What Is NEM 3.0 and How Does It Affect My Solar Savings?
The short answer: NEM 3.0 is California's new net metering policy that reduced the value of excess solar energy you send back to the grid by 75-80%. It took effect in April 2023 and fundamentally changed solar economics—but solar is still very much worth it. The key adaptation: battery storage is now essential for maximizing savings. Here's everything you need to know.
What Is Net Energy Metering (NEM)?
Net Energy Metering is the system that governs how solar homeowners are credited for excess electricity they send to the grid.
How It Works:
- Daytime: Your solar panels produce electricity
- Self-consumption: Power you use immediately has full value (avoided utility purchase)
- Excess production: Extra power flows to the grid through your meter
- Credits: The utility credits you for that exported power
- Evening/night: You draw power from the grid
- True-up: Credits offset your grid usage at the end of the billing cycle
The "net" in NEM means you pay the difference between what you consumed and what you produced.
The Evolution: NEM 1.0 → 2.0 → 3.0
NEM 1.0 (Before 2016)
- Export credit: Full retail rate (same as you pay)
- Example: Export 1 kWh at 2 PM → Get credit worth 35¢
- Status: Closed to new customers
NEM 2.0 (2016-April 2023)
- Export credit: Near-retail rate (retail minus ~2¢)
- Example: Export 1 kWh at 2 PM → Get credit worth ~33¢
- Time-of-Use: Exports during peak hours worth more
- Status: Closed to new customers April 2023
NEM 3.0 / Net Billing Tariff (April 2023-Present)
- Export credit: Wholesale/avoided cost rates (5-8¢ average)
- Example: Export 1 kWh at 2 PM → Get credit worth ~5¢
- Time-of-Use: Still applies, but all values much lower
- Status: Current policy for new solar customers
NEM 3.0 Export Values: The Real Numbers
Under NEM 3.0, export credits vary by:
- Time of day
- Month of year
- Your utility (PG&E, SCE, SDG&E)
Typical NEM 3.0 Export Rates:
| Time Period | Export Credit | Retail Rate | Value Loss |
|---|---|---|---|
| Morning (6 AM-4 PM) | 4-6¢ | 35-42¢ | ~85% |
| Peak (4-9 PM) | 6-10¢ | 50-65¢ | ~85% |
| Off-Peak (9 PM-6 AM) | 3-5¢ | 30-38¢ | ~88% |
The pattern: Export credits are roughly 15-20% of retail rates across all time periods.
What This Means Practically:
Under NEM 2.0:
- Export 1 kWh at noon → ~35¢ credit
- Use 1 kWh from grid at 7 PM → Pay ~50¢
- Net cost: 15¢
Under NEM 3.0:
- Export 1 kWh at noon → ~5¢ credit
- Use 1 kWh from grid at 7 PM → Pay ~55¢
- Net cost: 50¢
Same electricity production. Dramatically different economics—unless you store that midday power instead of exporting it.
Why California Made This Change
The Utility Perspective:
-
Grid costs don't go away: When you export solar, utilities still maintain the grid, even if they pay you less for power.
-
Solar saturation: So much midday solar floods the grid that its wholesale value has dropped (the "duck curve").
-
Cost shifting argument: Utilities claimed non-solar customers subsidized solar customers' grid access.
The Reality Check:
Critics argue NEM 3.0 went too far, making rooftop solar less attractive than utility-scale solar and slowing residential adoption. But the policy is now law and unlikely to change significantly.
How NEM 3.0 Actually Affects Your Savings
Let's compare two scenarios for a home using 900 kWh/month:
Scenario A: Solar Only (No Battery)
System production: 950 kWh/month Self-consumption: 350 kWh (37%) Export to grid: 600 kWh (63%)
Monthly Economics:
| Category | NEM 2.0 Value | NEM 3.0 Value |
|---|---|---|
| Self-consumed savings | $147 | $147 |
| Export credits | $198 | $36 |
| Grid purchases (evening) | -$165 | -$165 |
| Net monthly benefit | $180 | $18 |
NEM 3.0 impact without battery: Savings reduced by 90%
Scenario B: Solar + Battery
System production: 950 kWh/month Self-consumption: 350 kWh (37%) Battery stored & used: 450 kWh (47%) Export to grid: 150 kWh (16%)
Monthly Economics:
| Category | Value |
|---|---|
| Self-consumed savings (direct) | $147 |
| Battery-shifted savings (peak hours) | $247 |
| Export credits | $9 |
| Grid purchases | -$55 |
| Net monthly benefit | $348 |
With battery: Actually BETTER than NEM 2.0 for this household
The Battery Imperative Under NEM 3.0
The math is clear: batteries transform NEM 3.0 from problematic to profitable.
Why Batteries Change Everything:
| Strategy | Value per kWh |
|---|---|
| Export to grid (NEM 3.0) | 5-8¢ |
| Store and use during peak | 50-65¢ |
| Value difference | ~10x |
How Battery Optimization Works:
Morning (6 AM - 10 AM):
- Solar production begins
- Power your home directly
- Begin charging battery
Midday (10 AM - 4 PM):
- Peak solar production
- Home uses solar
- Battery charges to 100%
- Any excess exports (low value, but unavoidable)
Peak Hours (4 PM - 9 PM):
- Solar production declining/ended
- Battery powers home
- Avoid 55-65¢/kWh grid purchases
Night (9 PM - 6 AM):
- Battery depleted
- Grid provides minimal needs (off-peak rates)
Result: 80-90% of your electricity never touches the grid at retail rates.
