What Is NEM 3.0 in California? (The Solar Billing Change That Caught Homeowners Off Guard)

Quick Answer:

NEM 3.0 — officially called the Net Billing Tariff — is California’s current policy for crediting rooftop solar owners when their panels send excess electricity to the grid. It took effect April 15, 2023 and applies to customers of PG&E, SCE, and SDG&E. The big change: export credits dropped from roughly $0.30/kWh under NEM 2.0 to around $0.05–$0.08/kWh — a reduction of about 75%. Solar systems installed before April 14, 2023 are grandfathered into NEM 2.0 for 20 years.

Author’s Note:

You’ll see this policy called “NEM 3.0” almost everywhere, including on this page. But its official name is the Net Billing Tariff (NBT). The California Public Utilities Commission stopped using the NEM label because the new policy technically isn’t net metering — it doesn’t credit exports at the retail rate. “NEM 3.0” stuck anyway because it’s the third version of California’s solar billing structure. Both names refer to the same thing.

The NEM 1.0, 2.0, 3.0 Timeline

California’s net metering history spans nearly 30 years. Here’s how the policy evolved:

NEM 1.0 (1996–2016)

California launched the country’s first net metering program in 1996. Homeowners with solar panels could sell excess electricity back to the grid at full retail rate. Simple, one-to-one credit. The program was capped at 5% of peak demand per utility — once that filled, no new applicants. By the early 2010s, all three major utilities were hitting or approaching their caps.

NEM 2.0 (2016–2023)

The CPUC replaced NEM 1.0 in 2016. Key changes: the cap was lifted, but homeowners were required to switch to time-of-use (TOU) rate plans, and small grid access charges were introduced. Export credits still reflected full retail rates — so every kWh you sent to the grid was worth the same as a kWh you pulled from it. Solar-only systems made strong financial sense. Payback periods averaged 5–6 years. California became the largest rooftop solar market in the country.

NEM 3.0 / Net Billing Tariff (April 2023–present)

After years of proceedings, the CPUC voted unanimously in December 2022 to replace NEM 2.0. The new policy shifted from retail-rate credits to “avoided cost” credits — what the utility saves by not buying that power elsewhere. Average export values dropped to $0.05–$0.08/kWh. Solar-only payback periods stretched to 9–13 years. Battery storage became essentially required to make the math work.

What Actually Changed: NEM 2.0 vs NEM 3.0

The core issue is how exports are valued.

Under NEM 2.0, if your utility charged $0.30/kWh to buy electricity, you received $0.30/kWh credit when you exported solar energy. One-to-one. Whatever you sent to the grid was worth the same as whatever you pulled from it.

Under NEM 3.0, exports are valued using something called the Avoided Cost Calculator (ACC). This calculates what the utility would have paid on the wholesale market to source that same electricity. Wholesale prices are far lower than retail — so the credit dropped dramatically.

The math in plain terms: a 10kW California solar system that previously might have earned $2,000/year in net metering credits now earns closer to $500/year from exports. The difference comes from self-consuming or storing solar power before it hits the grid.

Here’s what else changed:

• Utilities are now required. All three apply the same basic NEM 3.0 structure, though specific rates differ by company.
• TOU plans became mandatory. New solar customers must enroll in time-of-use rate plans with rates that swing from roughly $0.10/kWh at off-peak hours to $0.55+ during peak summer evenings. The wide spread is intentional — it pushes people to store solar and discharge it at 6–9 PM rather than export it at noon.
• The ACC Plus adder. PG&E and SCE introduced a temporary bonus rate on top of standard avoided cost credits to ease the transition for early NEM 3.0 adopters. The adder decreases 20% each year through 2028, so the sooner a homeowner enrolled, the larger the bonus. By 2026, the adder is worth roughly 40% less than when NEM 3.0 launched.
• Annual true-up with zero cash for surplus. At the end of each year, any leftover export credits expire. Unlike NEM 2.0, there’s no net surplus compensation check. If you over-produce for the year, you don’t get paid for the excess — it’s lost. This is one of the most misunderstood practical issues under NEM 3.0, and it’s why right-sizing your system to ~100% of annual consumption matters more than ever.
• No new fees. One thing NEM 3.0 did not introduce: monthly solar connection fees or “solar taxes.” These were proposed during the proceedings and rejected.

Under NEM 3.0, many homeowners are caught off guard by their first annual true-up bill — here’s what causes it and how to reduce it.

