If you got a solar quote in California before April 15, 2023, and another one today, the numbers look like they're describing two different products. They basically are. NEM 2.0 paid you close to retail — roughly 25 to 35 cents — for every kilowatt-hour your panels pushed to the grid. NEM 3.0 (officially the Net Billing Tariff, from CPUC Decision 22-12-056) pays you the utility's "avoided cost," which averages around 5 to 8 cents. That's the famous 75% cut.
Here's what the headline number hides: the 75% cut only applies to exported electricity. Every kilowatt-hour you generate and use inside your own house still offsets the full retail rate — which on PG&E's E-ELEC plan is now around 54 cents/kWh all-in. NEM 3.0 didn't make solar worthless. It made exporting solar worthless, which is a different problem with a different fix.
Run your own numbers first. The Solar Math Worksheet is one fillable page: your rate structure, TOU spread, battery sizing goal, incentive stack, and payback estimate — the math this site keeps telling you to do, in order. Download the free PDF. No email required.
What actually changed
Three things, and they compound.
Export compensation dropped from retail to avoided cost. Under NEM 2.0, exports earned near-retail credit minus small non-bypassable charges. Under NEM 3.0, exports are priced by the CPUC's Avoided Cost Calculator — 576 different rates (12 months × 24 hours × weekday/weekend). Most hours of the year, that's 2 to 8 cents. The exception: late summer evenings (roughly 6–9 p.m., August–October), when export rates can spike past $1/kWh for a handful of hours. The catch, of course, is that the sun is setting exactly then. Panels alone can't capture those hours; a battery can.
Netting went from annual to instantaneous. NEM 2.0 let credits and usage wash out over a full year at similar rates. NEM 3.0 meters imports and exports separately, in real time. Buy a kWh at noon for 40+ cents, sell one at the same moment for 5 cents. There's no annual averaging to save you — surplus credits also expire at true-up with no cash payout.
Mandatory TOU rates with a wide peak spread. New solar customers land on electrified TOU plans where evening power is the expensive power. That's deliberate: the whole tariff is engineered to push you toward storing midday solar and using it at night.
One small offset exists: the ACC Plus adder for PG&E and SCE residential customers (not SDG&E). It's minor — PG&E's 2026 standard adder is under 1 cent/kWh (3.6 cents for CARE/FERA customers) — it steps down 20% per year, and it disappears entirely for new applicants after April 2028. Don't let a salesperson present it as meaningful revenue.
The payback math, side by side
Take a typical 8 kW system in PG&E territory producing about 12,000 kWh/year, with the household directly using about 55% of production and exporting the rest (~5,400 kWh). Assume ~$0.35/kWh average blended retail avoided by self-consumption.
NEM 2.0 (interconnected before April 15, 2023): Self-consumption saves ~$2,310/year. Exports at near-retail (~$0.30) earn ~$1,620. Total: ~$3,930/year. On a $24,000 system that got the then-available 30% federal credit (net ~$16,800), payback ran 4–5 years.
NEM 3.0, same system, bought in 2026: Self-consumption still saves ~$2,310. But the 5,400 exported kWh now earn roughly 7 cents — about $380. Total: ~$2,690/year. And here's the part most 2023-era comparison articles haven't updated: the 30% federal residential credit (Section 25D) expired December 31, 2025, with no phase-down. You pay the full ~$24,000. Payback: roughly 9 years, stretching to 11–13 with financing costs or worse production.
NEM 3.0 with a battery: Add ~$10,000–13,000 for storage and shift most of that 5,400 kWh from 7-cent exports to offsetting 40–55-cent peak imports. That recovers roughly $1,800–2,200/year of what the tariff took away, plus SGIP rebates where available. Total system cost is much higher (~$34,000–37,000), but annual savings of $4,300–4,800 put payback around 7–9 years — genuinely faster than solar-alone under the same tariff, which is a strange-sounding result until you remember exports are nearly worthless.
Two honest caveats on that battery math. First, it assumes your household actually has evening load to shift — small, efficient households with low evening usage benefit less. Second, batteries carry 10-year warranties against a 25-year panel life; a mid-life battery replacement can eat a meaningful chunk of the "savings" if prices don't keep falling.
Grandfathering: what you keep, and what almost got taken
If you interconnected under NEM 1.0 or 2.0, you keep that tariff for 20 years from your interconnection date. This survived a serious 2025 attempt to shorten it. AB 942, as introduced, would have sunset legacy NEM contracts after 10 years and forced homes onto NEM 3.0 whenever the property sold. Both provisions were stripped in mid-2025 after heavy backlash — what survived was narrowed to a climate-credit eligibility change for solar households, not your export rates or legacy term. If a door-knocker tells you your NEM 2.0 deal is about to vanish, or that you'll lose it when you sell, they're describing a bill that didn't pass in that form. Buyers of a solar home still inherit the existing tariff for the remainder of its term — verify the interconnection date during escrow, because a 2016 system has meaningfully less grandfathering runway left than a 2022 one.
The legal challenges to NEM 3.0 itself are also effectively over: after the California Supreme Court ordered a re-review in 2025, the Court of Appeals upheld the tariff in March 2026. Waiting for NEM 3.0 to be overturned is not a strategy. Neither is waiting for a "NEM 4.0" — no such proposal exists.
One rule worth knowing before you touch a grandfathered system: expanding it beyond allowed limits (generally more than 10% or 1 kW added capacity, whichever is greater) can kick you onto the current tariff. Adding a battery to an existing NEM 2.0 system, done correctly, does not.
The verdict, without the sales gloss
NEM 2.0 was a subsidy structure generous enough that almost any system penciled out, even a badly designed one. NEM 3.0 punishes oversizing and rewards self-consumption — and in 2026 the expired federal credit arguably hurts payback more than the tariff change does, since it added ~$7,000 back onto a typical system's net cost in a single day.
Solar still works in California because retail rates of 30–55 cents/kWh make self-consumed power extremely valuable. But the old logic — size it big, bank the exports — is dead. Size to your actual usage, expect a battery to be part of the conversation, and treat any quote that shows NEM 2.0-style export earnings or a 30% federal credit as the red flag it is.