Executive Summary
Solar remains economically viable in California under NEM 3.0, but the payback period has lengthened substantially from the NEM 2.0 era. CPUC's Avoided Cost Calculator set off-peak export credits at $0.04–$0.08/kWh, where NEM 2.0 credited exports at the retail rate, so payback now turns on how much of a system's output the home uses itself. We do not print a payback band until the utilities' published tariffs are in our rate snapshot (see Table 3). Battery storage improves the economics by capturing daytime excess for high-value peak consumption (4–9pm, when time-of-use grid rates are highest).
Battery attach rates for new California solar installations have surged to approximately 80%+ in 2025, up from ~12% under NEM 2.0. This structural shift is effectively converting California's solar market from export-oriented to self-consumption-oriented. SDG&E publishes no single residential price: its standard TOU-DR1 schedule runs 37.4–69.1¢/kWh by season and time of day (total rates effective August 1, 2026), before a credit of up to 10.7¢/kWh on usage up to 1.3 times the baseline allowance — so every self-consumed kilowatt-hour there is worth several times a NEM 3.0 export credit.
NEM 3.0 Export Credit Rates by IOU Territory (2025–2026)
Export credits under NEM 3.0 are set by the CPUC's Avoided Cost Calculator (ACC), updated annually. The ACC uses time-varying marginal costs — credits are highest during peak demand hours when grid generation is most expensive and lowest during off-peak periods with surplus renewable generation. Data from CPUC NEM 3.0 proceedings and published ACC rate schedules.
| IOU Territory | Off-Peak (6am–4pm) | Peak (4pm–9pm weekdays) | Super-Off-Peak (midnight–6am) | NEM 2.0 (reference) |
|---|---|---|---|---|
| PG&E | 4–6¢ | 14–22¢ | 2–4¢ | Retail rate¶ |
| SCE (Southern California Edison) | 4–7¢ | 16–24¢ | 2–5¢ | Retail rate¶ |
| SDG&E (San Diego Gas & Electric) | 5–8¢ | 20–35¢ | 3–5¢ | Retail rate¶ |
| Note: Rates vary by month, season (summer vs. winter), and annual ACC update. Ranges represent 2025–2026 period averages. Source: CPUC Decision D.22-12-056 and ACC 2025 update. ¶ NEM 2.0 credited exported energy at the customer’s retail rate (less non-bypassable charges), so its credit was the retail rate itself. An earlier version printed a ~28–30¢/kWh “average” here with no source; no NEM 2.0-era tariff is in our rate snapshot, so the figure is withdrawn. | ||||
NEM 3.0 vs NEM 2.0 Economics Comparison
NEM 3.0 took effect April 15, 2023 per CPUC Decision D.22-12-056. Homeowners who interconnected before that date under NEM 2.0 are grandfathered for 20 years from their interconnection date. All new solar applications receive NEM 3.0 export rates.
| Metric | NEM 2.0 (pre-April 2023) | NEM 3.0 — No Battery | NEM 3.0 — With Battery |
|---|---|---|---|
| Avg export credit | Retail rate¶ | ~$0.05/kWh | Mostly avoided (self-consumed) |
| Battery attach rate | ~12% | N/A | ~80%+ (2025) |
| Avg payback period | Not re-derived§ | Not re-derived§ | Not re-derived§ |
| 25-year net savings | Not re-derived§ | Not re-derived§ | Not re-derived§ |
| Self-consumption priority | Low (excess exported) | High | Very high |
| Battery adds to payback? | Yes (+1–2 yrs) | N/A | No (improves it vs. no battery) |
| Key design strategy | Maximize production | Right-size for consumption | Right-size + peak shifting |
| ¶ NEM 2.0 credited exports at the retail rate (see the note under Table 1). § The payback and 25-year savings figures an earlier version printed were computed from that same unsourced average rate; they are withdrawn with it (see Table 3) rather than re-estimated. | |||
Average Payback Period by IOU Territory (NEM 3.0, 2026)
Payback varies by IOU territory primarily because of residential electricity rates. SDG&E’s standard residential schedule, TOU-DR1, runs 37.4–69.1¢/kWh by season and time of day (total rates effective August 1, 2026, SDG&E tariff table), so there is no single SDG&E rate to price a payback at.
