NEM 2 vs NEM 3: What Solar Owners Need to Know

Under NEM 3, the most impactful thing an existing solar owner can do is add battery storage. Instead of exporting midday solar production at the low avoided-cost rate (~$0.05–0.08/kWh), you store it and use it in the evening at the equivalent of retail rates (~$0.30–0.45/kWh). The difference — roughly $0.25/kWh — is the economic benefit of self-consumption over export.

A 10 kWh battery that stores and self-consumes 8 kWh per day instead of exporting it saves approximately $730/year at current PG&E rates. The payback period for battery storage is significantly shorter under NEM 3 than it was under NEM 2 for exactly this reason.

For new installations, solar + battery is now the standard recommendation for any system going on NEM 3. For existing NEM 2 systems that eventually transition, battery retrofits are the most effective way to maintain the economics of solar.

Under NEM 2, it didn't matter much when you used electricity — you could export surplus during the day and buy it back at the same rate in the evening. Under NEM 3, the timing of consumption matters significantly.

Using electricity during solar production hours (roughly 9 AM to 4 PM) means you're consuming your own solar power at the equivalent of retail rates rather than exporting it at avoided-cost rates and then buying it back at retail rates in the evening.

Practical shifts: run the dishwasher, washing machine, and dryer during the day. Charge your EV during solar hours if possible. Pre-cool your home in the afternoon before peak rate hours. Set your water heater to heat during solar hours.

These behavioral changes don't require any equipment investment and can meaningfully reduce your true-up bill under NEM 3.

Under NEM 2, oversizing a solar system was a reasonable strategy — extra production exported to the grid earned retail-rate credits that offset future bills. Under NEM 3, oversizing is less effective because surplus exports earn only the avoided-cost rate.

The optimal system size under NEM 3 is one that produces close to your annual consumption without significant surplus export. A system sized to produce 110–115% of your consumption is generally optimal — enough to cover your full usage with a small buffer for degradation, but not so large that you're exporting significant surplus at low rates.

If you have an existing system that was oversized under NEM 2 logic, adding battery storage is more effective than the alternative of reducing system size. The battery captures the surplus production and converts it to self-consumption value.