Who NEM 3.0 Affects (and Who It Doesn’t)

NEM 3.0 applies to customers of California’s three investor-owned utilities only:

• PG&E (Pacific Gas & Electric) — Northern and Central California
• SCE (Southern California Edison) — Southern California
• SDG&E (San Diego Gas & Electric) — San Diego County and parts of Orange County

If you’re in Los Angeles and get electricity from LADWP (LA Department of Water and Power), NEM 3.0 does not apply to you. LADWP runs its own net metering program and currently credits solar exports at full retail rates — a significantly better deal. The same is true for Sacramento Municipal Utility District (SMUD) customers and customers of other municipal utilities around the state. Always check with your specific utility.

NEM 2.0 Grandfather — And The April 2026 Deadline

Anyone who submitted a solar interconnection application to their utility before April 14, 2023 is grandfathered into NEM 2.0. That means retail-rate export credits for 20 years from their Permission to Operate (PTO) date — the date their system officially went live.

Two important points:

First, adding battery storage to an existing NEM 2.0 system does not affect your grandfathered status. You can add a Powerwall or other battery later without losing NEM 2.0 rates — a meaningful benefit given how much storage has become part of California solar economics.

Second — and this is time-sensitive — April 15, 2026 is the final deadline for NEM 2.0 grandfathered systems to achieve Permission to Operate. If you submitted an application before the April 2023 cutoff but your system hasn’t received its PTO yet, you have until April 15, 2026 to complete the process and lock in those NEM 2.0 rates. After that date, even applications submitted before the cutoff lose their grandfathered protection. If you’re in this situation, contact your installer immediately.

What NEM 3.0 Actually Costs You vs. NEM 2.0

If you went solar before April 2023, this section doesn’t apply to you — your NEM 2.0 rates are locked in. But if you’re going solar in 2026, here’s what the math looks like in practice. Take a typical California home using 10,000 kWh per year with a 7kW solar system.

Under NEM 2.0, that system might have exported 4,000 kWh annually to the grid at roughly $0.32/kWh — generating around $1,280 in export credits per year.

Under NEM 3.0, those same 4,000 kWh exported earn roughly $0.07/kWh — about $280 per year. That’s $1,000 less in annual credits from the same system doing the same thing. Here’s where the math shifts in your favor with battery storage: instead of exporting that 4,000 kWh at $0.07, a battery stores it and discharges during peak evening hours (6–9 PM) when grid power costs $0.40–$0.55/kWh. Each kWh you use from your battery instead of buying from the grid saves you $0.40+ rather than earning you $0.07. Over a year, that difference — roughly $0.33/kWh on 3,000 kWh — adds up to around $1,000 in additional savings. The battery essentially recovers most of what NEM 3.0 took away.

The $63/month figure you’ll see cited widely is the CPUC’s own estimate of average monthly bill impact for a NEM 3.0 solar-only customer compared to what they would have saved under NEM 2.0. Over 25 years, that compounds to roughly $19,000 in foregone savings on a solar-only system. Adding a battery closes most of that gap.

Why Battery Storage Became Essential

This is the central outcome of NEM 3.0: it changed the economics of solar fundamentally depending on whether or not you pair it with storage.

Under NEM 2.0, a solar-only system made strong financial sense because exporting midday surplus at $0.30/kWh was nearly as good as using that electricity yourself. Under NEM 3.0, exporting that same surplus earns $0.05–$0.08/kWh. The math shifts completely toward self-consumption.

With a battery, your system stores excess midday solar and discharges it during peak evening hours (typically 6–9 PM) when grid electricity costs $0.40–$0.55/kWh. You avoid buying expensive peak power and don’t export cheap surplus. That gap — between what you’d pay for peak power and what export earns — is where batteries earn their value back.

Battery attachment rates in California reflect this: before NEM 3.0, roughly 11% of new solar installations included battery storage. By 2024, that figure was over 50%, with some installers reporting 60–90% attachment rates depending on the region.

Payback periods with storage are now faster than without: 7–9 years with solar + battery vs. 9–13 years for solar alone under NEM 3.0.

The Ongoing Legal Challenge

NEM 3.0 is currently the subject of active litigation — and the courts have introduced real uncertainty about its long-term status.

In May 2023, three environmental groups filed suit arguing the CPUC violated state law by failing to consider the full benefits of rooftop solar when crafting NEM 3.0. A California Court of Appeal initially upheld the policy. The environmental groups appealed.

In August 2025, the California Supreme Court issued a unanimous ruling ordering the Court of Appeal to reconsider. Importantly, the Supreme Court did not overturn NEM 3.0 — it remains in effect. But the court found the lower court had applied an overly deferential standard of review, essentially “punting” on the substance of the case. The Supreme Court directed the Court of Appeal to actually evaluate whether the CPUC acted lawfully.

