01/22/2024
The Golden State's net metering policy changed on April 15, 2023. A foundational solar policy, net metering is when your utility company compensates you for the excess electricity your system generates and sends to the grid. California's new policy, Net Metering 3 (NEM 3) or the Net Billing Tariff (NBT), dropped the compensation rate by about 75% for new solar owners, compared to its former net metering policy, NEM 2. You might be wondering if solar is still worth it in California. Our resounding answer is YES, it's still worth it, and there are two main steps you can take to get the most out of solar under NEM 3: get a battery and go solar this year.
How does NEM 3 work?
Under a traditional one-to-one net metering policy, your utility will credit your electricity bill for the excess electricity your system exports to the grid at the same rate at which you purchase electricity from them (the retail rate). The electricity you send to the grid on a sunny day is equal in value to the electricity you pull from the grid at night or during inclement weather, meaning your electric bills should be close to $0.
For NEM 3, the California Public Utilities Commission (CPUC) established a new rate for crediting solar exports, which shifted the structure from net metering to net billing. In other words, the value of excess solar energy you send to your utility is no longer directly tied to the cost of electricity that you purchase from your utility, as it used to be under NEM 2. Because the wholesale value of electricity depends on supply and demand in the market, your exact compensation rate varies by the hour of the day, day of the week (i.e., weekday vs. weekend), and month you export the energy: There are 576 possible export rates in total for each utility company!
On average, your utility will reimburse you at about 25% of retail electricity rates, meaning the value of net metering credits is about 75% lower under NEM 3 than NEM 2. The new rate structure applies to all California solar owners that receive electricity through one of the Investor Owned Utilities (IOUs) – Pacific Gas & Electric (PG&E), Southern California Edison (SCE), and San Diego Gas & Electric (SDG&E) – and submit their solar interconnection applications (which provides your utility with information about your property, electricity usage, and proposed system design) after April 14, 2023.
Why solar is still worth it in California: rising electricity costs
With much lower compensation rates, it's easy to feel discouraged about going solar in California right now, but the three IOUs made another change this year that will still help spur solar adoption: They raised electricity prices.
If you're a customer of a California IOU, your electricity price varies based on the time of the year, the day of the week, and the time of day. Your utility company is trying to encourage you to use more energy when both the cost of generating and demand for electricity are low and to use less when cost and demand are high. These rates are called time-of-use (TOU) rates and fall within a broader category of innovative utility rate structures that adjust the rate you pay for electricity over the day.
Even though your export compensation rate will be lower under NEM 3, you'll still significantly lower the amount of electricity you import from your utility company. Most solar owners use about 50-60% of their systems' electricity to directly avoid consuming electricity from the grid and send the other 40-50% to the grid. The more you can avoid imports during high-cost hours, the greater your savings. Here's how the three California IOUs structure their rate plans for solar customers and how they've recently changed their rates:
PG&E electricity prices
If you have solar, PG&E puts you on their E-ELEC rate plan, which uses the following schedule:
Summer dates: June 1 – Sept 30
Winter dates: Oct 1 – May 31
Peak (electricity is most expensive): 4 pm – 9 pm every day
Partial-Peak (electricity is moderately expensive): 3 pm to 4 pm and 9 pm to 12 am every day
Off-Peak (electricity is least expensive): All other hours
PG&E raised electricity prices the least of the three IOUs in 2023, by 3% to 8% depending on the time of day and day of the year. You'll have a $15 fixed monthly charge on this rate plan.
1st line =Rate Schedule
2nd line=2022 Rates
3rd line=2023 Rates
4th line=Percent Increase
Summer Peak
52.9 ¢/kWh
54.6 ¢/kWh
3%
Summer Partial-Peak
36.8 ¢/kWh
38.5 ¢/kWh
5%
Summer Off-Peak
31.1 ¢/kWh
32.8 ¢/kWh
5%
Winter Peak
29.4 ¢/kWh
31.5 ¢/kWh
7%
Winter Partial-Peak
27.2 ¢/kWh
29.3 ¢/kWh
8%
Winter Off-Peak
25.8 ¢/kWh
27.9 ¢/kWh
8%
SCE electricity prices
You'll be on SCE's TOU-D-PRIME rate plan if you have solar, which follows these dates and times:
Summer dates: June 1 – Sept 30
Winter dates: Oct 1 – May 31
Peak (electricity is most expensive): 4 pm – 9 pm on weekdays in the summer
Mid-Peak (electricity is moderately expensive): 4 pm – 9 pm on weekends in the summer and every day in the winter
Off-Peak (electricity is less expensive): 8 am to 4 pm and 9 pm to 8 am every day in the summer and 9 pm to 8 am every day in the winter
Super Off-Peak (electricity is least expensive): 8 am to 4 pm every day in the winter
SCE raised electricity prices by 4% to 16% in 2023, depending on the time of day and day of the year. On this rate plan, you’ll have a $14 fixed monthly charge.
