NEM 3.0 Explained in Plain English

California’s Net Billing Tariff pays roughly 75% less for exported solar than the old net metering rules. Here is how it works — and how batteries and smart sizing recover most of the lost value.

NEM 3.0 — officially the Net Billing Tariff — is the rulebook that decides what California’s big three utilities pay you for solar power you send to the grid. Adopted by the CPUC in December 2022 (Decision 22-12-056) and applied to new PG&E, SCE, and SDG&E solar customers from mid-April 2023, it cut export payments by roughly three-quarters and, in doing so, rewrote how a sensible California solar system should be designed. This guide explains the rules in plain English, then shows the numbers.

What actually changed

Under the old net metering rules (NEM 1.0 and 2.0), every kilowatt-hour you exported earned a credit at or near the full retail rate — often 30¢/kWh or more. The grid worked like a free battery: overproduce at noon, spend the credits at night, one-for-one.

Under NEM 3.0, exports are paid at avoided-cost rates — an estimate of what your energy actually saves the utility. These values come from a published Avoided Cost Calendar and change hour by hour, month by month. Most of the time they average around 5–8¢/kWh, roughly 75% below retail. A few hours are worth far more — early September evenings, when the grid is strained, export values can spike to several dollars per kWh — but those hours are rare and mostly occur after sunset, when panels without a battery have little to sell.

That last line is the key. NEM 3.0 did not change what solar is worth when you use it yourself — every kWh you consume as it is generated still avoids buying at 30–50¢. It only slashed the value of power you give away.

Who is on which rules

• NEM 1.0 / 2.0 customers: grandfathered for 20 years from their Permission to Operate (PTO) date. A system energized in 2020 keeps retail-rate exports until 2040, and the status generally transfers with the house. Expanding an existing system beyond the allowed threshold can forfeit this, so modify with care.
• New customers from April 2023: on the Net Billing Tariff. Early NEM 3.0 adopters get a nine-year lock on their export-rate schedule from interconnection, which protects against further cuts but does not restore retail-rate credits.
• Municipal utilities (SMUD, LADWP, etc.) set their own rules and are not covered by this decision.

The design shift: from exporting to self-consuming

When exports paid retail, the winning strategy was simple: build big and bank credits. Under NEM 3.0 the winning strategy is to use what you generate:

1. Size to your daytime load, not your annual total. A system sized to cover everything you use in a year will export heavily at midday for 6¢ while you buy back at 35¢ in the evening. Smaller, well-matched systems often have better returns than oversized ones.
2. Shift usage into sunlight hours. Dishwashers, laundry, pool pumps, EV charging, pre-cooling the house — every load moved to midday converts a 6¢ export into a 35¢ saving.
3. Add a battery to do the shifting for you. Store midday surplus, discharge during the 4–9pm peak when retail rates are highest. The battery turns low-value exports into high-value self-consumption — and can occasionally sell into those lucrative September evening windows. Our guide on self-consumption vs export covers the strategy in depth.

Worked example: the same system under NEM 2.0 vs NEM 3.0

Take a system producing 8,000 kWh per year for a household using about the same, with a blended retail rate of $0.38/kWh and average export value of $0.06/kWh. Without storage, a typical home self-consumes only ~40% of its solar in real time.

Rounded, illustrative figures — your rate plan and load shape will move them. The pattern, though, is robust: NEM 3.0 without a battery cuts the system’s value roughly in half; a properly sized battery recovers most of it.

Does the battery pay for itself?

In the example above the battery adds about $1,300 per year. Against an installed cost of roughly $9,000–$14,000 for a 10–13.5 kWh unit, that is a simple payback of about 7–10 years — inside a typical 10-year warranty, but not by much:

Two things swing this. First, SGIP: California’s Self-Generation Incentive Program pays a per-kWh rebate for storage, with much larger amounts (up to full cost in some cases) for income-qualified households and those in high-fire-risk areas — budgets and rates change, so check current availability. Second, the federal side: the 30% residential tax credit that used to apply to purchased batteries ended after 2025, which lengthens paybacks for 2026 buyers unless the battery comes via a lease or PPA. Model your own case with the battery payback calculator, and size the unit with the battery bank calculator — oversizing storage is as costly as oversizing panels. Backup power during outages is a real but separate benefit the payback math ignores.

So is solar still worth it in California?

Generally yes — because California retail rates are among the highest in the nation and still rising. Even at half the old value, a well-designed NEM 3.0 system in a 40¢/kWh territory can beat solar economics in most other states. What changed is not whether to go solar but how: smaller arrays, load shifting, and storage-first design. Compare your situation against other states with the USA solar calculator.

Common mistakes

• Using a NEM 2.0-era calculator. Any tool crediting exports at retail rates will overstate NEM 3.0 savings by 40–60%. Check what export rate the tool assumes.
• Oversizing the array. Sizing to 100%+ of annual usage without storage maximizes the lowest-value output. Size to daytime load, or pair the extra capacity with a battery.
• Skipping the battery analysis entirely — or assuming a battery is always worth it. It usually helps under NEM 3.0, but payback depends on your rate plan, SGIP eligibility, and evening usage. Run the numbers both ways.
• Jeopardizing grandfathered status. If you are on NEM 1.0/2.0, a large system expansion or certain contract changes can push you onto the new tariff decades early.
• Ignoring rate-plan choice. Solar customers are placed on specific electrified TOU rates; the spread between peak and off-peak prices drives battery value.
• Treating averages as guarantees. Export values vary hourly and are updated in the Avoided Cost Calendar; the 5–8¢ figure is a planning average, not a promise.

NEM 3.0 made California solar more complicated, not broken. The households doing well under it are the ones who designed for self-consumption from day one — and who checked the math with honest, current export rates before signing anything.

Frequently asked questions

What is NEM 3.0 in one sentence?

It is California’s Net Billing Tariff (CPUC Decision 22-12-056), applying to new PG&E, SCE, and SDG&E solar customers from April 2023, which pays solar exports at hourly avoided-cost rates — typically 5–8¢/kWh — instead of the near-retail rates of NEM 1.0 and 2.0.

Am I affected if I already had solar before April 2023?

No. NEM 1.0 and 2.0 customers are grandfathered for 20 years from their Permission to Operate date, and that status generally transfers if you sell the house. Significantly expanding the system, however, can forfeit it.

Do I need a battery under NEM 3.0?

Not strictly, but the economics usually favor one. Without storage a typical home exports more than half its solar at ~6¢/kWh; a battery shifts that energy to the 4–9pm peak where it offsets 30–50¢ retail rates, often adding $1,000+ in annual value. Whether the battery pays for itself depends on its cost, SGIP eligibility, and your rate plan.

Is solar still worth installing in California?

For most homes, yes — retail rates above 30¢/kWh mean even half the old savings still outperforms solar in most states. The change is in design: size to daytime load, shift usage into sunlight hours, and evaluate storage from the start rather than maximizing exports.