What Is NEM 3.0 in California? Plain-English Explainer

NEM 3.0 — officially the Net Billing Tariff (NBT) — is the rule that determines how California utilities credit homeowners for solar electricity they export to the grid. It replaced the older NEM 2.0 program for all new residential solar interconnections starting April 15, 2023. The short version: exported solar is now worth much less than it used to be, which changes how California solar systems should be designed.

The One-Sentence Version

NEM 3.0 pays you about 5-8 cents per kWh for electricity you export to the grid, while the utility charges you 35-46 cents per kWh for electricity you buy back.

Why "Net Billing" Instead of "Net Metering"

The official name change is meaningful. Under NEM 2.0, your utility meter effectively ran backward when you exported solar — it net metered your consumption against your exports at roughly the same rate. Under NEM 3.0, the meter tracks consumption and export separately, and bills each at different rates. You're buying electricity retail and selling it wholesale. That's what "net billing" means.

Why NEM 3.0 Exists

The California Public Utilities Commission (CPUC) that designed NEM 3.0 argued that NEM 2.0's retail-rate credits were a subsidy — solar owners were avoiding their share of grid infrastructure costs, which got passed to non-solar utility customers. Solar industry groups argued that retail-rate credit was proper compensation for clean, distributed generation.

The compromise that landed in NEM 3.0: export credits dropped to avoided-cost (what the utility would pay a generator for the same electron from a power plant), grandfathering extended to 20 years for existing NEM 2.0 customers, and the new tariff explicitly encourages battery-paired systems via higher credits during grid-strain hours.

How NEM 3.0 Credits Work

Under NEM 3.0, every kWh you export to the grid earns a credit based on the "Avoided Cost Calculator" (ACC) rate for that specific hour. The rates vary by hour of day, month, and year — generally low during the day (lots of solar on the grid already) and higher during peak demand hours (late afternoon/evening). The average across the year works out to 5-8 cents per kWh for most California customers.

Critically, a battery that discharges to the grid during peak hours earns the peak-hour ACC rate — which can exceed the retail rate in some hours. That's the mechanism by which NEM 3.0 rewards battery-paired systems.

What NEM 3.0 Means For New Solar Customers

If you're installing solar in California in 2026, you're on NEM 3.0. That means three practical things:

1. Battery storage is essentially required for good economics. A solar-only system under NEM 3.0 exports most of its production at the low credit rate. A solar + battery system captures that production for your own use.

2. System design should prioritize self-consumption. West-facing panels (afternoon peak), battery sizing matched to evening load, smart load shifting (running pool pumps and dishwashers during solar hours) — all matter more under NEM 3.0.

3. Payback timelines are longer but the economics still work. Solar-only NEM 3.0 payback: 12-15 years. Solar + battery NEM 3.0 payback: 9-12 years. Compared to NEM 2.0's 7-9 year payback, it's worse — but compared to doing nothing and paying California utility rates for the next 25 years, it's still clearly a positive.

NEM 3.0 vs NEM 2.0 (If You're Grandfathered)

If your solar was interconnected before April 15, 2023, you're on NEM 2.0 and grandfathered for 20 years from your interconnection date. Nothing about NEM 3.0 changes your economics. For a detailed NEM 2.0 vs NEM 3.0 comparison, see our side-by-side breakdown.

Which Utilities Use NEM 3.0?

The CPUC-ordered Net Billing Tariff applies to California's three large investor-owned utilities: PG&E, SCE, and SDG&E. Municipal utilities (LADWP, SMUD, Riverside Public Utilities, Glendale Water & Power, etc.) set their own solar compensation rules and are not directly bound by NEM 3.0 — check your specific utility's tariff.

Frequently Asked Questions

Is NEM 3.0 the same as the Net Billing Tariff?

Yes. "NEM 3.0" is industry shorthand. "Net Billing Tariff" or "NBT" is the CPUC's official name.

When did NEM 3.0 start?

Interconnection applications submitted on or after April 15, 2023 are under NEM 3.0.

Can I avoid NEM 3.0?

Not for new solar interconnections in California's three major utility territories. Existing NEM 2.0 customers are grandfathered; new customers are on NEM 3.0.

Will NEM 3.0 change again?

The CPUC reviews the tariff periodically. Industry groups continue to push for higher export credits. Material changes would come via another CPUC proceeding and typically take 1-2 years to implement. See our NEM 3.0 timeline for the current policy status.