NEM 3.0 Payback Periods: Real Numbers
With the shift to battery-focused systems, here's what payback looks like:
Solar Only (Not Recommended Under NEM 3.0):
| Utility | Current Bill | Payback Period |
|---|---|---|
| SDG&E | $385/month | 9-11 years |
| PG&E | $315/month | 10-12 years |
| SCE | $294/month | 11-13 years |
Solar + Battery (Recommended):
| Utility | Current Bill | Payback Period |
|---|---|---|
| SDG&E | $385/month | 5-6 years |
| PG&E | $315/month | 6-7 years |
| SCE | $294/month | 6-8 years |
The battery investment pays for itself through peak-rate avoidance.
The 9-Year Lock-In Protection
One crucial NEM 3.0 provision: your rate structure is locked in for 9 years from the date you interconnect.
What This Means:
- Your export rates won't decrease (even if policy changes)
- Your system design is optimized for current rules
- Future NEM 4.0 or policy changes won't affect you for 9 years
After 9 Years:
You'll be transitioned to whatever policy exists then. But by that point:
- Your system will be largely paid off
- Technology will have evolved
- Battery costs will be even lower
- You can adapt your setup if needed
Existing NEM 2.0 Customers: You're Protected
If you went solar before April 2023, you're grandfathered into NEM 2.0 for 20 years from your interconnection date.
Should NEM 2.0 Customers Add Batteries?
Maybe. Batteries still provide:
- Blackout protection
- Some peak-rate optimization
- Future-proofing for eventual NEM 2.0 expiration
But the economics are less urgent than for new NEM 3.0 customers.
Common NEM 3.0 Myths
Myth 1: "Solar doesn't make sense anymore"
Reality: Solar + battery systems have faster payback than solar-only systems did under NEM 2.0 in many cases. The economics shifted, not disappeared.
Myth 2: "I should wait for NEM 3.0 to be repealed"
Reality: NEM 3.0 isn't going anywhere. It was heavily lobbied and is now settled policy. Waiting just means paying utility bills longer.
Myth 3: "Batteries are too expensive"
Reality: Battery costs have dropped 80%+ in the past decade. With the 30% federal tax credit applying to batteries and SGIP rebates, net costs are very reasonable.
Myth 4: "I should oversize my system to make up for low export credits"
Reality: The opposite. Size your system for self-consumption and let the battery capture excess. Oversizing just means exporting more at low rates.
How to Design a System for NEM 3.0
The Right Approach:
- Size solar for annual usage (not more)
- Add enough battery to store daily excess
- Minimize exports through smart design
- Maximize self-consumption with load shifting
Typical NEM 3.0 Optimized System:
| Home Usage | Solar Size | Battery Size | Export % |
|---|---|---|---|
| 600 kWh/mo | 5-6 kW | 10-13 kWh | 10-15% |
| 900 kWh/mo | 7-9 kW | 13-20 kWh | 10-15% |
| 1,200 kWh/mo | 10-12 kW | 20-27 kWh | 10-15% |
Target: Keep exports under 15% of production.
Key Takeaways
- NEM 3.0 reduced export credits by 75-80% compared to NEM 2.0
- Solar-only systems have longer payback under NEM 3.0
- Solar + battery systems can have SHORTER payback than NEM 2.0 solar-only
- Batteries are now essential for maximizing solar value
- Your rate structure locks in for 9 years from installation
- Existing NEM 2.0 customers are protected for 20 years
Frequently Asked Questions
Is solar still worth it under NEM 3.0?
Yes, but the system design matters more. Solar + battery is now the standard recommendation, and payback periods are still 5-7 years for most California homeowners.
What if I can't afford a battery?
Solar-only can still make sense if your usage is very high (the self-consumption percentage will be higher). But the economics are significantly better with a battery.
Can I add a battery later?
Yes, you can retrofit a battery to an existing solar system. However, it's typically 20-30% cheaper to install solar and battery together.
How does NEM 3.0 affect my bill structure?
You'll receive monthly statements showing production, consumption, exports, and imports. Annual true-up still applies, but the math will be different than NEM 2.0.
Do I still get credit for exports?
Yes, just at much lower rates (5-8¢ vs. 30-40¢). These credits accumulate and offset any grid power you purchase.
What size battery do I need?
Generally, enough to store your expected excess production for use during peak hours. For most homes: 10-27 kWh (one to two Tesla Powerwalls or equivalent).
Get a NEM 3.0-Optimized System Design
The rules have changed. Your solar system design should too.
We design systems specifically for NEM 3.0 economics:
- Right-sized solar production
- Optimal battery capacity
- Minimal grid dependence
- Maximum long-term savings
Get a free consultation and see what a properly designed NEM 3.0 system looks like for your home.
[Get Your Free Quote] | [Calculate Your NEM 3.0 Savings]
Silva Bros Solar: Navigating California's solar policies so you don't have to.
