NEM 2.0 vs NEM 3.0: What California Solar Owners Need to Know in 2025

Introduction — Why Net Metering Still Matters in 2025

In California, solar energy has long been a powerful tool for homeowners and businesses to reduce electric bills, gain energy independence, and help the environment. But just having solar panels isn’t enough—you need to understand how you’re credited for the extra electricity you send back to the grid. This is where Net Energy Metering (NEM) comes in.

Whether you’re under NEM 2.0, transitioning to NEM 3.0, or trying to figure out the difference between net billing vs. net metering, your utility company’s policies will directly affect how much you save—or spend—on electricity.

In 2025, net metering remains a hot topic because of recent regulatory changes across California utilities like:

• SDG&E (San Diego Gas & Electric)
  
• SoCal Edison (Southern California Edison)
  
• PG&E (Pacific Gas & Electric)
  

Each utility has its own approach to implementing NEM 3.0, with varied impacts on rates and solar savings.

If you’re considering solar for the first time or already generating solar energy and want to know what happens next—this guide is for you.

We’ll walk through:

• What NEM 2.0 is and how it worked
  
• Why NEM 3.0 changes the game
  
• Differences between net billing and net metering
  
• What each major utility (SDG&E, SCE, PG&E) is doing now
  
• And whether it still makes sense to go solar under the new rules

What is NEM? From NEM 1.0 to 2.0

Net Energy Metering (NEM) is a billing system that credits solar panel owners for the excess electricity they send to the grid. Think of it as “rolling back” your electric meter when your solar system generates more power than you use. Over the years, California has gone through multiple versions of this system: NEM 1.0, NEM 2.0, and now, NEM 3.0.

NEM 1.0 vs NEM 2.0

Under NEM 1.0, customers received a one-to-one credit for every kilowatt-hour (kWh) they exported. If you sent 10 kWh to the grid during the day, you could use 10 kWh at night without being charged.

With NEM 2.0, this continued, but new fees were introduced:

• Non-bypassable charges (NBCs): fees that couldn’t be offset by solar exports
  
• Time-of-Use (TOU) rate plans: required for all new solar customers
  
• A small interconnection fee
  

Despite these changes, NEM 2.0 was still highly favorable. Homeowners could save thousands annually depending on system size and usage patterns.

How Does NEM 2.0 Work?

• During sunny hours, your panels generate electricity.
  
• Any extra power you don’t use is sent back to the grid.
  
• Your utility (like PG&E, SDG&E, or SCE) credits your account.
  
• Later, when you draw energy from the grid (like at night), those credits offset your bill.
  

This system encouraged people to go solar because it created a fast payback period—often under 6–8 years.

Why the Shift to NEM 3.0?

As solar adoption grew, utilities and regulators argued that NEM 2.0 overcompensated solar users at the expense of non-solar customers. That led to the approval of NEM 3.0, a policy with dramatically different rules.

The Shift to NEM 3.0 and Key Changes

In April 2023, California officially moved from NEM 2.0 to NEM 3.0, also known as the Net Billing Tariff (NBT). This change marks a major shift in how solar owners are compensated—especially for the electricity they export back to the grid.

NEM 2.0 vs NEM 3.0 Rates

Under NEM 2.0, exported electricity was credited at the retail rate—essentially the same price customers paid for power. But NEM 3.0 flipped the equation by introducing net billing, where export credits are now based on the avoided cost rate—which is much lower.

What changed with NEM 3.0 rates?

• Credit values dropped by 75% or more in most cases.
  
• The average export credit is now $0.05–$0.08/kWh (compared to $0.30+/kWh under NEM 2.0).
  
• Solar-only systems now have longer payback periods—typically 9–12+ years.
  

What Is the NEM 2.0 Deadline?

California homeowners had until April 14, 2023, to submit a completed interconnection application to be grandfathered into NEM 2.0 for 20 years. After this date, all new solar customers are subject to NEM 3.0 rules.

If you submitted your application before the NEM 2.0 deadline, congratulations—you’re still on the more beneficial version for the next two decades. Everyone else must follow the new net billing model.

Net Metering 2.0 vs 3.0: Summary of Key Differences

Why Does This Matter?

Under NEM 3.0, your system must be optimized for self-consumption or include a battery to make financial sense. The policy shift was designed to:

• Encourage battery storage adoption
  
• Reduce pressure on the grid during peak hours
  
• Limit overcompensation for exported solar energy
  

Net Billing vs Net Metering Explained

At first glance, net billing and net metering might sound like the same thing—but in reality, they differ in how they value solar exports and affect your bill. This difference is at the heart of the transition from NEM 2.0 to NEM 3.0.

Net Metering (Used in NEM 1.0 & 2.0)

Under net metering, you receive a full retail rate credit for every kilowatt-hour (kWh) of electricity your system exports to the grid. For example:

• If your utility charges you $0.30/kWh and you export 100 kWh in a month, you get $30 worth of credit.
  
• That credit can offset your energy usage at any time, not just in real time.
  

This made solar systems extremely valuable, especially for homeowners who weren’t always home during the day to use the power as it was being generated.

