Understanding NEM 3.0 In California

The California Public Utilities Commission (CPUC) approved the proposed NEM 3.0 changes, making going solar less beneficial for many residents. Renewable energy advocates warn that these California NEM 3.0 updates could significantly impact the country’s most successful solar market, which includes over 1.5 million solar-powered homes and supports around 68,000 solar jobs.

So what is NEM 3.0 California, and what changed when it took effect in April 2023? This guide explains net metering 3.0 and outlines key deadlines, updates, and other important NEM 3.0 information your customers need to know.

What Does NEM Stand For?

NEM stands for “net energy metering.” This electricity bill structure allows homeowners with grid-tied photovoltaic (PV) systems to earn credits for excess energy their solar panels generate.

Utility companies track how much electricity customers with solar arrays generate compared to how much they pull from the grid. Many utility companies also use time-of-use (TOU) billing, which charges more for any electricity used during peak hours.

California’s previous net metering laws allowed homeowners to receive the retail rate for excess solar energy generation. NEM 3.0 is a drastic departure from these older laws.

What Is NEM 3.0 in California?

NEM 3.0, or Net Energy Metering 3.0 (also called NEM3 or NEM 3), is the third version of California’s net metering policy, officially implemented on April 15, 2023. Homeowners who submitted interconnection applications after this date are enrolled under NEM 3.0, which significantly reduces the value of exported solar energy. Unlike previous programs, NEM 3.0 uses an Avoided Cost Calculator (ACC) to determine how much utilities save by using customer-generated solar power, rather than crediting customers at the full retail rate.

Utility Companies Impacted By California NEM 3.0

The NEM 3.0 rates apply to the following investor-owned utilities (IOUs):

• Pacific Gas and Electric Company (PG&E) – Northern and Central California

• San Diego Gas & Electric (SDG&E) – San Diego and parts of Orange County

• Southern California Edison (SCE) – Southern California

Publicly owned utilities such as Sacramento Municipal Utility District (SMUD) and Los Angeles Department of Water and Power (LADWP) have not yet adopted net metering 3.0 (NEM 3.0) and still operate under their existing net metering rules. However, these utilities could adopt similar policies in the future, so customers should monitor for updates.

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How NEM 3 Cuts The Value Of Customer-Generated Solar Power

Under earlier California net metering programs like NEM 1.0 and NEM 2.0, solar customers received full retail credit for the excess electricity they sent to the grid. For example, if their utility charged 25 cents per kilowatt-hour (kWh), solar producers were credited the same amount per exported kWh.

These policies helped make California a national leader in solar adoption. However, critics argued that net metering 1.0 and 2.0 resulted in cost-shifting, where non-solar customers absorbed more of the grid maintenance and infrastructure costs.

With the implementation of NEM 3.0 in California on April 14, 2023, the compensation model changed significantly. Instead of retail rates, solar exports are now credited using the Avoided Cost Calculator, which reflects the utility’s actual avoided costs of electricity procurement, not the market price. This means NEM 3.0 export rates are significantly lower than before.

Export credits under NEM 3.0  are also tied to Time-of-Use rates, which vary based on the time of day and season. Credits are generally higher during peak demand periods, such as late afternoon and early evening, but remain far below previous levels.

What Are NEM 3.0 Export Rates?

The NEM 3.0 export rates represent a major shift in how California solar customers are compensated for excess electricity. According to PV Magazine, the average value of exported solar energy dropped roughly 75% under net metering 3.0 (NEM3.0)—from about 30 cents per kWh to just 8 cents per kWh.

These rates aren’t fixed.

They:

• Vary by utility (PG&E, SCE, SDG&E)

• Change hourly under TOU schedules

• Shift seasonally, with lower rates in spring and higher rates during evening peaks in summer

  
  

To soften the initial impact, PG&E and SCE are offering temporary export rate adders for customers who go solar under NEM 3:

• PG&E: 2.2 cents per kWh in year one, declining annually over five years

• SCE: 4 cents per kWh in year one, also decreasing each year

These adders aim to support adoption during the transition to California NEM 3.0 but don’t fully offset the lower export values.

