Net Metering in California: How It Works in 2025
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Solar net energy metering in California (also referred to as NEM 3.0) is a way for homeowners to sell their excess solar energy back to their utility companies. Net metering can make solar more affordable, but the newest rates that utility companies use when crediting homeowners can make it less beneficial.
Despite recent changes in net metering, solar panels in California can still be worth it for homeowners. Understanding how net metering works in California can help you get the most out of your solar system.
How net metering works in California
Net metering in California has evolved since its implementation in 1996, and the current version has more restrictions and pays solar customers less than previous versions.
Officially called the Net Billing Tariff (NBT), California’s current version of net metering was implemented in April 2023. Key aspects that homeowners need to know about NEM 3.0 include the following.
» MORE: How much do solar panels cost?
You pay for electricity from the grid according to a time-of-use (TOU) rate plan.
Under TOU rates, what you pay for electricity depends on when you use it. The NBT requires solar customers to pay specific TOU rates that, compared with other TOU rates, are lower at off-peak use times and higher at peak times. That will further affect your electricity costs and solar savings.
You pay certain ”nonbypassable” charges regardless of usage
As the name suggests, solar customers pay these charges, which go toward local and public fees and programs, even if they generate enough extra power to offset them. Under the NBT, nonbypassable charges are based on all electricity you pull from the grid.
The utility company calculates the value of your excess electricity
This is the biggest factor affecting NBT solar customers. Under net metering in California, you send your excess solar energy back to the grid, and your utility company calculates how much that energy is worth according to an “avoided cost” formula, which considers the value of that electricity at the time you send it to the grid.
Your system will likely send excess electricity to the grid during the middle of the day, which is when lots of other people are also sending excess solar power to the grid. That means the utility will buy your electricity for a much lower rate than it would at a different time of day.
With the “avoided cost” formula, California’s Net Billing Tariff decreases how much homeowners earn for excess solar energy compared to previous iterations of the state’s net metering rules.
Your utility company pays you for leftover credits.
The utility company keeps a running tally of whether the value of the power you’ve used from the grid is more than the value of the power you’ve sent to the grid. If you took more than you gave, you’ll get a monthly bill from the utility; if you gave more than you took, the utility gives you a credit on your bill. The utility pays you for excess credits at the end of your 12-month period, known as a true-up payment. used to happen once a year; now it’s once a month.
In some cases, homeowners whose true-up payments are worth less than a pre-determined amount will not receive a payment; instead, the utility company can roll over the credits to the next year to use toward future payments.
» MORE: Pros and cons of solar panels
3 tips to make the most of California’s net metering
Here’s how you can make the most of California’s net metering system.
Keep track of your credits
Your utility company will track your credits for excess solar energy throughout your 12-month term. Pay attention to how they compare to the amount of electricity you’re pulling from the grid. You might be able to make a few changes in your usage to lower your monthly bill.
Plan your energy use
If you can, use energy when you’re generating the most solar or when rates are low. For example, doing laundry in the middle of the day or charging an electric car after peak evening hours might save money on your bill. If you work from home, you may already use more electricity during the day when your solar system is generating the most power.
Add a battery
A solar battery can make your solar energy system more cost effective if you tend to use most of your electricity during peak grid hours. Instead of sending excess electricity back to the grid at a low rate, you can store it in your battery and use it later during expensive peak TOU hours.
Batteries are expensive, however. In California, the average cost is $7,525 after the federal tax credit, according to EnergySage.
» MORE: Do solar panels work at night?
Can I get financing for a solar panel system?
In addition to tax incentives and rebates, there are options available. Many solar installers offer financing, but you may also be able to finance your solar investment through a home equity loan or home equity line of credit (HELOC). These options may have lower interest rates than financing with an installer, future opportunities for refinancing and possible tax benefits.
Home equity loans and HELOCs are ways to borrow against the value of your home, converting equity into cash. With a home equity loan, you receive a lump-sum payment and then pay it back at a fixed interest rate over an agreed period of time, typically from five to 30 years. HELOCs are more akin to a credit card, something you use as needed. You’ll usually have 10 years to draw from the line of credit, during which time you only have to pay interest, and after that you pay both the principal and interest. HELOC interest rates typically are variable, meaning your monthly payment could rise or fall over time. And with each of these options, you're using your home as collateral.
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Another option is a solar loan. Many banks, credit unions and online lenders offer these to fund solar panels and installation, with amounts typically from $1,000 to $100,000, and annual percentage rates ranging from 6% to 36%. They function like a personal loan: you receive a lump sum and repay it in equal monthly installments over a set period, typically two to seven years. And unlike with home equity financing, there is no collateral required for a solar loan. This means your home or solar panels aren’t at risk if you miss payments, but you may have to pay late fees.
So, yes, you likely can get financing. If you go this route, compare interest rates, terms and fees with any financing package that a solar provider may offer you to ensure you get the best deal.
