Net Metering California 2026: How It Works Under NEM 3.0

Net metering is the billing mechanism that allows solar homeowners to send excess electricity to the grid and receive credit on their utility bill. California's third-generation net metering policy — NEM 3.0 — took effect April 15, 2023. It significantly changed how much homeowners get paid for their exported solar power, and understanding it is essential for anyone evaluating solar in California in 2026.

What Is Net Metering?

When your solar panels produce more electricity than your home is consuming at that moment, the excess flows back into the utility grid. Your smart meter tracks this export. At billing time, your utility credits you for the exported power. The net of what you consumed from the grid minus what you exported is what you're billed for — hence "net metering."

Without net metering, any excess solar power exported to the grid would be simply given to the utility for free, dramatically reducing solar economics. Net metering transforms that excess production into bill credit.

NEM 2.0 vs. NEM 3.0: The Key Differences

Feature	NEM 2.0 (pre-April 2023)	NEM 3.0 (April 2023–present)
Export credit rate	Retail rate (~$0.28–$0.42/kWh)	Avoided cost rate (~$0.05–$0.08/kWh)
Credit timing	Monthly netting	Hourly, time-varying NBCs
Grandfathering	Not applicable	NEM 2.0 customers grandfathered 20 years from install date
Battery incentive	Modest benefit	Significant — CPUC designed NEM 3.0 to incentivize storage
Annual true-up	Yes — surplus credits can bank monthly	Monthly billing; no annual surplus payment
Non-bypassable charges	Partially avoided	Cannot avoid NBCs on consumption from grid

How NEM 3.0 Export Credits Work

Under NEM 3.0, solar export credits are set by what California's grid operator (CAISO) would otherwise pay for that electricity — the "avoided cost" or "net billing tariff" (NBT). These rates vary by hour of day, day of week, and season.

Key characteristics of NEM 3.0 export credits:

• Midday (10 AM–2 PM): Low value — approximately $0.03–$0.06/kWh. This is when the grid has excess solar supply and needs little additional power.
• Evening peak (4–9 PM): Moderate to high value — approximately $0.08–$0.30/kWh depending on season and day. This is when California's grid needs power most.
• Winter evenings: Higher export value due to less solar and more demand.
• Summer midday: Very low export value due to oversupply from statewide solar generation.

SCE publishes the specific NBT rate schedules on their website (the "E-SXCR-NEM3" tariff). SDG&E and PG&E publish equivalent tables. All are available on the CPUC website at cpuc.ca.gov.

Why NEM 3.0 Was Designed This Way

California's grid has a well-documented "duck curve" problem: massive solar production during midday creates grid instability, while demand spikes in the evening when solar production drops sharply. NEM 2.0 incentivized more midday solar export — which made the duck curve worse. NEM 3.0 was designed to incentivize homeowners to shift their solar value to the evening peak by pairing solar with battery storage.

The CPUC's stated goal: accelerate residential battery adoption to store solar energy for evening use, reducing California's reliance on expensive peaker plants during the 4–9 PM peak period.

Does Solar Still Make Sense Under NEM 3.0?

Yes — but the strategy has shifted. Here's how NEM 3.0 changes the optimal solar approach:

Solar Without Battery: Still Viable

Even without storage, solar under NEM 3.0 remains financially attractive because most homeowners self-consume 60–80% of their solar production. That self-consumed power avoids buying electricity at retail rates ($0.30–$0.55/kWh in California), which is where the real savings are. Export credits are smaller than NEM 2.0 but still meaningful for the 20–40% of production that's exported.

CPUC's own modeling estimated NEM 3.0 would increase average solar payback periods by about 2–3 years compared to NEM 2.0 — extending from 5–7 years to 7–10 years. This is significant but does not negate the fundamental value proposition of solar in California, where utility rates are among the highest in the US.

Solar + Battery: The Optimal Strategy

Pairing solar with battery storage under NEM 3.0 recovers much of the lost NEM 2.0 value. A battery-equipped system:

• Stores excess midday solar (which would otherwise export at $0.04/kWh)
• Discharges stored energy during the evening peak (avoiding purchase at $0.45–$0.59/kWh)
• In SDG&E territory, the spread between avoided-cost export and retail peak rates creates one of the highest battery storage ROI environments in the country
• Provides resilience during outages — increasingly valuable as California's grid faces wildfire-related shutoffs

NEM 3.0 Grandfathering: What Existing Solar Owners Need to Know

Homeowners who installed solar under NEM 2.0 before April 15, 2023 are grandfathered on NEM 2.0 terms for 20 years from their system's interconnection date. A homeowner who interconnected in January 2023 is on NEM 2.0 until 2043.

If a grandfathered NEM 2.0 customer adds battery storage to their existing system, they do not lose their NEM 2.0 grandfathering — they simply add the battery to their existing system without triggering NEM 3.0 enrollment.

If a NEM 2.0 customer significantly expands their system (adding new panels), they may be required to enroll in NEM 3.0 for the expanded capacity, depending on the utility and the size of the expansion. Consult with your utility before expanding an existing grandfathered system.

NEM 3.0 for New Installations in 2026

All new residential solar installations in California effective April 15, 2023 and beyond are on NEM 3.0. For new buyers in 2026, NEM 3.0 is simply the current framework — there's nothing to "grandfather" into. The strategy for new installations is:

1. Size the system to match your self-consumption (don't overbuild to maximize exports)
2. Enroll in a time-of-use rate plan to optimize the interaction between solar production and utility purchases
3. Seriously evaluate adding battery storage — the NEM 3.0 economics reward storage more than NEM 2.0 did
4. Use load shifting — run dishwashers, EV charging, and laundry during peak solar production hours (9 AM–3 PM) to maximize self-consumption