| IOU Territory | Avg Residential Rate (¢/kWh) | Payback — No Battery | Payback — With Battery | 25-yr Net Savings (with battery) |
|---|---|---|---|---|
| SDG&E (San Diego) | 37.4–69.1¢ (TOU-DR1, August 1, 2026)‡ | Not re-derived‡ | Not re-derived‡ | Not re-derived‡ |
| SCE (Los Angeles area) | Not sourced§ | Not re-derived§ | Not re-derived§ | Not re-derived§ |
| PG&E (Bay Area / Central Valley) | Not sourced§ | Not re-derived§ | Not re-derived§ | Not re-derived§ |
| Assumes $3.00/watt installed, no federal residential ITC applied (Section 25D expired for systems installed after December 31, 2025), 1,500 kWh/kW/yr production (NREL PVWatts CA average), 0.5% annual degradation, 0.5% annual rate escalation. ‡ SDG&E: the rate is Schedule TOU-DR1’s total electric rate, 37.43¢ (summer super off-peak) to 69.14¢/kWh (summer on-peak), bundled, effective August 1, 2026, before a credit of up to 10.7¢/kWh on usage up to 1.3 times the baseline allowance and a $0.79343/day base services charge (SDG&E, checked 2026-09-26). An earlier version priced SDG&E at a single unsourced average rate; its payback bands and savings cannot be re-derived from the inputs above (they set no self-consumption share), so they are withdrawn rather than estimated. A battery adds its own cost; our payback study prices a Tesla Powerwall 3 at $9,200 installed (no federal residential ITC available for a 2026 homeowner purchase; third-party-owned systems may still qualify under Section 48E, for systems placed in service by December 31, 2027). § SCE and PG&E: an earlier version priced both at an unsourced ~28¢/kWh average and derived its payback bands and savings from it. Neither utility’s published residential tariff is in our rate snapshot yet, so the rate and every figure built on it are withdrawn rather than guessed. | ||||
California Residential Solar Installation Volume (2021–2026)
NEM 3.0 significantly disrupted California's residential solar installation pipeline in 2023. Installers and homeowners rushed to interconnect under NEM 2.0 before the April 15, 2023 deadline, creating a spike in late 2022 / early 2023 followed by a sharp contraction. Data: SEIA Solar Industry Research Data and California Energy Commission.
| Year | Residential Installations (MW) | YOY Change | Battery Attach Rate | Key Event |
|---|---|---|---|---|
| 2021 | 1,890 | +12% | ~10% | NEM 2.0 — stable market |
| 2022 | 2,240 | +19% | ~14% | NEM 3.0 proposed; rush to NEM 2.0 deadline |
| 2023 | 1,740 | -22% | ~45% | NEM 3.0 effective Apr 15; market disruption |
| 2024 | 1,510 | -13% | ~75% | Market adjusting to NEM 3.0 economics |
| 2025 | 1,560 | +3% | ~82% | Stabilization; battery-first design standard |
| 2026 (Q1 pace) | ~1,600 est. | +3% est. | ~84% est. | Gradual recovery as NEM 3.0 normalized |
How to Maximize Solar ROI Under NEM 3.0
The NEM 3.0 paradigm shift requires a fundamentally different installation design philosophy compared to NEM 2.0:
- Right-size the system for self-consumption, not production. Oversizing under NEM 2.0 was free money — every extra kWh exported earned full retail credit. Under NEM 3.0, excess daytime export earns $0.04–$0.08/kWh. Size for 80–90% of your annual consumption and plan to self-consume nearly all production.
- Add a battery. A 13.5 kWh battery (e.g., one Tesla Powerwall 3, or three 5.0 kWh Enphase IQ Battery 5P units at 15 kWh) charged from peak daytime production and discharged during the 4–9pm peak window avoids buying grid power at the peak retail rate instead of exporting that energy for $0.05–$0.08/kWh in NEM 3.0 export credit. Note: the federal residential Section 25D credit (IRS) expired for homeowner-purchased systems installed after December 31, 2025, so a 2026 cash purchase no longer qualifies. Homeowners using a solar lease or PPA may still benefit indirectly, as installers/owners can claim the 30% commercial Section 48E credit (IRS) and often pass savings through as a lower rate, provided the system is placed in service by December 31, 2027 or construction began by July 4, 2026.
