California NEM 3.0 and Net Billing, Explained (2026)

If you are buying solar in California today, one rule shapes the whole decision: the state’s three big investor-owned utilities run on NEM 3.0, the Net Billing Tariff. It changed how you get paid for the power you send back to the grid. This guide goes past the headline. It explains how the avoided-cost export schedule actually works hour by hour, why a battery plus a 4 to 9 pm peak strategy is now the core play, how payback shifted from the old NEM 2.0 rules, who is grandfathered, and which utilities NEM 3.0 does and does not cover. For the statewide cost-and-incentive picture, start with our California solar hub.

What NEM 3.0 actually is (the Net Billing Tariff)

NEM 3.0 is the nickname. The official name is the Net Billing Tariff (NBT). The California Public Utilities Commission (CPUC) adopted it in Decision D.22-12-056 on December 15, 2022, and it took effect on April 15, 2023 for the three large investor-owned utilities: Pacific Gas & Electric (PG&E), Southern California Edison (SCE), and San Diego Gas & Electric (SDG&E) (CPUC Net Billing Tariff, as of August 2026).

Here is the core difference from the old rules. Under NEM 2.0, the power you exported earned a credit close to the full retail rate, so the grid worked almost like a free battery. Under NEM 3.0, the electricity you use from your own panels in real time still avoids the retail rate, but the surplus you export is credited at avoided-cost values from the CPUC’s Avoided Cost Calculator (ACC). On average those export credits are far below the near-retail credits you would have earned under NEM 2.0, and they vary by hour, season, and utility. That single change is why the advice for new California systems flipped from “size for the whole roof and bank the extra” to “use as much of your own power as you can.”

How the avoided-cost export schedule works

The most misunderstood part of NEM 3.0 is that there is no single export price. The Avoided Cost Calculator sets a different export value for every hour of every day of the year, based on what it would have cost the utility to buy that power on the wholesale market at that moment (CPUC Avoided Cost Calculator). Two patterns drive the whole strategy:

• Midday exports are worth the least. When the sun floods the grid with solar, wholesale power is cheap, so the export credit for the surplus you push out at noon is very low.
• Late-summer evening exports are worth the most. After the sun drops but demand stays high, wholesale prices spike, so the same kWh sent to the grid on a hot September evening can be worth many times a midday kWh.

That shape is the whole game. The value of a kWh you export is highest in the exact hours your panels make the least, which is why the tool to shift power from midday to evening, a battery, is where the money now is.

When you export	Relative ACC export value	Why
Spring and summer midday	Lowest	Grid is flooded with solar; wholesale power is cheap
Summer evening, 4 to 9 pm	Highest	Sun is down, demand peaks, wholesale prices spike
Winter daytime	Moderate	Less solar on the grid, steadier prices

The MySolarFY illustration: solar-only vs solar plus battery

First-party MySolarFY worked example. Built August 2026 from cited inputs, not a quote.

To show why the battery matters under net billing, here is a like-for-like illustration for a 6 kW system in Los Angeles. The production figure is real (NREL PVWatts), and the rate is real (EIA). The split between power you use at home and power you export, and the avoided-cost export credit, are transparent estimates so you can follow the logic. Your own numbers depend on your usage pattern, roof, and utility.

• Production: 10,029 kWh per year for a 6 kW system in Los Angeles (NREL PVWatts v8).
• Retail rate avoided: about 35 cents per kWh (EIA, California residential, 2026).
• Illustrative export credit: about 6 cents per kWh blended across the year, well below retail, reflecting low midday avoided-cost values.

The takeaway: under NEM 3.0 the same panels produce the same power, but the household that stores its midday surplus and uses it at night captures roughly $1,000 more value a year, because it avoids buying 35-cent retail power instead of selling that surplus for 6 cents. According to MySolarFY’s August 2026 analysis, adding a battery to this 6 kW Los Angeles system lifts self-consumption from about 50% to about 85% and captures roughly $1,000 more value a year under net billing. A battery adds real upfront cost, so weigh the two together with our solar battery cost guide. These are estimates for illustration, not a quote or a savings guarantee.

One honest caveat: on the bill-savings math alone, that extra ~$1,000 a year pays back a battery slowly, often 10 years or more. Most California homeowners add storage for the mix of bigger bill savings, backup power when the grid goes down, and control over the 4 to 9 pm peak, not for the export math by itself. Size the battery to your evening use, not your whole roof.

Why a battery plus a 4 to 9 pm strategy is the NEM 3.0 play

California’s investor-owned utilities put their residential customers on time-of-use (TOU) rates with a peak window that generally runs 4 to 9 pm, when retail power is most expensive. NEM 3.0 and TOU point the same direction, so the winning setup does three things:

• Store the cheap midday surplus instead of exporting it for a few cents.
• Discharge into the 4 to 9 pm peak so you avoid buying the most expensive retail power of the day.
• Export only when it pays, sending stored power to the grid on high-value summer evenings when the avoided-cost credit spikes.

Running big loads like an EV charger, heat pump, or pool pump during daylight hours pushes self-consumption even higher. Under full-retail net metering none of this mattered much. Under net billing it is the difference between a strong payback and a slow one.

How payback shifted from NEM 2.0

Under NEM 2.0, a large solar-only system with lots of exports could pay back quickly because every exported kWh was worth nearly retail. Under NEM 3.0 that same solar-only system pays back more slowly, because its exports now earn avoided-cost pennies instead of near-retail credits. Adding a battery restores much of the lost value by turning would-be low-value exports into high-value avoided retail purchases. In short, NEM 2.0 rewarded oversizing your panels, and NEM 3.0 rewards storing and self-consuming. That is the real payback story behind the tariff change.

Are you grandfathered on NEM 2.0?

The change only applies to new systems. If your solar was already connected under the old rules, you keep them for a long transition period.

• The cutoff: homeowners who submitted a complete interconnection application to PG&E, SCE, or SDG&E before April 15, 2023 qualify to stay on NEM 2.0.
• The lock: grandfathered NEM 2.0 customers keep those rules for 20 years from their original permission-to-operate (PTO) date (CPUC).
• New systems since then are on NEM 3.0 net billing.

If you are buying solar in 2026, you are on NEM 3.0. If you already have panels from before the cutoff, confirm your status and remaining term with your utility before you change anything, since major additions can affect it.

Who NEM 3.0 covers (and who it does not)

This is the detail that trips people up: NEM 3.0 only governs the CPUC-regulated investor-owned utilities. If a city-run utility delivers your power, your rules are different and are usually more favorable to exports. For example, Riverside solar customers are served by Riverside Public Utilities, a municipal utility exempt from NEM 3.0 that runs its own near-retail net metering.

So your address matters more than your city. Confirm the utility name on your electric bill first. For the full statewide picture, including incentives and the property-tax exclusion, see the California solar hub, and for the national mechanics of how export credits work, our net metering explainer.

What about the federal tax credit?

The 30% federal residential solar credit (Section 25D) ended for expenditures made after December 31, 2025 (IRS). A homeowner buying a system in 2026 does not get that credit. Solar is not free, and you should be cautious of any pitch that says it is. California still offers a property-tax exclusion for the added home value and income-qualified programs, but there is no state solar tax credit. If you go with a lease or PPA, the company that owns the system claims any available incentives, not you.

NEM 3.0 net billing FAQ