What is NEM3 and How Does It Work?

In 2022, California’s Public Utilities Commission approved NEM3, the third iteration of the state’s net energy metering rules. These changes, which will take effect in April 2023, will have a significant impact on the cost of rooftop solar installation for new users. Existing solar users may also be affected under certain circumstances.

How Does NEM3 Differ from Previous Net Energy Metering Rules?

Under NEM3, solar users will receive less compensation from utilities for the excess energy they generate, with payments dropping from an average of $.30/kWh to around $.05/kWh. Additionally, NEM3 solar users will be placed on a rate plan with higher evening electricity rates, increasing the payback period for a solar investment from six years to over a decade.

However, NEM3 also presents an opportunity for increased savings potential through the installation of solar batteries. By pairing solar panels with a battery system, users can store excess solar energy for later use, maximizing the value of their solar power and minimizing what is exported to the utility company. Under NEM3, the payback period for a solar-plus-storage installation is expected to be faster than for a solar-only installation, making it a smart investment for new users.


In summary, California’s new net energy metering rules under NEM3 will have a significant impact on the cost and payback period of rooftop solar installation. While the changes may present challenges for new and existing users, the installation of solar batteries can provide increased savings potential and faster payback periods for solar-plus-storage systems.

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