Solar and Net Metering in California: What You Need to Know

California leads the nation in residential solar adoption, with over 1.5 million homes equipped with solar panels. Net metering—the policy that allows solar customers to receive credit for excess electricity they send to the grid—has been a key driver of this growth. But recent policy changes are reshaping the economics of solar in California.

What Is Net Metering?

Net metering allows solar customers to:

Use solar electricity directly when it's generated
Send excess electricity to the grid when production exceeds usage
Receive credits for exported electricity
Use those credits to offset electricity drawn from the grid at other times

How It Works in Practice

On a sunny afternoon, your solar panels might generate 5 kW while your home uses only 2 kW. The excess 3 kW flows to the grid, and your meter "runs backward," crediting your account.

In the evening, when your panels aren't producing, you draw electricity from the grid. Your credits offset this usage, reducing or eliminating your bill.

California's Net Metering Evolution

NEM 1.0 (Pre-2016)

The original net metering program offered:

Full retail rate credit for exported electricity
No time-of-use requirements
Extremely favorable economics for solar

NEM 2.0 (2016-2023)

NEM 2.0 introduced:

Mandatory time-of-use rates for solar customers
Non-bypassable charges on all grid usage
Still relatively favorable export credits

NEM 3.0 / Net Billing Tariff (2023-Present)

The current policy significantly changed solar economics:

Export credits reduced by 75% or more
Credits based on "avoided cost" rather than retail rate
Stronger incentive for battery storage
Existing NEM 1.0 and 2.0 customers grandfathered for 20 years

Understanding NEM 3.0 Export Rates

Under NEM 3.0, export credits vary by:

Time of day
Season
Grid conditions

Typical Export Credit Rates

| Time Period | Export Credit |

|-------------|---------------|

| Peak (4-9 PM) | ~8-10¢/kWh |

| Off-Peak (daytime) | ~4-6¢/kWh |

| Super Off-Peak | ~3-5¢/kWh |

Compare this to retail rates of 30-50¢/kWh, and you can see why the economics have changed dramatically.

Solar Economics Under NEM 3.0

The New Math

Under NEM 2.0, a typical solar system might pay for itself in 5-7 years. Under NEM 3.0, without battery storage, payback periods have extended to 9-12 years or more.

Why Batteries Are Now Essential

Battery storage changes the equation by allowing you to:

Store daytime solar production
Use stored electricity during peak hours (4-9 PM)
Avoid drawing expensive peak electricity from the grid
Maximize the value of your solar production

Example Comparison

Without Battery:

Generate 30 kWh during day
Use 10 kWh directly
Export 20 kWh @ 5¢ = $1.00 credit
Import 15 kWh @ night @ 35¢ = $5.25 cost
Net cost: $4.25

With Battery:

Generate 30 kWh during day
Use 10 kWh directly
Store 15 kWh in battery
Export 5 kWh @ 5¢ = $0.25 credit
Use 15 kWh from battery during peak
Import 0 kWh from grid
Net cost: -$0.25 (credit)

Choosing the Right Solar + Storage System

System Sizing Considerations

Solar Array:

Size to cover 100-120% of annual usage
Consider future needs (EV, heat pump, etc.)
Account for roof orientation and shading

Battery Storage:

Typical home needs 10-20 kWh of storage
Size to cover peak hour usage (4-9 PM)
Consider backup power needs

Popular Battery Options

| Battery | Capacity | Cost (Installed) |

|---------|----------|------------------|

| Tesla Powerwall 3 | 13.5 kWh | $12,000-15,000 |

| Enphase IQ Battery | 10.5 kWh | $10,000-13,000 |

| LG RESU | 9.6 kWh | $9,000-12,000 |

Financial Incentives

Federal Tax Credit

The federal Investment Tax Credit (ITC) provides:

30% credit on solar and battery costs
Applies to both new installations and battery additions
No income limits or caps

California Incentives

Self-Generation Incentive Program (SGIP):

Rebates for battery storage
Higher rebates in fire-prone areas
Income-qualified customers receive larger rebates

Property Tax Exclusion:

Solar installations excluded from property tax assessment
Applies through 2024 (may be extended)

Should You Go Solar Under NEM 3.0?

Good Candidates

High electricity users (>800 kWh/month)
Homes with good solar exposure
Customers willing to add battery storage
Those planning long-term ownership
Households with EVs or planning to add one

Poor Candidates

Low electricity users
Homes with significant shading
Those planning to move within 5 years
Customers unable to afford battery storage

Existing Solar Customers

NEM 1.0 and 2.0 Grandfathering

If you installed solar under NEM 1.0 or 2.0:

Your current rate structure is guaranteed for 20 years from installation
Adding battery storage doesn't affect your NEM status
Expanding your system may trigger NEM 3.0 for the new capacity

Adding Batteries to Existing Systems

Even under favorable NEM 2.0 rates, batteries can provide value:

Backup power during outages
Arbitrage between TOU rate periods
Reduced demand charges (if applicable)

The Future of Solar in California

Despite NEM 3.0's challenges, solar remains viable in California:

Declining Costs

Solar and battery costs continue to fall, offsetting reduced export credits.

Virtual Power Plants

Utilities are offering programs where battery owners can earn credits by allowing grid support during peak demand.

Rate Increases

As retail electricity rates continue rising, the value of self-generated solar increases.

Key Takeaways

NEM 3.0 significantly reduced export credits compared to earlier programs
Battery storage is now essential for optimal solar economics
Existing NEM 1.0/2.0 customers are grandfathered for 20 years
Federal tax credits make solar + storage more affordable
Solar still makes sense for high-usage households willing to add batteries

If you're considering solar in California, work with a reputable installer who can model your specific situation under current rates and help you understand the true economics of your investment.