SCE TOU-D-PRIME rate increases:
2022 Rates
2023 Rates
Percent Increase
Summer Peak
53.9 ¢/kWh
62.3 ¢/kWh
16%
Summer Mid-Peak
34.4 ¢/kWh
36.5 ¢/kWh
6%
Summer Off-Peak
23.2 ¢/kWh
24.3 ¢/kWh
5%
Winter Mid-Peak
49.4 ¢/kWh
56.6 ¢/kWh
15%
Winter Off-Peak
21.4 ¢/kWh
22.3 ¢/kWh
4%
Winter Super Off-Peak
21.4 ¢/kWh
22.3 ¢/kWh
4%
SDG&E electricity prices
As an SDG&E customer with solar, you'll be on their EV-TOU-5 rate plan, which uses the following schedule:
Summer dates: June 1 – Oct 31
Winter dates: Nov 1 – May 31
On-Peak (electricity is most expensive): 4 pm – 9 pm every day
Super Off-Peak (electricity is least expensive): 12 am – 6 am (weekdays), 10 am – 2 pm in March & April (weekdays), & 12 am – 2 pm (weekends & holidays)
Off-Peak (electricity is moderately expensive): All other hours
Of the three IOUs, SDG&E raised electricity prices the most in 2023, ranging from 22% to 51%, depending on the time of day and day of the year. You'll have a $16 fixed monthly charge on this rate plan.
SDG&E EV-TOU-5 rate increases
2022 Rates
2023 Rates
Percent Increase
Summer Peak
63.9 ¢/kWh
81.6 ¢/kWh
28%
Summer Mid-Peak
39.1 ¢/kWh
48.1 ¢/kWh
23%
Summer Off-Peak
10.2 ¢/kWh
15.4 ¢/kWh
51%
Winter Mid-Peak
41.3 ¢/kWh
51.1 ¢/kWh
24%
Winter Off-Peak
36.6 ¢/kWh
44.8 ¢/kWh
22%
Winter Super Off-Peak
9.6 ¢/kWh
14.5 ¢/kWh
51%
You’ll save the most with a battery under NEM 3
Batteries currently add about $10K to $20K to the cost of your solar energy system. Even with those added costs, your savings will be significantly higher, and you'll break even sooner on your investment with a battery under NEM 3. Batteries enable you to avoid paying for electricity during peak times when your solar energy production is low, and electricity costs are high (typically between 4 pm and 9 pm).
Additionally, because of the way that NEM 3 compensates you for exported electricity, there are a couple of hours in the early evening in August and September when the avoided cost rate is much higher than what you pay for electricity – sometimes as high as $3.00/kWh. Solar is not usually producing any electricity during the late summer and early fall from 5 to 7 pm, so by pairing solar with a battery, you can send stored solar to the grid during these high export rate periods and further increase your savings.
With such high electricity prices in California, you'll still save thousands on electric bills if you go solar without a battery, but your savings will be about half of what they would be with a battery. You can expect to save $21,600 to $43,900 more in avoided electricity costs with a solar-plus-battery system compared to a solar-only system. Especially when you factor in your SGIP rebate, adding a battery to your solar system is a no-brainer.
Using electricity cost data from the three IOUs, we created a model to help you understand how much you'll save with a solar-plus-battery system or a solar-only system under NEM 3. Assuming you go solar in 2024, let's explore your potential 20-year savings and payback period (how long it takes to you break even on your investment) based on your utility company and the following parameters:
Solar system size: 8 kilowatts (kW)
Solar cost per watt: $3.30/W
Electricity need met: 100%
Battery size: 10 kWh
Battery power: 5 kW
Battery cost per kWh: $1,300/kWh
Federal investment tax credit (ITC) percentage: 30%
SGIP rebate: $150/kWh
Keep in mind that our model only includes the cost of one battery and doesn't account for any battery degradation; typically, manufacturers only provide a 10- or 15-year warranty for batteries, so you may need to replace it within the 20-year timeframe. You should expect your battery to degrade up to 30-40% after the first 10-15 years, which could slightly alter our solar-plus-battery savings estimates.
Savings with PG&E
You'll save about $21,600 more over 20 years with a solar-plus-battery system compared to a solar-only system, and you'll break even on your investment one year quicker.
Solar-plus-battery
Solar-only
Solar cost (before incentives)
$26,000
$26,400
Storage cost (before incentives)
$13,000
N/A
Federal ITC value
$11,820
$7,920
SGIP rebate value
$1,500
N/A
Net investment
$26,080
$18,480
Avoided 20-year electricity costs
$73,080
$43,880
Net 20-year electricity cost savings
$47,000
$25,400
Payback period
9 years
10 years
Savings with SCE
You'll save about $33,300 more over 20 years with a solar-plus-battery system compared to a solar-only system and you'll break even on your investment two years sooner.