Net Billing (Introduced in NEM 3.0)

Under net billing, solar exports are not credited at the retail rate, but instead at a much lower avoided cost rate, which varies by hour and season. For example:

• If you export 100 kWh, but the utility values those exports at only $0.05/kWh, you get just $5 in credit instead of $30.
  
• When you later need power from the grid, you pay full retail price—maybe $0.30/kWh.
  

This means you can’t trade energy 1:1 anymore. It’s a buy high, sell low situation unless you store and use your own solar energy through a battery.

What is “Avoided Cost Net Metering”?

“Avoided cost” is the price the utility claims it avoids paying by using your solar power instead of generating or purchasing electricity elsewhere. This cost is often low, because it excludes:

• Distribution and transmission costs
  
• Peak time demand charges
  
• Grid reliability expenses
  

That’s why avoided cost net metering significantly reduces solar export values.

Summary: Why This Shift Matters

With net billing, homeowners are incentivized to install batteries so they can store energy during the day and use it during peak hours, rather than send it back to the grid for cheap.

Utility-Specific Policies — SDG&E, SCE, and PG&E

While NEM 3.0 is a statewide policy in California, the implementation details and rate structures vary significantly between the three major investor-owned utilities:

• San Diego Gas & Electric (SDG&E)
  
• Southern California Edison (SCE or SoCal Edison)
  
• Pacific Gas and Electric (PG&E)
  

Understanding your utility’s approach to net energy metering is essential because it affects:

• The value of your exported solar power
  
• The required Time-of-Use (TOU) plans
  
• Potential savings or losses over time
  

Net Energy Metering SDG&E (San Diego)

SDG&E customers are particularly impacted under NEM 3.0 due to:

• Very high retail rates (among the highest in the U.S.)
  
• A large spread between peak and off-peak TOU pricing
  
• Lower average export credit values
  

If you’re under NEM 2.0 with SDG&E, you’re in a relatively good position. However, new customers under net energy metering SDG&E are strongly encouraged to pair solar with battery storage. Otherwise, most exported electricity is credited at low mid-day avoided cost rates.

Southern California Edison Net Metering (SoCal Edison)

SCE follows the same statewide NEM 3.0 rules but applies different TOU rate schedules. Under Southern California Edison net metering, solar customers may find:

• Export credits dropping as low as $0.03–$0.05/kWh during midday
  
• Peak demand charges in the evening that batteries can help avoid
  
• New solar customers are required to choose TOU-D-PRIME or TOU-D-4-9PM, both of which penalize evening grid use
  

SCE also promotes solar + storage by offering time-dependent battery incentives through the Self-Generation Incentive Program (SGIP).

PG&E Net Energy Metering

PG&E net energy metering aligns closely with the statewide NEM 3.0 structure but includes:

• Aggressive TOU rate plans that spike between 4–9 PM
  
• Export credits that can fluctuate daily, with some as low as $0.02/kWh
  
• Higher base charges for grid usage regardless of solar ownership
  

While PG&E solar customers still save money, the ROI timeline has extended. Again, storage helps—but the economics vary depending on usage patterns.

Regional Comparison: SDG&E vs SoCal Edison vs PG&E

Each utility offers different benefits and challenges, but the key trend is the same: Solar alone is no longer enough to guarantee strong savings under NEM 3.0. Smart energy usage, TOU optimization, and battery integration are the new normal.

Final Verdict — Should You Switch or Stick with NEM 2.0?

Now that we’ve explored the major shifts from NEM 2.0 to NEM 3.0, broken down utility-specific net metering policies, and explained how net billing impacts solar savings—it’s time to answer the big question:

Is it still worth going solar in California under NEM 3.0?

If You’re Still on NEM 2.0 — Don’t Switch

If you locked in NEM 2.0 before the deadline (April 14, 2023), stick with it. You’re grandfathered into:

• Retail-rate export credits
  
• Simpler TOU requirements
  
• Faster payback (typically 6–8 years)
  

You have 20 years of NEM 2.0 benefits, and switching plans would eliminate that advantage. If anything, you might consider adding battery storage to further optimize your savings.

If You’re New to Solar — It’s Still Worth It (But Do It Smart)

While NEM 3.0 offers lower compensation for exports, solar still pays off—especially with a battery. Here’s how to make it work:

The Role of Net Billing vs Net Metering

The shift from net metering to net billing is not the death of rooftop solar, but a rebalancing of incentives. It’s forcing homeowners to:

• Think about self-consumption instead of exporting
  
• Add energy storage to maximize value
  
• Get smarter with home energy usage
  

This trend may continue nationwide, so learning to optimize under NEM 3.0 is a smart long-term move.

Conclusion: The Solar Equation Has Changed — But the Sun Still Shines

While NEM 2.0 vs NEM 3.0 rates show a clear drop in export value, it doesn’t mean the end of solar savings. California remains a prime state for solar thanks to:

• High retail electricity prices
  
• Abundant sunshine
  
• Strong incentives for batteries
  

Yes, the NEM 2.0 deadline changed the math, but not the value of clean, affordable, self-generated power.

If you understand how NEM works, stay informed about your utility’s net metering policies, and install the right system for your usage, solar can still save you money for years to come.