Last year, California rolled out a new solar policy, called NEM 3.0 — which replaced the old Net Metering (NEM 2.0) system with net billing. This change stirred some worry in the solar industry, as it seemed like going solar might not be as financially rewarding.
Despite this initial concern, going solar in California is still a smart move in 2024. Even though the net export incentives have shifted, the landscape of solar energy generation and storage has improved for homeowners. This means that homeowners can still benefit from solar power, even if the returns aren’t as high as before.
If you’re a homeowner in California thinking about going solar, don’t let the policy changes deter you. Installing solar panels can still be a worthwhile investment for your home and the environment through continued utility savings.
Under the old system, homeowners could earn credits at market rates for extra energy they put back into the grid, often producing more than they used. However, with the new net billing policy, the compensation for exported energy is significantly lower — around 75% less.
NEM 3.0 affects consumers of the three major California utility companies: Pacific Gas and Electric (PG&E), Southern California Edison (SCE) and San Diego Gas and Electric (SDG&E).
Summary
- Solar continues to be a viable investment. Despite changes in solar policy with NEM 3.0, going solar in California remains financially beneficial for homeowners.
- Solar-plus-storage systems offer additional savings and shortened payback periods compared to solar-only systems, under NEM 3.0
- Enact provides custom solar solutions based on your energy consumption, budget and goals.
What is the payback period for California homeowners under NEM 3.0?
Research using the Enact platform found the payback period under NEM 3.0 for residential solar in California is 4.8 years in 2024. This means that homeowners who invest in solar panels under NEM 3.0 can expect to recoup their initial investment in less than five years through savings on their utility bills.
Additionally, for solar-plus-storage customers, the payback period is slightly longer at 5.5 years in 2024, compared to 7.6 years for customers who signed on in 2023. This indicates that the return on investment for solar-plus-storage systems is improving over time.
These figures are based on an 8 kilowatt solar system with 100% energy offset, priced at $2.90 per Watt, with a storage add-on priced at $13,000 for a 10 kilowatt-hour battery, fully installed.
Solar payback period in years for a PG&E customer under NEM 3.0.
What is NEM 3.0?
California’s updated solar policy, Net Energy Metering (NEM) 3.0, has shifted payback credits and emphasized the importance of solar energy storage. Despite being labeled as net metering, NEM 3.0 moves towards net billing tariffs, which came into effect in April 2023. This change affects the credits homeowners receive for extra energy sent to the grid, reducing them by about 75%.
Despite these alterations, going solar in California remains a cost-effective choice compared to traditional grid electricity. NEM 3.0 encourages the integration of solar energy with storage using home batteries. These batteries enable energy usage at night, provide blackout resilience, enhance grid resiliency and increase cost savings.
California’s fluctuating energy prices, particularly higher costs during peak evening hours, make solar energy combined with storage highly valuable. By storing energy generated during the day, homeowners can strategically use or export it during peak demand times, leading to cost savings and improved grid efficiency.
Despite the initial investment, solar and battery storage offer a practical and increasingly valuable solution under NEM 3.0, allowing homeowners to save money and contribute to a cleaner, more sustainable energy future.
What’s the difference between net billing and net metering?
Net metering credits homeowners at the retail rate for excess energy sent to the grid, allowing them to offset their electricity costs. In contrast, net billing compensates homeowners at a lower rate, typically based on wholesale or avoided costs of electricity.
With net metering, homeowners receive credits equivalent to what they would pay for electricity from the grid, while net billing provides less compensation. This distinction affects the financial benefits of solar panel installation, potentially extending the payback period under net billing.
While the export rates have decreased, solar continues to offer California homeowners with financial benefits under net billing. A home solar panel system offsets monthly utility costs, while producing clean electricity — offering Californians the only way to protect themselves from expensive bills without sacrificing energy consumption.
Four reasons why Californians benefit from solar under NEM 3.0
1. Higher utility rates make solar more competitive
As electrical costs for California households remain high, residential solar offers consumers reduced dependence on the grid and significant monthly savings. Regardless of NEM 3.0 or other policy, California’s sunshine is abundant and can be converted into low-cost energy.
Home solar energy systems continue to be worth the investment for California consumers. Solar helps homeowners offset significant amounts of utility costs, leading to monthly savings. As utility prices rise, solar can offset monthly bills regardless of export rates.
While NEM 3.0 reduced the export rate by 75% — solar panels offset all or most of home utility bills. Enact customers typically see their monthly utility costs shrink by 75% or more after going solar.
