Net Metering Reform

California's NEM 3.0 cut the value of exported solar power by 75% overnight. Solar installers called it an existential threat. Economists called it a correction.

Net metering reform replaces full retail-rate crediting with compensation structures that separate the value of exported solar electricity (wholesale energy, roughly $0.03-0.05/kWh) from the grid infrastructure costs bundled into retail rates ($0.10-0.20/kWh). The goal is to maintain incentives for solar adoption while eliminating the cross-subsidy that shifts grid costs from solar adopters to non-adopters.

Three reform models dominate. Net billing credits exports at a rate closer to wholesale value rather than retail. Buy-all/sell-all requires customers to sell all generation to the utility and buy all consumption at retail, with separate metering. Time-of-use export rates credit solar exports based on when they occur, paying more during evening peaks and less during midday surplus.

California's NEM 3.0. Before the reform, a solar customer exporting at midday received roughly $0.30/kWh in credit. Under NEM 3.0 (effective April 2023), the same export earns roughly $0.05-0.08/kWh.

What happens to the economics of residential solar without storage?

Payback periods roughly doubled. Solar-only systems went from 5-6 year paybacks to 10-12 years in many cases. But solar-plus-storage systems, which store midday generation for evening self-consumption, retained shorter paybacks because they avoid exporting during low-value hours. The reform effectively made storage a prerequisite for attractive solar economics.

California residential solar installations dropped roughly 80% in the months following NEM 3.0's implementation.

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