0 Means for New Solar Customers
The most important thing to understand: going solar is still a smart financial decision in California. Electricity rates from utilities like PG&E and SCE continue to climb -- residential rates have increased roughly 40-50% over the past five years alone. Even under NEM 3.0, solar dramatically reduces your exposure to these rising costs.
What has changed is the strategy. Under NEM 1.0 and 2.0, the approach was straightforward: install the biggest system possible, export everything, and let credits pile up. Under NEM 3.0, the focus shifts to maximizing self-consumption -- using as much of your solar production directly as possible, rather than sending it to the grid.
The payback period has extended modestly, from the 5-7 year range under NEM 2.0 to roughly 6-9 years under NEM 3.0. But the 25+ year lifespan of a solar system means you still enjoy well over a decade of pure savings after the system pays for itself. And with electricity rates rising every year, the long-term return keeps improving.
The 30% federal Investment Tax Credit remains available through 2032, keeping upfront costs manageable. Combined with California's generally excellent solar irradiance -- especially here in the Central Valley -- the economics remain strong for homeowners who plan ahead.
How Solar Center Designs Systems for NEM 3.0
At Solar Center by Dura-Foam, we've adapted our system design approach to maximize your savings under NEM 3.0. Every system we install is engineered for the current policy landscape.
Battery Pairing
We pair every new solar installation with a battery storage recommendation tailored to your energy profile. Batteries capture excess production for evening use, turning low-value exports into high-value self-consumption. This single strategy recovers much of the value lost under NEM 3.0.
Load Shifting Strategies
We help you shift high-energy activities -- running the dishwasher, charging your EV, doing laundry -- to midday hours when your panels are producing at peak capacity. Using your solar energy directly is always more valuable than exporting it under NEM 3.0.
Right-Sized Systems
Under NEM 3.0, oversizing your system creates diminishing returns because excess production earns far less at export rates. We analyze your actual energy consumption patterns and design a system matched to your usage, maximizing the percentage of solar energy you consume directly.
Expert Guidance
As a division of Dura-Foam, we've been installing solar in California long enough to have navigated every NEM transition. We explain the policy clearly, model your savings accurately, and build a system designed for how NEM 3.0 actually works -- not how the old rules worked.
NEM 3.0 FAQ
Does NEM 3.0 apply to existing solar customers?
Is solar still worth it under NEM 3.0?
Do I need a battery with NEM 3.0?
Could NEM 3.0 change again in the future?
Navigate NEM 3.0 With Confidence
Our team designs every system to maximize your savings under current California net billing rules. Get a free, no-pressure consultation and see exactly what solar can do for your home.
Request Your Free Quote
Tell us a little about yourself — it only takes 60 seconds.