Californians, on average, use less electricity per capita than residents in all but two states. Despite using less electricity, households across California paid the third-highest price of electricity on average in 2022.
For instance, PG&E raised residential rates by 13% in January 2024, resulting in an additional $32 to $34 per month for the average customer. This follows a similar increase of about 14% in 2023.
Similarly, SCE customers experienced a 2% rate hike in January 2024, following a cumulative increase of approximately 12.5% in 2023. Despite recent rate adjustments, PG&E has already proposed another rate increase, pending approval from the California Public Utilities Commission (CPUC).
The CPUC, responsible for overseeing rate changes, maintains a record of all adjustments on its Rates Change Advisories page. With more rate hikes expected in the future, producing electricity through rooftop solar emerges as a practical means for households to shield themselves from escalating bills.
It’s important to remember that solar energy systems pay for themselves over time. While NEM 3.0 may have extended these payback periods, Enact found homeowners
Following the payback period, solar energy systems essentially generate free electricity from the abundant California sunlight. While NEM 3.0 has impacted home export rates, homeowners can still reap monthly savings through solar energy adoption.
2. Batteries are a solar homeowner’s friend under NEM 3.0
Solar-generated electricity must be either used immediately or sent to the power grid. Home batteries — sometimes called storage batteries — provide consumers with the ability to store excess solar electricity for later use, rather than feeding it back into the grid. Under NEM 3.0, solar energy systems with energy storage offer additional savings compared to those reliant solely on solar energy.
Before NEM 3.0, sending surplus electricity to the grid was incentivized at a better rate, resulting in reduced utility bills for homeowners. However, the current net billing tariff is less favorable than the previous policy.
Homes and businesses equipped with solar energy systems with home batteries (or solar-plus-storage) will continue to enjoy the advantages of solar energy under NEM 3.0. Solar-plus-storage systems offer additional savings and shortened payback periods.
This is because instead of exporting surplus energy to the grid, homeowners can store their low-cost, clean solar energy for later usage — like at night or during rainy days. Homeowners can also opt to use battery-stored energy during peak-rate hours, typically late afternoons and evenings, as dictated by Time of Use rates in California.
Home batteries provide California households with affordable energy on demand, promote energy independence and facilitate more convenient electric vehicle charging. Energy storage enables customers to utilize more of their solar-generated electricity during times of high demand or limited sunlight.
Greater battery capacity translates to increased usage of low-cost energy and decreased reliance on the grid, thereby allowing residential and commercial consumers to enhance their savings.
Enact is assisting numerous California families in transitioning to solar energy. Through Enact’s software platform, we can tailor solar-plus-battery systems to suit individual needs, illustrating clearly how families can derive financial benefits from such installations.
Here are a couple examples of systems we recently designed and how they will perform once they are connected to the grid under NEM 3.0:
Enact’s software provides valuable insights by analyzing three actual projects under NEM 3.0 — from Northern California and Southern California — to illustrate the distinctions between solar-only systems and those integrated with solar-plus-storage, based on NEM 3.0 rates.
Before delving into the advantages of solar-plus-storage for Californians under NEM 3.0, let’s define a few key terms.
Energy Offset: The annual amount of electricity generated by your solar system divided by the annual amount of total electricity consumed. Energy offset shows how much electricity your home will consume from solar.
Self-Consumption: The amount of energy produced by your solar system that goes directly into your home. Solar-generated electricity needs to be used, stored or sent to the grid — self-consumption shows how much solar energy you can realistically expect to use.
Bill Savings: The bill savings is the reduction, in dollars or percentage terms, on your electric utility bill
Payback Period: The payback period shows the amount of time it will take for your system to pay for itself through utility savings. Your payback period is calculated by dividing the cost of installing your system by the amount of money you’ll save each year.
Two important notes to remember when looking at Enact’s estimations. Our platform is conservative in its savings estimation, assuming an annual utility rate increase of 5% — a common assumption in the solar industry. Your savings may likely be higher due to California’s substantial rate increases, resulting in shorter payback periods and higher savings.
Secondly, while solar panels typically carry warranties ranging from 15 to 25 years, they often outlast their warranty periods. For this discussion, calculations are based on the warranties of storage batteries, which typically range from 10 to 15 years.
Energy storage is a mature technology
While solar storage may seem like a new concept for homes, the technology has made significant strides over the years. It’s been a staple in businesses and industries for quite some time. Now, there are several well-known manufacturers with established brands and strong reputations, like Tesla or Franklin.
