California’s solar industry has been shaped for more than a decade by net energy metering, a policy that helped millions of homeowners reduce electricity bills while accelerating statewide solar adoption. But as grid demands, utility costs, and consumer behavior evolve, so has the net metering program—leading to one of the most significant policy transitions yet: Net Metering 3.0 (NEM 3.0).
For solar installers, EPCs, financing partners, and homeowners, understanding how net metering solar works today is essential for creating accurate proposals, realistic savings forecasts, and future-ready system designs.
What is Net Energy Metering?
Net energy metering is a billing mechanism that allows solar customers to receive credits for excess electricity their systems export to the grid. When solar production exceeds consumption, the surplus energy feeds back into the grid, and the customer earns credits through the net metering program. These credits offset the electricity used when solar production is low—typically at night or during cloudy hours.
For more than a decade, net metering played a central role in making rooftop solar financially attractive. Under earlier versions of the program, customers were compensated close to retail rates, creating strong ROI and short payback periods.
However, the state’s energy landscape has shifted. With increasing grid strain, higher mid-day solar saturation, and the need for flexible energy storage, California regulators introduced Net Metering 3.0—the most transformative iteration of the program.
How the Net Metering Program Has Evolved in California?
California’s net metering program has gone through multiple iterations as the state’s energy demands, grid stability needs, and solar market have matured. Each version of net energy metering—from the original policy to NEM 2.0 and now Net Metering 3.0—reflects ongoing efforts by regulators to balance clean-energy adoption with grid reliability and utility cost management.
NEM 1.0: Retail-Rate Credits & Rapid Solar Adoption
The first phase of net metering solar offered customers nearly full retail-rate compensation for exported energy. This structure accelerated rooftop solar adoption, making California the largest residential solar market in the U.S.
NEM 2.0: TOU Rates & Grid Integration
As solar penetration increased, utilities moved customers to Time-of-Use (TOU) rates. While export credits remained high, TOU structures encouraged customers to shift consumption outside peak grid-stress hours. This phase continued to support strong solar ROI while beginning the transition toward more grid-aware consumption.
NEM 3.0: Export Rate Reductions & Storage Adoption
With renewable generation surging at mid-day and grid stability becoming a growing concern, the CPUC introduced Net Metering 3.0. This version significantly reduces export credits based on the Avoided Cost Calculator (ACC), aligning compensation more closely with the grid’s real-time needs.
Across all phases, the goal has remained consistent: encourage renewable adoption while maintaining grid health. The transition to NEM 3.0 reshapes system sizing, customer expectations, battery strategies, and overall solar value propositions.
Breaking Down Net Metering 3.0 (NEM 3.0)
Net Metering 3.0 represents the most substantial shift in California’s net energy metering framework since the program was introduced. Designed around the Avoided Cost Calculator (ACC), NEM 3.0 updates export compensation to reflect when the grid actually needs energy — and when it doesn’t. For solar installers and homeowners, this means the value of exported energy has changed, and optimal system design now looks very different than it did under previous net metering rules.
Export Compensation Is Now Based on Grid Value
Under NEM 3.0, exported solar energy is compensated at ACC-based rates, which are significantly lower than NEM 2.0 values. Mid-day exports earn the lowest credits because the grid is already saturated with solar during those hours. Evening and early-morning exports earn slightly higher credits, but overall, net metering solar systems now receive far less for energy sent back to the grid.
Solar-Only Systems Have Longer Payback Periods
With reduced credit values, the ROI for solar-only systems is lower than in previous versions of the net metering program. Customers may still see long-term savings, but the payback timeline is extended—often by several years—depending on system size, energy usage, and utility rates.
Solar + Storage Becomes the New Standard
Battery storage has emerged as the most impactful way to adapt to Net Metering 3.0. By storing excess mid-day solar and using it in the evening peak period, customers avoid high utility rates and offset the lower export compensation. Installers who fail to incorporate storage into their proposals risk misrepresenting financial outcomes in the NEM 3.0 landscape.
System Design Now Prioritizes Self-Consumption
NEM 3.0 shifts the ideal solar strategy from maximizing exports to maximizing on-site energy use. That means:
Smarter load management
Right-sized arrays
Solar + storage configurations
Accurate TOU modeling
Consumption-driven proposals
NEM 3.0: Costs, Payback & ROI
Under Net Metering 3.0, the financial dynamics of going solar in California have shifted significantly. While solar remains a long-term cost-saving investment, the path to ROI now looks different because of reduced export credits and higher utility rate variability. Understanding these changes is essential for installers who must present accurate, FTC-safe savings projections to homeowners.
Lower Export Credits Increase Payback Timelines
The most immediate change under NEM 3.0 is the drop in export compensation. Because customers earn far less for the electricity they send back to the grid, net energy metering under this program results in fewer monthly bill credits. As a result, typical payback periods have shifted from 5–7 years under NEM 2.0 to 9–12+ years for solar-only systems in many regions.
Utility Rates Still Make Solar Valuable
Even with reduced export values, California’s utility rates continue to rise annually. This makes net metering solar systems valuable over the long term—especially when solar offsets high TOU evening rates. The difference is that NEM 3.0 rewards consumption timing and smart usage habits more than previous versions of the net metering program.
Financing & Incentives Influence Final Savings
Loan products, lease options, federal tax credits (ITC), and California-specific storage incentives also play important roles in ROI under net energy metering today. Installers who proactively include these components in their proposals are better equipped to maintain customer confidence and close deals in the evolving NEM 3.0 environment.
Future of Net Energy Metering: What Comes After NEM 3.0?
California’s net energy metering landscape will continue to shift as the grid transitions toward flexibility, decentralization, and storage-led reliability. Upcoming policy iterations are expected to place greater value on solar + storage participation in virtual power plants, demand-response programs, and time-shifted energy delivery. As a result, net metering solar will prioritize on-site consumption, making batteries and smart load management near-standard for residential and commercial systems.
In this changing environment, accuracy, compliance, and data-driven system design matter more than ever. This is why WattMonk’s teams are working daily across utility rules, interconnection updates, NEM requirements, and evolving Time-of-Use frameworks. This expertise ensures that solar professionals can adapt quickly and continue designing systems that remain financially viable and grid-compatible as NEM evolves.
