California solar rules make home batteries far more valuable

The April 2023 adoption of Net Energy Metering 3.0, also called the Net Billing Tariff, cut export compensation by about 75% from NEM 2.0. California homeowners who once counted on selling extra midday solar back to the grid now face a different calculation: the biggest savings often come from storing that power instead of exporting it.

The new math behind rooftop solar

Net metering used to give homeowners a simple deal. When panels produced more electricity than a house used, the excess went to the grid and earned a credit that could offset later bills. NEM 3.0 changed that structure by replacing NEM 2.0 and lowering the value of exported electricity, so every kilowatt-hour sent out is worth far less than it was before.

As of September 2023, California had more than one-third of U.S. customer-sited solar capacity and about 1.37 million solar systems installed, the California Public Utilities Commission found.

Who loses, who benefits

The clearest losers are homeowners who bought rooftop solar expecting the old economics to hold. EnergySage estimated that NEM 3.0 raised the average electric bill by $63 a month, a hit that can wipe out thousands of dollars in lifetime savings for some households. Systems designed to export heavily, especially without battery backup, now face much longer payback periods because the grid will pay far less for surplus power.

The clear winners are less obvious, but they include non-solar customers who were previously helping shoulder costs embedded in the old net metering structure. The policy dispute in California has long centered on whether rooftop solar customers shift grid costs onto other ratepayers, while solar advocates argue that distributed solar still delivers grid and environmental benefits. NEM 3.0 is the state’s attempt to rebalance that tradeoff by tying compensation more closely to what electricity is actually worth to the grid at the moment it is delivered.

That shift reflects a broader policy debate now unfolding across the country. State-level net metering programs are moving away from one-to-one credits as regulators try to account for grid costs and time-of-use pricing, rather than treating every exported kilowatt-hour as identical to retail electricity from the utility.

Why batteries changed the economics

Once export credits fall, the value of self-consumption rises. A home battery lets solar owners keep the electricity their panels make during the day and use it later, instead of selling it back for a much smaller return. In practical terms, the battery captures more of the savings that used to come from the grid.

California residents are increasingly pairing battery storage with solar installations. Solar companies are also steering customers toward storage, because batteries help preserve savings in a tariff environment where exporting power is no longer the most lucrative option. For many households, the pitch has shifted from selling electricity to using it themselves.

A panel-only system under NEM 3.0 can still lower bills, but the economics are much stronger when the homeowner can store afternoon generation and draw on it in the evening, when household demand is often higher and export credits are weakest.

California’s market after NEM 3.0

The first year under the new tariff was rough for the rooftop solar industry. A January 2024 assessment of the California market identified a difficult year after NEM 3.0, even as analysts projected the sector could rebound if batteries become standard. Berkeley Lab has also tracked the first year of NEM 3.0 in a technical brief focused on California’s solar market.