These manufacturers often provide warranties for their batteries, typically lasting 10 to 15 years, and they stand by the quality of their products. Some, like Tesla, Enphase and Franklin, even offer all-in-one solutions that include a battery inverter built right into the equipment.
Solar panels generate direct current (DC) electricity, but most home appliances run on alternating current (AC) electricity. Luckily, newer batteries can convert solar energy into the type of energy your household needs. These battery-plus-inverter setups simplify installation and can help keep costs down.
As more companies jump into the home battery market, safety standards have become a top priority. Batteries sold in the U.S. must meet certifications like UL 1642 and UL 1973, ensuring they meet strict safety standards for things like conductor rating and overcurrent protection devices. This ensures a safe connection between the battery and your home.
Furthermore, battery manufacturers have built reliable supply chains, which helps bring down costs for consumers. With batteries being installed all across California, households can now enjoy clean energy usage around the clock. Enact has already designed hundreds of customized systems with energy storage for homeowners, ensuring they get the most out of their solar investment.
3. The cost of solar equipment is dropping
The good news for California homeowners is that the cost of solar equipment has been steadily decreasing, especially since the COVID-19 pandemic. This trend is expected to continue due to market imbalances in China, which is a major player in the global solar panel market. According to PV Magazine, solar panel prices have recently reached pre-pandemic lows.
These lower costs of solar equipment can greatly benefit homeowners by shortening the payback periods for their solar investments, ultimately leading to better long-term savings. A report from Wood Mackenzie indicates that global solar panel prices have dropped by 30-40% in 2023 alone.
Even though Chinese modules are not typically sold in the U.S., the global price trends still impact American homeowners. China dominates about 80% of the global solar panel manufacturing capacity, so changes in their market have significant effects elsewhere. In 2023, American prices dropped by 15%, reflecting the global downward trend.
Looking ahead, experts predict that the cost of solar equipment will either continue to decrease or remain low. When combined with high utility costs and government incentives, such as tax credits, solar becomes an even more affordable option for California families. With lower prices and potential savings on utility bills, going solar can offer households a sustainable and cost-effective way to power their homes while contributing to a cleaner environment.
4. Government incentives alleviate solar costs
For California homeowners, the decreasing costs of solar equipment are paired with enticing government incentives designed to promote clean energy adoption. Both the federal government and the state of California offer incentives specifically tailored for homeowners looking to invest in solar and storage equipment.
One of the most significant incentives available is the Solar Investment Tax Credit, commonly referred to as the ITC, provided by the federal government. This tax credit allows homeowners to reduce their federal income tax owed by a substantial 30% of the total cost of a solar energy system installed during the tax year.
Thanks to the Inflation Reduction Act of 2022, homeowners across America can now essentially deduct 30% of the cost of their solar system, provided they have the appropriate documentation from the Internal Revenue Service. This 30% ITC is accessible to all qualifying homeowners until 2032, after which it will gradually decrease each year until 2035.
After California’s shift to net billing under NEM 3.0, residential solar remains a viable investment for homeowners. Despite initial concerns among homeowners, multiple factors contribute to the continued benefits of going solar — namely, home solar continues to save money.
California’s high utility prices make solar an attractive option for households seeking significant monthly savings, even with the reduction in export rates by 75% under NEM 3.0. Solar-plus-storage offers homeowners additional savings and viable payback periods as prices continue to increase.
The integration of solar with home battery storage, especially using advanced lithium-ion technology, enhances the appeal of solar systems by providing energy resilience during blackouts and strategic energy usage during peak demand. The maturation of battery technology ensures safety, efficiency and longevity of solar-plus-storage setups.
Lower solar equipment costs, influenced by global market dynamics and post-pandemic adjustments, contribute to more favorable payback periods, making solar financially accessible. Federal incentives like the Solar Investment Tax Credit (ITC) and state programs further alleviate financial burdens, solidifying solar’s position as a reliable and financially sound investment for Californians navigating NEM 3.0.
The bottom line is: solar can be a good investment for homeowners in California and offers the only source of protection against rising utility costs. If you want to get the benefits of a custom solar system, see how Enact can bring solar savings to life.
Get a free solar quote with Enact
Start your journey with Enact and get the right home solar energy system for your needs. If you want to power your home with clean energy and reduce monthly costs, getting the right solar system helps.
Enact designs custom solar systems based on your energy consumption, budget and goals. Our software platform not only shows homeowners what their system can look like — but it projects financial savings and energy generation estimates.
With a free custom proposal, you can see how much you can save with solar, even under NEM 3.0. Schedule a free consultation with our friendly team of energy advisors to learn more about how Enact can streamline your solar journey.