California’s New Solar Rules Changed What Happens to Your Surplus Power — Here’s What to Do About It

California's New Solar Rules Changed What Happens to Your Surplus Power — Here's What to Do About It

For years, the strategy for going solar in California was straightforward: install the biggest system you could afford, send as much power as possible back to the grid, and watch your utility bill shrink toward zero. The more surplus you exported, the more credit you earned. It was almost a formula.
In April 2023, the California Public Utilities Commission changed that formula significantly with the introduction of Net Billing — commonly called NEM 3.0. The way surplus solar power is valued has fundamentally changed, and homeowners who go solar without understanding the new rules may be disappointed by results they didn't anticipate.

Here's what changed, what it means for your surplus power, and most importantly — what to do about it.

What the Old Rules Said

Under NEM 2.0, when your solar panels generated more electricity than your home was using at a given moment, that excess power flowed to the grid and your utility credited your account at close to the retail rate of electricity. If retail power cost $0.30/kWh and you exported 10 kWh to the grid, you received roughly $3.00 in credit.
Those credits accumulated and could be used to offset the power you drew from the grid in the evening or on cloudy days. Many solar homeowners under NEM 2.0 achieved annual true-up bills close to zero — or even received small refund checks from their utilities.

What Changed Under NEM 3.0

Under Net Billing, the rate you receive for surplus power exported to the grid is no longer tied to the retail electricity rate. Instead, it's based on the "avoided cost" — what the utility would have paid to procure that power on the wholesale market. Wholesale power prices, particularly during sunny California afternoons when rooftop solar is generating in abundance, are far lower than retail rates. The export rate under NEM 3.0 during typical midday solar generation hours can be as low as $0.02–$0.08/kWh — compared to retail rates of $0.30–$0.65/kWh that you pay for grid power. The practical consequence: a solar-only system that exports surplus power during the day and then buys expensive power back in the evening is no longer the winning strategy it was under NEM 2.0. The export credits don't offset the evening purchases the way they used to.

What This Means for Your Surplus Power

Under NEM 3.0, surplus solar power that gets exported to the grid is essentially given away at a fraction of its real value. The utility pays you pennies per kWh and turns around and sells that same power to your neighbor for 10–20 times what they paid you. This is not a crisis. But it is a clear signal about what to do differently. The correct response to NEM 3.0 is to stop exporting surplus power and start storing it. A battery captures the surplus electricity your panels generate before it can flow to the grid. That stored energy — valued at the full retail rate when you use it in the evening — is worth 5–20 times what the utility would have paid you for it as an export. Storing your surplus is dramatically more valuable than exporting it under the new rules.

The Battery Strategy Under NEM 3.0

A solar-plus-battery system under NEM 3.0 works like this:

Morning: Panels begin generating as the sun rises. Your home's loads — refrigerator, lights, any daytime appliances — are covered by solar. The grid is not engaged.

Midday surplus: Your panels generate more than your home is consuming. Under NEM 2.0, this would export to the grid. Under NEM 3.0, it flows into your battery.

Afternoon: Your battery reaches full charge. Your home's loads continue to be covered by solar generation.

Evening (4 PM – 9 PM): The sun begins to set. Panel generation drops. Your home's loads increase — cooking, laundry, AC. Your battery covers these loads at zero cost, avoiding peak-hour grid purchases entirely.

Night: Your battery may or may not cover full overnight consumption depending on size. Any grid power you draw overnight is purchased at lower off-peak rates.

The next day: The cycle repeats.

The result: you've captured the full retail value of every kWh your panels generated. You've avoided expensive peak-hour purchases. And you've exported little or nothing to the grid at low NEM 3.0 rates.

Smart Export Windows: The Exception to the Rule

NEM 3.0 isn't uniformly bad for exports. During certain periods — particularly early morning hours when the grid is waking up and during specific grid stress events — the avoided cost rate spikes significantly. Some battery management systems can be programmed to export strategically during these windows, capturing higher-value export credits. This is an advanced optimization strategy, and it doesn't eliminate the fundamental value of storage-first design. But for homeowners with properly programmed battery systems, it adds another layer of savings on top of the core self-consumption strategy.

Sizing Your System for NEM 3.0

Under NEM 2.0, bigger was usually better — more panels, more exports, more credits. Under NEM 3.0, sizing strategy is more nuanced. The goal is to generate roughly what your home consumes — not significantly more — and to pair that generation with enough battery capacity to capture the surplus that would otherwise export at low rates. Oversizing your solar system under NEM 3.0 without proportional battery capacity produces diminishing returns. The excess generation that can't be stored will export at low rates, reducing overall system economics.

My Home & Solar Solutions designs solar-plus-battery systems specifically optimized for NEM 3.0 performance. We analyze your utility bills, consumption patterns, and time-of-use profile to right-size both the panels and the battery — maximizing self-consumption and minimizing low-value exports.

For qualifying homeowners, we offer access to TPO programs with no upfront equipment cost that are designed from the ground up for the NEM 3.0 environment.

Visit https://myhomesolution.org/california_public_utility_commissions to learn more. The rules changed — but the savings are still very real for homeowners who know how to play the new game.