Net Billing vs Net Metering: The California Solar Difference, Explained

People use "net metering" and "net billing" interchangeably, but in California they're two completely different compensation systems, and the difference is worth tens of thousands of dollars over the life of a solar system. The short version: net metering credits your exported solar at close to the retail rate you pay for electricity; net billing credits it at a much lower avoided-cost rate. California switched from net metering to net billing for new solar interconnections in April 2023, under a rule called NEM 3.0. Here's what actually changed and what it means for a California homeowner.

Net Metering in One Paragraph

Net metering is a compensation structure where every kWh your solar system exports to the grid earns you a credit at (approximately) the same retail rate you pay to buy a kWh from the utility. Export 10 kWh at 40 cents per kWh during the day, get $4 in credit. Consume 10 kWh at 40 cents per kWh at night, pay $4. The meter essentially runs backward, and at the end of the billing cycle you owe the difference. If you exported more than you used, you either roll the credit forward or get a small true-up payment at the end of the year. This was California's NEM 2.0 system from 2016 through April 2023.

Net Billing in One Paragraph

Net billing is a compensation structure where exports are valued at an avoided-cost rate rather than the retail rate. In California, that rate is roughly 5 to 8 cents per kWh on average — about one-fifth of what you pay the utility for the same kWh you buy back in the evening. Your consumption and your exports are tracked and billed separately. You're buying electricity from the utility at 40 cents per kWh and selling electricity back to the utility at 6 cents per kWh. This is California's current NEM 3.0 / Net Billing Tariff, in effect for all new solar interconnections since April 15, 2023.

Why the Distinction Matters So Much

Under net metering, oversizing your system was a smart strategy: produce as much as possible, bank the credits at retail value, and your utility bill would shrink to almost nothing. The electricity you exported was worth the same as the electricity you consumed.

Under net billing, that strategy breaks. A kWh you use inside your home is worth 5 to 8 times more than a kWh you export. Every kWh of solar production that gets exported at 6 cents per kWh is a kWh you could have been using yourself at 40 cents per kWh. The new optimum is self-consumption — use your solar in real time or store it in a battery for use later — not export.

For the same 7 kW system, a net-metered (NEM 2.0) system offsets roughly 95% of grid consumption, while a net-billed (NEM 3.0) solar-only system offsets only 40 to 60%. Adding a battery to the NEM 3.0 system brings self- consumption back up to 70-90%, restoring most — but not all — of the economics.

Are You on Net Metering or Net Billing?

If your solar system was interconnected (Permission to Operate granted by your utility) before April 15, 2023, you're on the old NEM 2.0 net metering structure and you're grandfathered in for 20 years from your interconnection date. Your export credits stay at retail rate regardless of what happens with new policy.

If your solar was interconnected on or after April 15, 2023, you're on NEM 3.0 / Net Billing. Your export credits are at the avoided-cost rate.

You can verify your tariff on your utility bill — PG&E, SCE, and SDG&E all list the applicable NEM tariff on statements for customers with rooftop solar. If you can't tell, call your utility or log into your online account.

Can You Expand a Net-Metered System Without Losing Grandfathering?

Mostly, yes — but with limits. You can generally add a battery to an existing NEM 2.0 system without triggering a switch to net billing. You can also usually add a small amount of new panel capacity without triggering the switch, though the exact threshold varies by utility (typically 1 kW or 10% of existing capacity, whichever is larger). Go above that threshold and the additional capacity moves to NEM 3.0 while the original system stays on NEM 2.0 — a split-tariff situation the utilities will handle but which adds billing complexity.

What About NEM 1.0?

NEM 1.0 was the original California net metering rule in effect from the early 2000s through 2016. Systems interconnected under NEM 1.0 are grandfathered in for 20 years from their interconnection date — the same protection structure as NEM 2.0. Practically, NEM 1.0 systems from 2010-2015 are approaching the end of their grandfather periods in the mid-2030s. When a NEM 1.0 grandfather period expires, those customers transition to whatever the current tariff is at that time.

Does Solar Still Work Under Net Billing?

Yes, for most California homeowners — with a battery. Without a battery, a NEM 3.0 solar-only system still offsets your daytime consumption and provides partial evening offset via the low export credits, but the payback stretches from 7-9 years (NEM 2.0) to 12-15 years. With a battery, self-consumption rises and payback stays in the 9-12 year range. For the details on whether solar is worth it under the new tariff, see our full NEM 3.0 worth-it analysis.

Frequently Asked Questions

Are net metering and net billing the same thing?

No. Net metering credits exports at retail rate (roughly equal to what you pay for electricity). Net billing credits exports at avoided cost (much lower — 5 to 8 cents per kWh in California). They are different compensation structures with very different economics.

Which is better for solar owners?

Net metering is significantly better for solar owners. Net billing reduces the value of exported solar by roughly 75-80% compared to net metering. Homeowners who were grandfathered under NEM 2.0 will see dramatically better economics than NEM 3.0 customers for the same system.

Will net billing change again?

The CPUC reviews the net billing tariff periodically. AB 942 (2025) and other legislative proposals affect specific provisions like transferability at home sale, but the core export-at-avoided-cost structure is unlikely to reverse back to retail-rate net metering in the near term.

Does my utility have net metering or net billing?

PG&E, SCE, and SDG&E all operate under the same CPUC-ordered net billing tariff (NEM 3.0) for new solar customers since April 2023. Municipal utilities like LADWP and SMUD have their own compensation rules that differ from the big three IOUs — check your specific utility's current solar tariff.