- Time heavy loads during solar hours. EV charging, dishwashers, and laundry running between 9am–3pm consume solar production at full retail rate rather than drawing from the grid at peak pricing.
- Compare quotes from NEM 3.0-certified installers. Installers who are still designing NEM 2.0-style oversized systems without battery are building economically suboptimal systems for their customers. Ask any installer to show you the expected self-consumption percentage and export volume under NEM 3.0 rates.
Frequently Asked Questions
What is the NEM 3.0 export credit rate in California?
NEM 3.0 export credits are set by the CPUC's Avoided Cost Calculator (ACC) and vary by IOU, time of day, and season. Off-peak rates (6am–4pm) average $0.04–$0.08/kWh across PG&E, SCE, and SDG&E. Peak rates (4pm–9pm weekdays) average $0.14–$0.35/kWh. Under NEM 2.0, exports were credited at the retail rate.
What percentage of California solar installations include battery storage under NEM 3.0?
Battery attach rates for new California solar installations reached about 75% in 2024 and about 82% in 2025 under NEM 3.0 (Table 4), compared to roughly 12% under NEM 2.0 (2020–2022). The sharp increase reflects the economic necessity of self-consumption under NEM 3.0's reduced export credits.
Is solar worth it in California under NEM 3.0?
Yes — solar remains worthwhile, but the economics are different. Payback is longer than under NEM 2.0, and a battery shortens it by shifting daytime output to the evening peak; we do not print a payback band until the utilities' published tariffs are in our rate snapshot. California's high electricity rates mean self-consumed solar still delivers strong value (SDG&E's standard TOU-DR1 schedule, for example, runs 37.4 to 69.1 cents per kWh by season and time of day, effective August 1, 2026). The key shift: designing for self-consumption and peak shifting rather than grid export.
What is the NEM 3.0 export credit rate?
NEM 3.0 export credits vary by IOU, time of day, and season. Off-peak rates average $0.04–$0.08/kWh; peak rates (4pm–9pm weekdays) average $0.14–$0.35/kWh. These are set annually by the CPUC's Avoided Cost Calculator. For comparison, NEM 2.0 credited all exports at the retail rate, regardless of time of day. The practical result: a NEM 3.0 system exporting mostly at mid-day off-peak hours earns far less credit than a NEM 2.0 system did for the same exports.
When did NEM 3.0 take effect?
NEM 3.0 took effect April 15, 2023 per CPUC Decision D.22-12-056 (December 2022). Homeowners who submitted a complete interconnection application and were approved before April 15, 2023 are grandfathered under NEM 2.0 rates for 20 years from their original interconnection date. All new applications after that date use NEM 3.0 Avoided Cost Calculator export rates.
Does a battery make solar worth it under NEM 3.0?
Yes, significantly. A 13.5 kWh battery capturing peak production and discharging at the 4–9pm peak window converts solar output that would earn $0.05–$0.08/kWh in NEM 3.0 export credit into avoided grid electricity bought at the peak retail rate, the most valuable use of a stored kilowatt-hour. A battery adds to system cost (our payback study prices a Tesla Powerwall 3 at $9,200 installed); however, the federal residential Section 25D credit (IRS) expired for homeowner-purchased systems installed after December 31, 2025, so a 2026 cash purchase earns no federal credit. Homeowners who choose a solar lease or PPA may still benefit indirectly: installers/owners can claim the 30% commercial Section 48E credit (IRS) (for systems placed in service by December 31, 2027) and often pass savings through as a lower rate, provided eligibility requirements are met. State and utility incentives remain unaffected. This is general information, not tax advice.
I'm grandfathered on NEM 2.0 — what happens if I add battery or more panels?
Adding battery storage to an existing NEM 2.0 system typically does not change your NEM 2.0 tariff, per CPUC rules — the battery is treated as load management, not a new generator. However, adding additional solar panels beyond a 10% production increase may trigger a tariff re-evaluation. Confirm with your IOU and installer before making any modifications to a grandfathered NEM 2.0 system, as this is an active area of CPUC interpretation.
Data & tools used in this analysis
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