(Click to sort ascending)
Solar-plus-battery
Solar-only
Solar cost (before incentives)
$26,000
$26,400
Storage cost (before incentives)
$13,000
N/A
Federal ITC value
$11,820
$7,920
SGIP rebate value
$1,500
N/A
Net investment
$26,080
$18,480
Avoided 20-year electricity costs
$80,880
$39,980
Net 20-year electricity cost savings
$54,800
$21,500
Payback period
8 years
10 years
Savings with SDG&E
You'll really want to consider a solar-plus-battery system if you're an SDG&E customer: You'll save about $43,900 more over 20 years with a solar-plus-battery system compared to a solar-only system and you'll break even on your investment two years earlier.
Solar-plus-battery
Solar-only
Solar cost (before incentives)
$26,000
$26,400
Storage cost (before incentives)
$13,000
N/A
Federal ITC value
$11,820
$7,920
SGIP rebate value
$1,500
N/A
Net investment
$26,080
$18,480
Avoided 20-year electricity costs
$102,780
$51,280
Net 20-year electricity cost savings
$76,700
$32,800
Payback period
7 years
9 years
Your savings depend on when you go solar
Even if you missed the NEM 2 grandfathering date, you can still lock in higher export rates and potentially export adders (a yearly flat rate increase of your export rates – more on these below) for 9 years if you connect your solar system to the grid in 2023. Keep in mind that, unlike NEM 2 grandfathering, simply submitting an interconnection application is insufficient to lock in these rates.
You have until 2025 to lock in current export rates
Export rates refer to the amount of money your utility pays you per kWh of electricity your solar system sends to the grid. The higher the rate, the more you'll save with solar. To determine export rates, the CPUC created the Avoided Cost Calculator (ACC) based on wholesale electricity cost predictions. As we explained above, there are 576 possible export rates in total for each utility company every year.
The CPUC updates the ACC every two years with predictions spanning nine years. If you go solar during those two years, you lock in export rates for the full nine years. Your export rates will still change annually depending on the wholesale electricity cost predictions, but from the time you connect your system to the grid, you'll know exactly how they'll change for each of those nine years. After 9 years, your export rates will still depend on avoided costs, but they'll vary based on the version of the ACC available at that time.
As long as you interconnect your solar panel system before January 1, 2025, you'll lock in current ACC export rates. If you miss this window, you'll have between January 1, 2025 and December 31, 2027 to lock in the next ACC rates for nine years, and between January 1, 2028 and April 13, 2018 to lock in the third set of ACC rates for nine years. After April 14, 2028, you'll no longer be able to lock in rates for nine years; rather, your export rates will adjust every two years with the ACC updates. If in the future, the ACC rates become more favorable than the rates you've locked in (industry experts currently predict this to happen), you can decide to forgo your grandfathering status and shift to the higher rates.
What to know about billing under NEM 3
If you've locked in California's former NEM 2 policy, as a solar owner, you don't have to pay your electric bill every month; rather, you pay it annually on your "true-up" date, which is the date of your interconnection. Your annual bill depends on how much electricity you've imported and exported to the grid. Instead of owing money to your utility company on your true-up date, you could see a credit balance that reflects you've exported more than you imported that year.
The value of export credits is significantly lower under NEM 3, so to avoid a large true-up bill, you have to pay your electric bill every month. On your bill, you'll have a fixed monthly charge that you can't offset with solar export credits and either a balance for the electricity you consumed and didn't offset with solar or a rollover of extra export credits.
If you have leftover credits on your true-up date, your utility company will compensate you based on the Net Surplus Compensation Rate they've set for that month and year. This rate will always be significantly lower than the value of your export credits, so it's important to minimize your leftover credits.
Ideally, you'll want to interconnect your system in late winter/early spring (likely sometime in March) so you can build up your credits throughout the summer and use them throughout the winter. To disincentivize all Californians from going solar at the same time, the CPUC allows you to change your true-up date once so you can make it align with that March timeline.
FAQs
When does NEM 3 start?
Technically, NEM 3 has already started, meaning you can no longer lock in NEM 2 export rates.
What's the difference between net metering and net billing?
Under one-to-one net metering, the bill credits you receive for exporting solar electricity to the grid are equal to the retail electricity rate value (what you pay for electricity). With net billing, these bill credits are equal to the wholesale electricity rate value (what your utility company pays for electricity, which is significantly lower than what you pay). Your solar savings will be much lower with a net billing policy than with a net metering policy.
If I sell my home, are my locked-in export rates and adders available to the new homeowners?
No–unfortunately, if you sell your home, the new homeowners will lose both the locked-in export rates and adders. The amount of money they receive for sending excess electricity to the grid will solely depend on the ACC, which updates every 2 years. If you're grandfathered into NEM 1 or NEM 2 and sell your home, you'll pass your grandfathering status to the new homeowners.
How much do home batteries cost in California?
According to our Solar & Storage Marketplace Report based on our Marketplace data from the second half of 2022, the median battery price is $1,290/kWh in California. This means that a 10 kWh battery costs about $12,900.
Get quotes for solar-plus-battery systems in California
You can no longer become grandfathered into NEM 2, but you can still lock in higher export rates by going solar now. We can help you compare your different options with our no-pressure consultations.
Contact us today for a free evaluation!
