If you have started shopping for solar in California, you have probably run into two phrases over and over: net metering and NEM 3.0. Salespeople throw them around like everyone already knows what they mean, and the explanations online tend to be either three sentences of hand-waving or a wall of regulatory jargon. Net metering is simply the rulebook that decides what the utility pays you for the extra power your panels send back to the grid, and in 2026, those rules look very different from a few years ago. This guide breaks it down in plain language, compares NEM 2.0 vs. 3.0 side by side, and shows exactly how the current rules land on your monthly bill.
Net Metering at a Glance
- What it is: The billing system that credits you for solar power your panels send to the grid.
- What NEM stands for: Net Energy Metering, California’s name for the program.
- Current version: NEM 3.0, officially called the Net Billing Tariff, in effect since April 2023.
- Biggest change from NEM 2.0: Export credits dropped from near retail rate to the grid’s avoided cost, a cut of roughly 75 percent.
- What matters most now: When you use or export power, not just how much you produce.
- The fix: A home battery, which lets you store cheap midday solar and use it during the expensive evening peak instead of exporting it for pennies.
What Net Metering Actually Is
Net metering is the billing arrangement between you and your utility once you own solar panels. On a sunny afternoon, your panels usually make more electricity than your home is using. That surplus does not vanish. It flows back onto the grid, and the utility credits your account for it. Later, at night or on a cloudy day when your panels make little or nothing, you pull power back from the grid and spend those credits. If you are still fuzzy on where that surplus power comes from, it helps to review how solar panels work before going further.
The Simple Version
Think of the grid as a giant battery you borrow instead of buying.
| Time of day | What happens | Accounting term |
|---|---|---|
| Midday, panels producing more than you need | Surplus flows to the grid | Export, earns a credit |
| Night or cloudy day, panels producing little | You pull power from the grid | Import, spends a credit |
| End of billing period | Utility settles the difference | This is the “net” in net metering |
At the end of a billing cycle, you pay for the net amount of grid power you actually consumed, not the gross.
Why the Details Matter
For years, the accounting was simple: every kilowatt-hour you exported was worth the same as a kilowatt-hour you imported, a full retail credit. Under that math, a well-sized system could zero out a bill almost entirely. That generous version is no longer what new California solar customers get, and the value of an exported kilowatt-hour now depends heavily on when you send it. That shift is what NEM 3.0 is all about.
NEM 2.0 vs 3.0: What Actually Changed
California has run three major versions of net metering, and knowing which one you fall under is essential. Net metering is a state program, and it sits alongside the broader menu of California’s solar programs that shape what solar costs and returns.
| Feature | NEM 1.0 and 2.0 | NEM 3.0 (Net Billing Tariff) |
|---|---|---|
| In effect | 2010s through April 2023 | April 2023 onward |
| Export credit rate | Near retail rate | Grid’s avoided cost, changes hourly |
| Typical export value | Close to what you pay to import | Roughly 75 percent lower on average |
| Rate plan | Time-of-use, added under NEM 2.0 | Time-of-use required for every customer |
| Battery need | Helpful but optional | Central to a well-designed system |
| Who is on it now | Homeowners grandfathered before April 2023 | Every new residential solar customer of PG&E, SCE, and SDG&E |
NEM 1.0 and NEM 2.0
The first two versions, rolled out over the 2010s, both offered near retail-rate credit for exported power. NEM 2.0 added small non-bypassable charges and moved customers onto time-of-use rate plans, but the core deal stayed rich. Homeowners who locked in under these versions still enjoy those terms today.
What Changed in April 2023
In April 2023, the state replaced NEM 2.0 with the Net Billing Tariff, universally known as NEM 3.0. It applies to every new residential solar customer of the three big investor-owned utilities: Pacific Gas and Electric, Southern California Edison, and San Diego Gas and Electric. Exported power is no longer credited at retail rates. Instead, it is paid at the grid’s avoided cost, what it would have cost the utility to buy that same power elsewhere.
How NEM 3.0 Changes Your Bill
This is the part homeowners care about, so let us be direct. Under NEM 3.0, the power you use directly from your panels in real time is still worth full retail value, because you avoid buying that power from the utility. What changed is the value of the surplus you export. To see how much surplus your roof might actually produce, it helps to first calculate your panel output for your specific home.
Export Credits Are Now Based on Avoided Cost
Under the old rules, sending a kilowatt-hour to the grid at noon and pulling one back at 8 p.m. was a wash. Under NEM 3.0, those two kilowatt-hours have very different values:
- Midday export: Often earns only a few cents, because solar is abundant and cheap at that hour.
- Evening import: Still costs the full peak retail rate.
Exporting cheap and buying back expensive is exactly the trap NEM 3.0 sets for a solar system with no way to store its own power.
Time-of-Use Timing Matters More Than Ever
Every NEM 3.0 customer is on a time-of-use plan, where electricity is most expensive in the late afternoon and evening, typically 4 p.m. to 9 p.m. Export credits follow the same shape, so power sent to the grid during those peak evening hours is worth far more than power dumped at noon. The goal under NEM 3.0 is shifting your solar value into those high-value evening hours instead of giving it away in the cheap middle of the day.
Why Batteries Are the Heart of NEM 3.0
If NEM 2.0 made batteries a nice optional extra, NEM 3.0 makes them the centerpiece of a smart system. A battery lets you store your cheap midday surplus and use it yourself in the expensive evening, sidestepping the export penalty almost entirely. Understanding the cost of a system today with a battery included keeps your expectations grounded.
