NEM 3.0 Explained: What California's Net Billing Tariff Means for Your Solar Payback

By Nacho Iniguez ✦ Updated June 6, 2026

If you are pricing solar in California in 2026, the single biggest change to the math is not the panels or even the federal tax credit. It is how the utility pays you for the power you send back to the grid. That mechanism is called net metering, and California is now on its third version, commonly called NEM 3.0 but officially the Net Billing Tariff (NBT). The short version: exporting solar is worth a lot less than it used to be, and that one change reshapes whether a system pays for itself, and how fast.

This guide walks through what actually changed, why the answer is almost always “add a battery,” and how it lands on your payback. I am a homeowner working through the same numbers, not a salesperson, so I will keep the rates honest and label them as what they are: published utility and CPUC figures, not promises about your specific bill.

What NEM 3.0 actually is

Net metering is the accounting rule for the electricity your panels produce but you do not use in the moment. Under the old NEM 2.0 rules, the grid acted like a near-perfect battery: a kWh you exported at noon was credited at close to the full retail rate, around 30 cents per kWh in many California territories, so you could “spend” it at night at roughly the same value.

NEM 3.0, which took effect April 15, 2023, replaced that with the Net Billing Tariff. Now exports are paid at the wholesale value of that energy to the grid, calculated through California’s Avoided Cost Calculator (ACC). The ACC sets a different export rate for nearly every hour of the year, 576 distinct values by some counts, and those rates average somewhere around 5 to 8 cents per kWh across the year, per Aurora Solar and industry summaries. Midday, when everyone’s panels are flooding the grid, the rate can sink toward a few cents. During the evening peak, roughly 4pm to 9pm, it climbs much higher, occasionally to 10 to 15 cents or more.

The headline most installers quote is a roughly 75% reduction in export compensation versus NEM 2.0, a figure cited by the CPUC and widely repeated across the industry. Same panels, same sunshine, far smaller export credit.

Why the export-rate cut changes everything

The old game was simple arithmetic: export at retail value, buy back at retail value, break even. NEM 3.0 breaks that symmetry. You now export at maybe 6 cents and, hours later, buy power back at a retail rate that can be 40 to 60 cents during a summer evening peak. Sending solar to the grid at midday and pulling it back at dinner is a losing trade.

EnergySage and others put one illustration plainly: a system exporting roughly 4,000 kWh a year that earned about 30 cents under NEM 2.0 now earns closer to 7 cents, a swing of about $1,000 a year in lost credits for the exact same hardware doing the exact same thing.

So the value of solar under NEM 3.0 shifts away from exporting and toward self-consumption: using your own production directly, and shifting the surplus into the hours when grid power is most expensive. That is a battery’s whole job.

Why a battery is now close to mandatory

Under NEM 3.0 a battery stops being a backup-power luxury and becomes the core economic engine. Instead of dumping midday surplus to the grid for 6 cents, you store it and discharge it during the 4pm to 9pm peak, displacing power you would otherwise buy at 40-plus cents. You also keep the option to export from the battery during the highest-value evening ACC windows, which can pay multiples of the midday rate.

The CPUC’s own modeling has estimated that a well-sized solar-plus-storage system can still reach a payback in the neighborhood of nine years under NEM 3.0, assuming the battery is used to shift load intelligently. Solar alone, exporting most of its surplus into cheap midday rates, pays back far more slowly. The takeaway is consistent across sources: under NEM 3.0 a battery does not just shorten payback, it is often what makes the project pay back at all.

Two tools on this site help you put numbers to your own roof rather than trust a generic estimate. Start with the battery sizing calculator to see how much usable storage your evening load actually needs, then run the solar-plus-battery ROI calculator to model payback with NEM 3.0 export rates baked in.

How NEM 3.0 hits your payback, step by step

Think of your payback under NEM 3.0 as the sum of three savings buckets:

• Self-consumption. Every kWh your panels produce that you use immediately is worth the full retail rate you avoid paying. This is the most valuable kWh on the system, and it is unaffected by the export cut.
• Stored shifting. Solar charged into a battery at midday and used during the expensive evening peak is worth the difference between cheap export rates and pricey peak retail rates. This bucket is where the battery earns its keep.
• Exports. Whatever surplus is left after you have used and stored all you can gets the ACC rate, the small one. Under NEM 3.0 you want this to be the smallest bucket.

Because California’s time-of-use (TOU) rate spreads are wide, the gap between cheap off-peak and expensive on-peak power is where storage extracts the most value. If you want to see how aggressive that spread can be in your territory, the TOU arbitrage calculator shows what a battery can capture cycling between rate periods. That arbitrage is now a real line item in the payback, not an afterthought.

A practical consequence: oversizing your panels to “make extra to sell” no longer makes sense under NEM 3.0. Right-sizing the array to your usage, then sizing a battery to cover your evening peak, is the configuration that pays back fastest.

What this means if you already have solar (NEM 2.0)

If your system received Permission to Operate before April 15, 2023, you are on NEM 2.0 and grandfathered on those generous retail-rate terms for 20 years from your interconnection date. NEM 3.0 does not touch you. Importantly, adding a battery to an existing NEM 2.0 system does not knock you off your grandfathered status, so storage can be a smart add for backup and resilience without losing your export economics.

Two caveats worth knowing. First, that 20-year clock is tied to the service address, so a buyer of your home generally inherits the remaining years; confirm this with your utility, as the details have been read inconsistently across the industry. Second, NEM 3.0 export rates for new systems are locked for nine years from interconnection, a shorter guarantee than NEM 2.0’s twenty. None of this is legal advice; verify your own status and dates directly with PG&E, SCE, or SDG&E.

So is solar still worth it under NEM 3.0?

Yes, for most California homeowners with meaningful evening usage, but the shape of the deal changed. Solar alone is a weaker bet than it was; solar plus a right-sized battery, used to maximize self-consumption and peak shifting, still pencils out, often in roughly the nine-year range the CPUC modeled. The credit that ended in 2025 (the 25D purchase credit) is gone, which is one more reason to run the numbers carefully rather than rely on old rules of thumb.

For the fuller economic picture, including how the expired tax credit changes the calculus, read is solar worth it in 2026. Then build your own estimate with the ROI calculator before you sign anything. More buyer-first breakdowns live in the guides and reviews sections.

Sources: Aurora Solar, EnergySage, and the California Public Utilities Commission Avoided Cost Calculator framework.