Alternate Names for NEM 3.0

• Net Billing Tariff (CPUC’s official terminology)

• NEM 3.0 Tariff

• California Net Billing Tariff

• Net Metering 3.0

• NEM 3 or NEM3

• Net Energy Metering 3.0

• Net Billing Program

• New Net Metering Rules California

• California Net Metering Reform

• NEM 3.0 Policy

• Post-NEM 2.0 Tariff

  
  

Key Technical Requirements for NEM 3.0 Interconnection Approval

Here’s an overview of the key technical requirements for NEM 3.0 interconnection approval:

To qualify for NEM 3.0 interconnection in California, solar systems must meet updated technical standards designed to support a more dynamic and distributed grid. These requirements ensure that customer-sited solar installations contribute to grid reliability and safety under net metering 3.0 (NEM 3.0).

☑Smart Inverter Capabilities

All systems must use advanced smart inverters that support grid services such as voltage and frequency ride-through, reactive power control, and ramp rate limitations. These features are essential to ensure California NEM 3.0 systems respond effectively to grid conditions.

☑Anti-Islanding Protection

To protect utility workers and maintain grid safety, systems must include anti-islanding features. These mechanisms shut down the system automatically during a grid outage, preventing unintentional power flow back to the grid.

☑IEEE 1547 Compliance

Systems must comply with IEEE 1547 and related utility interconnection standards. These standards define how distributed energy resources (DERs) like solar PV systems must perform when connected to the grid, covering aspects such as power quality, safety, and interoperability.

☑Battery Storage Integration

For systems that include energy storage, the configuration must follow approved interconnection pathways. Battery systems must integrate properly with the PV array and inverter to ensure safe operation and grid compliance, especially when exporting stored energy under NEM 3.0 export rates.

☑Real-Time Monitoring and Communication

Utilities now require systems to include real-time monitoring capabilities. These systems allow utilities to assess system performance, verify compliance with interconnection agreements, and maintain grid visibility as distributed energy scales up.

☑Dynamic Grid Support Functions

Under NEM 3, systems must dynamically support the grid by adjusting voltage and frequency as needed. This helps maintain overall grid stability, especially as higher volumes of customer-generated solar power fluctuate with demand and sunlight conditions.

Disadvantages of NEM 3.0 Rates

The shift to NEM 3.0 in California has introduced several challenges for solar customers, installers, and the broader clean energy industry. While the intent of California NEM 3.0 is to modernize grid compensation, the changes have made going solar less financially appealing for many.

• Lower electricity bill savings: Under NEM 3.0 rates, homeowners earn significantly less for the excess electricity they send to the grid. With NEM 3.0 export rates averaging around 8 cents per kilowatt-hour, down from roughly 30 cents under NEM 2.0, solar customers see smaller reductions in their utility bills.

• Solar market disruption: The rollout of NEM 3 has created uncertainty for solar installation companies. Many are reporting reduced demand and longer sales cycles, especially as customers reassess the return on investment under the new rules.

• Longer solar payback period: Because of the lower compensation structure, the payback period for solar systems has lengthened. This makes solar less attractive for some homeowners, especially those without battery storage or high daytime energy usage.

• Slower solar adoption in California: The combination of NEM 3.0 export rates and extended payback periods is contributing to a slowdown in solar panel adoption statewide. Fewer homeowners are choosing to install solar without additional incentives or storage.
  

Benefits of Net Metering 3.0

Despite its drawbacks, net metering 3.0 includes several important features that can still benefit solar customers, especially those adding solar battery storage or already locked into earlier net metering programs.

• Increased Battery Storage Incentives: Under NEM 3.0 California, the economics of combining solar with batteries have improved. Homeowners can store solar energy and use it during peak utility rate periods, helping offset the lower NEM 3.0 rates for exported electricity.

• Grandfathering into NEM 2.0: Homeowners who received Permission to Operate (PTO) before April 14, 2023, remain under NEM 2.0 for 20 years. This grandfathering provision preserves access to higher compensation rates and faster payback periods.

• Storage Add-on Flexibility: Solar customers under NEM 2.0 can often add energy storage without losing their original net metering benefits, as long as certain utility requirements are met. This allows existing systems to become more resilient and cost-effective over time.

When Did NEM 3 Take Effect?

NEM 3.0 California officially took effect on April 14, 2023. Any new solar interconnection applications submitted to California’s major investor-owned utilities—PG&E, SCE, and SDG&E—after this date fall under NEM 3.0, also referred to as NEM3 or net metering 3.0.

Homeowners who received Permission to Operate (PTO) before this deadline remain on NEM 2.0 and continue receiving more favorable export rates and payback terms for 20 years from their original PTO date.