Written briefs were re-filed to the Court of Appeal in November 2025. A ruling is expected sometime in mid-2026.

What could happen: If the Court of Appeal finds NEM 3.0 unlawful, the CPUC could be required to redo the decision — this time accounting for rooftop solar’s full grid and environmental benefits. That could result in improved export rates for future solar owners. What it would mean for homeowners already on NEM 3.0 is unclear, but it could shift the policy significantly.

What this means for homeowners considering solar now: NEM 3.0 is the current reality and will remain so through at least mid-2026 and likely longer. Waiting for the lawsuit outcome is not a clear strategy, particularly given that the ACC Plus adder continues to decrease each year. The better approach is to model the economics honestly under current rules, with a battery, and treat any future policy improvement as a potential upside.

Is Solar Still Worth It In CA Under NEM 3.0?

Yes — with caveats.

A solar-plus-storage system installed in California in 2026, sized correctly, still delivers strong long-term returns. EnergySage estimates California homeowners can save $40,000–$100,000 over 25 years even under the current policy. The state still has some of the highest electricity rates in the country — PG&E and SDG&E customers pay average rates well above $0.30/kWh — which means every kWh you generate and self-consume avoids a significant cost.

The two mistakes to avoid:

Over-sizing your system. Under NEM 3.0, excess annual generation creates surplus credits that expire at zero value at annual true-up. Size your system to offset roughly 100% of your annual consumption — not more. If you’re planning to add an EV or heat pump, factor that in, but don’t guess high. NEM 3.0 allows sizing up to 150% of usage if you can demonstrate planned consumption increases.

Going solar-only without a battery. The economics are possible but materially weaker. If budget is the constraint, install battery-ready infrastructure now and add storage later.

California also has SGIP (Self-Generation Incentive Program) rebates specifically for battery storage that can significantly offset battery costs for qualifying homeowners. See our full SGIP guide for details.

Frequently Asked Questions

Q: What is NEM 3.0 in simple terms?
It’s the current policy that determines how California pays solar homeowners for excess electricity they send to the grid. It replaced the previous policy in April 2023 and pays about 75% less per kWh of exported solar power than the old system did.

Q: Is NEM 3.0 the same as NEM 3?
Yes, NEM 3, NEM 3.0, NBT, and Net Billing Tariff all refer to the same policy. Officially, the CPUC calls it the Net Billing Tariff — “NEM 3.0” is the informal name that stuck.

Q: What is the status of NEM 3.0 in California right now?
NEM 3.0 is in effect and applies to all new solar interconnection applications with PG&E, SCE, and SDG&E. It is also under active legal review — the California Supreme Court unanimously ordered the Court of Appeal to reconsider its legality in August 2025. As of early 2026, a ruling is expected by mid-year. NEM 3.0 remains the law during this process.

Q: Does NEM 3.0 apply to LADWP customers in Los Angeles?
No. NEM 3.0 applies only to the three investor-owned utilities: PG&E, SCE, and SDG&E. LADWP and Sacramento’s SMUD operate under separate, currently more favorable net metering rules.

Q: Can I add a battery to my NEM 2.0 system without losing my grandfathered status?
Yes. Adding battery storage to an existing NEM 2.0 system does not affect your grandfathered status. You retain NEM 2.0 export rates for the full 20-year period.

Q: What happens to surplus solar credits at the end of the year under NEM 3.0?
They expire with no cash value. At annual true-up, any remaining export credits are lost — the utility does not pay out surplus. This is why sizing your system to match your actual consumption is critical under NEM 3.0.

Q: What is the NEM 3.0 export rate?
Export credits are based on avoided cost rates calculated by the Avoided Cost Calculator (ACC). These vary by time of day, day of week, month, and utility — there are 576 possible rates in total. The average comes out to roughly $0.05–$0.08/kWh, compared to $0.30–$0.35/kWh under NEM 2.0. Peak summer evening rates can be significantly higher, which is where battery storage captures value.

Q: What is the NEM 2.0 grandfathering deadline?
Customers who submitted an interconnection application before April 14, 2023 are grandfathered into NEM 2.0 for 20 years from their Permission to Operate date. However, April 15, 2026 is the final deadline to achieve Permission to Operate under this grandfathering. Systems not yet live as of that date lose their NEM 2.0 protection.

NEXT STEPS

If you’re a California homeowner considering solar, get multiple quotes and make sure each installer models your specific NEM 3.0 economics — including battery storage scenarios and your system size relative to annual consumption. The headline savings numbers from NEM 2.0-era marketing don’t apply in the same way today.