Self-Consumption Is the New Goal
Under NEM 3.0, the design target flips from “export as much as possible” to “use as much of your own power as possible.”
| System type | Typical self-consumption rate | What it means |
|---|---|---|
| Solar only, no battery | Around 40% | Most production exported at the low rate |
| Solar plus a properly sized battery | 80% or more | Most production used directly at full retail value |
Every point of self-consumption you gain is power valued at full retail instead of the low export rate.
Charging and Discharging on the Right Schedule
A modern battery paired with smart software charges from your panels during the cheap solar hours and discharges during the expensive evening peak. Some homeowners even earn more by exporting from the battery during those peak windows, when the avoided-cost credit is highest for the day. This is the arbitrage NEM 3.0 rewards, and it is automatic once the system is set up correctly.
What NEM 3.0 Means for Your Payback
Here is the honest headline. A solar-only system under NEM 3.0 pays back more slowly than the same system would have under NEM 2.0, often by several years, because so much of its production gets exported at low value. Add a properly sized battery, and the picture improves sharply, since you capture far more of your production at full retail value. For a full walkthrough of the numbers, see the return you can realistically expect from a well-designed system over its lifetime.
The practical takeaway: NEM 3.0 did not kill California solar, it changed the winning design. Homes that still see fast payback pair solar with storage and let the software chase the high-value hours. A quote that ignores this and sells you panels alone is quietly handing you a longer payback than you need.
If You Are Already on NEM 2.0
There is one more piece that surprises people. If you locked in your interconnection under NEM 1.0 or 2.0 before the April 2023 cutoff, you are grandfathered onto those richer terms for 20 years from your original approval date. You keep the near retail-rate export credit for the life of that window, even as new customers move onto NEM 3.0.
Grandfathering does not transfer to a brand-new system, so it is not a reason to delay if you do not have solar yet. If anything, it underscores one of the standing reasons to go solar now, since the rules have only tightened over time. The version of net metering available today is the most generous one you will be offered going forward.
Net Metering Beyond California
California gets the most attention because NEM 3.0 was such a sharp change, but net metering rules vary widely by state.
| State approach | What it looks like | Example |
|---|---|---|
| True or near retail-rate net metering | Exports credited close to what you pay for imports | Some states still offer this |
| Net billing or avoided-cost model | Exports credited at a lower rate, similar to California | A growing number of states |
| No statewide mandate | Export value depends on your retail provider | Texas |
For homeowners weighing solar against simply staying on the grid, the local net metering policy is often the single biggest factor in how quickly the system pays off. Before you sign anything, understand exactly how your utility prices the power your panels send back, because that number drives your entire return.
The Bottom Line on Net Metering in 2026
- Net metering is the rulebook that turns your rooftop production into bill savings, and in California, that rulebook is now NEM 3.0.
- NEM 3.0 rewards using your own power over exporting it, prices your surplus by the hour, and makes a battery the difference between a slow payback and a strong one.
- None of that means solar stopped working. It means the design has to match the rules, and a system built for NEM 3.0 still erases most of a rising utility bill.
The only way to know your real numbers under the current tariff is to model your actual roof, usage, and rate plan. You can request a free solar quote and see your NEM 3.0 payback in plain figures before you commit to anything.
Frequently Asked Questions
What is net metering in simple terms?
Net metering is the billing arrangement that credits you for the surplus electricity your solar panels send back to the grid. During the day, you export extra power and earn credits, and at night, you draw power back and spend those credits. You pay only for the net amount of grid electricity you used over the billing cycle, which is where the name comes from.
What is NEM 3.0?
NEM 3.0 is California’s current net metering policy, officially called the Net Billing Tariff, in effect since April 2023. It credits exported solar power at the grid’s avoided cost rather than the retail rate, which lowered export credits by roughly 75 percent and made batteries central to a good system design.
What is the difference between NEM 2.0 and NEM 3.0 rates?
Under NEM 2.0, exports were credited at close to the retail rate you pay for electricity. Under NEM 3.0, exports are credited at the avoided cost rate, which changes hour by hour and is often just a few cents per kilowatt-hour during the sunniest part of the day. That gap is why batteries matter so much more under NEM 3.0.
Does net metering still exist in California?
Yes, but in a reduced form. New solar customers of the major investor-owned utilities are on NEM 3.0, which still credits exports but at a much lower avoided-cost rate that changes by the hour. Homeowners who interconnected under NEM 1.0 or 2.0 before April 2023 remain grandfathered on the older, more generous terms for 20 years.
Do I need a battery under NEM 3.0?
You are not required to have one, but a battery dramatically improves your economics under NEM 3.0. Storing your cheap midday surplus and using it during the expensive evening peak lets you avoid the low export rates and keep more of your production at full retail value. Solar-only systems still work, but they pay back more slowly than a solar-plus-storage system on the current tariff.
How does NEM 3.0 affect my solar payback period?
A solar-only system under NEM 3.0 typically pays back several years slower than it would have under NEM 2.0, because so much production is exported at low value. Adding a correctly sized battery shortens that window significantly by raising how much of your own power you use directly. The exact payback depends on your usage pattern, rate plan, and whether you include storage.
Will net metering rules change again?
California can revise its tariff again, and the long-term trend has been toward lower export credits over time. That is why the terms available today are generally the most favorable you will be offered going forward, and why grandfathering under an existing system is so valuable.