How NEM 3.0 Affects the California Solar Market

The implementation of NEM 3.0 in California has had a profound impact on the state's rooftop solar industry. By sharply reducing compensation for exported solar energy, NEM 3.0 rates have made residential solar less financially attractive, leading to lower sales, widespread job losses, and an uncertain outlook for many installers.

NEM 3.0 Impact on California Solar Installations

Although California added roughly 6.2 gigawatts (GW) of new solar capacity in 2023—largely driven by utility-scale projects—the rooftop solar sector has sharply declined due to net metering 3.0 (NEM3.0). According to a 2024 SEIA and Wood Mackenzie U.S. Solar Market Insight report, California’s overall solar market is projected to shrink by 36% in 2024, with residential installations hit hardest by the shift to NEM 3.0 export rates.

NEM 3.0 Impact on Solar Jobs

The implementation of NEM 3.0 resulted in sweeping solar industry job cuts, with a survey by the California Solar and Storage Association reporting that state solar and storage companies planned to cut down on 17,000 jobs by the end of 2023. This represents 22% of all solar energy jobs in the state, and a majority of contractors surveyed anticipate further layoffs in the future.

The California Public Utilities Commission's decision had a significant and far-reaching impact on the solar power industry, with uncertain futures for many businesses. Rooftop solar sales were reported to be down significantly compared to the previous year, and residential solar and storage contractors expressed concerns about the industry's overall outlook. The California solar energy market is expected to continue experiencing layoffs and negative effects, both in the residential and commercial sectors.

NEM 3.0 Impact on Solar Homeowners

While NEM 3.0 California reduces compensation for exported solar, it also introduces new incentives for solar-plus-storage systems. Under NEM 3.0 rates, customers with batteries can store excess solar energy and export it during peak Time-of-Use windows—when export rates are slightly higher.

The California Public Utilities Commission  estimates that battery-equipped systems can achieve a 9-year payback period, assuming optimized usage. The goal is to encourage grid-friendly behavior, such as discharging stored solar energy during the high-demand evening hours. However, for customers without batteries, payback periods are longer and savings are reduced compared to those under NEM 2.0.

FAQs on California NEM 3.0

Here are common questions homeowners ask about NEM 3.0 California, especially those weighing the pros and cons of going solar in 2025 and beyond.

How long are solar systems grandfathered under NEM 2.0?

If your system was interconnected before April 14, 2023, it’s grandfathered under NEM 2.0 for 20 years from the date you received Permission to Operate (PTO). This preserves the more favorable NEM 2.0 rates, including full retail credit for exported electricity. However, major changes to your system—such as upsizing beyond a certain threshold—could trigger a switch to NEM 3.0 rules.

Can clients add to their system capacity without losing their NEM 2.0 status?

Small increases in system capacity—usually under 10%—often won’t affect your NEM 2.0 eligibility. But significant upgrades may require switching to California NEM 3.0, which means lower export compensation. Adding battery storage to an existing NEM 2.0 system typically does not force a change to NEM 3.0, so homeowners can still enhance performance without losing grandfathered benefits.

Does NEM 3.0 require a solar battery?

No, NEM 3.0 does not require battery storage, but having one is becoming more important for maximizing savings. Since NEM 3.0 export rates are based on Time-of-Use (TOU) pricing, systems with batteries can store solar energy during the day and discharge it during high-value evening hours, improving ROI. In 2024, systems with batteries often have a 9–11 year payback period, depending on usage patterns.

What inverter standards apply under NEM 3.0?

Under net metering 3.0, inverters must meet UL 1741 SA certification and comply with IEEE 1547-2018 requirements. These standards ensure the inverter supports grid stability through functions like voltage ride-through, frequency response, and reactive power control. NEM 3.0 California places a strong emphasis on dynamic grid support, especially as more distributed energy resources connect to the system.

The Bottom Line: California NEM 3.0 Is A Mixed Bag

NEM 3.0 has significantly changed the California solar market, leading to job losses and a decrease in sales. While there are challenges ahead, experts believe that the distributed solar industry, driven by high retail electricity rates across the country and the California Solar Mandate, still has potential for growth. Although the national solar energy market is strong, the California market has experienced significant setbacks due to NEM 3.0.

California remains the largest solar market in the nation, with 46.9 gigawatts of installed capacity, enough to power nearly 14 million homes. California state leaders must step up to encourage more solar and storage adoption in the near and long term if California is going to meet its 2030 clean energy goals.

GreenLancer specializes in solar permitting and engineering throughout California, including PV system design, interconnection documentation, engineering wet stamps, and plan set preparation tailored to local utility and AHJ requirements.