• 7 min read

Explaining and modeling California’s Net Billing Tariff (NEM 3.0)

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With the California’s Net Billing Tariff (NBT), commonly referred to as NEM 3.0, going into effect in the coming months, installers and customers have a lot of questions about what it means for them. 

In this article, we’ll help explain the Net Billing Tariff — which goes into effect for all systems that are applied for after April 14, 2023 — including a brief explanation of NEM 3.0 and a walkthrough of how the charging and crediting process works. 

You can also check Aurora’s NEM 3.0 Resource Center for more information and future updates

Electrification rates for solar customers

Customers who wish to install solar after the April 14, 2023 NEM 2.0 deadline will enroll in NEM 3.0 and will be required to use an electrification rate instead of a regular time-of-use (TOU) rate. (Check out our older blog post for a refresher on TOU rates). As of January 2023, the available electric rates are: E-ELEC for PG&E customers, TOU-D-PRIME for SCE customers, and EV-TOU-5 for SDG&E customers. Compared with the regular TOU rates, these electrification rates have:

  • Notably higher on-peak charges and lower off-peak charges
  • A fixed charge of $15 per month rather than a minimum fee of $10
  • They still share a peak rate period of 4pm – 9pm

In addition, NBT customers are billed monthly rather than annually like in NEM 2.0.

Export rates

Export compensation in NEM 3.0 is based on California’s Avoided Cost Calculator (ACC), with a specific export rate for every combination Month, Hour, and Weekday or Weekend. For example, August weekdays from 3 – 4pm will have one value, 4 – 5pm will have a different value, and so on. The export value is lowest in the middle of the day when the grid has plentiful solar energy, and is highest during peak summer demand periods. The heatmap below shows the rates for SDG&E weekdays throughout the year — compensation exceeds retail rate only during August, September, and October late afternoon hours.

To compare the TOU rates against the ACC export rates, let’s look just at the month of August. The image below shows the familiar TOU structure for SDG&E EV-TOU-5, compared with the 2023 ACC values:

It’s notable that the export rates are substantially lower than retail rates during the hours when PV systems are the most productive (10am – 3pm). To try to keep solar PV systems financially viable for homeowners, customers in PG&E and SCE service territories also receive an adder on top of the ACC rate, between 2.2 and 9 cents depending on location and customer class.

If you want to learn a bit about why electricity is so expensive from 4pm – 7pm, check out our blog post on the “duck curve”.

The calculation process

How do you calculate utility bills with NEM 3.0? It’s a little more complicated, but we will break it down here. To start, you need to have an hourly load profile and hourly PV production estimation. Aurora provides methods for you to estimate or upload a customer’s hourly load profile, and use our design tool and PV simulator to get all of this information

The calculation follows these steps:

  • For every hour, look at the customer’s energy usage and hourly production
    • Example 1: Usage: 3.0 kWh. Production: 1.9 kWh between 12pm and 1pm
    • Example 2: Usage: 1.5 kWh. Production: 2.5 kWh between 1pm and 2pm
  • Estimate the amount of energy taken from the grid and sent to the grid. Often you just take the difference of consumption and production, but you can make special assumptions about variations within the hour because the NBT has no netting (in this case, we assume that the load was briefly greater than the PV production sometime between 1pm and 2pm).
    • Example 1: Grid Import: 1.1 kWh. Grid Export 0.0 kWh between 12pm and 1pm
    • Example 2: Grid Import: 0.1 kWh. Grid Export: 1.1 kWh between 1pm and 2pm
  • For energy taken from the grid: look up the cost of electricity for the given hour, and then multiply by the kWh.
    • Example 1: Rate is $0.44/kWh. Charge is $0.484 for the hour starting at 12pm
    • Example 2: Rate is $0.44/kWh. Charge is $0.044 for the hour starting at 1pm
  • For energy sent to the grid: look up the ACC for that hour.
    • Example 2: Export Rate is $0.05/kWh. Credit is $0.055 for the hour starting at 1pm
    • Note that sending energy to the grid in the middle of the day is unfavorable. Buying 1.1 kWh costs 48.4¢, but selling 1.1 kWh only gives you 5.5¢.

You then repeat this for all hours in a month. At the end of the month, any credits are applied against the charges, and in the unlikely event any credits are left over they are rolled over to the next month,

If that’s a little confusing, we don’t blame you — the rules are very complicated. To help walk through the calculations, here’s an example of one day with charts:

Example: One day of charges, offsets, and credits

To help explain NEM 3.0 billing, let’s take a look at one day in August, for a SDG&E customer. Looking through the following figure step-by-step can help clear up some confusion about how bills are determined.

(a) Shows overlaid consumption and production load profiles for a generic customer in SDG&E territory, for a day in August. 

(b) Has the same profile data, but the usage of energy is now shaded in. Blue represents energy purchased from the grid; Green represents self consumption of PV energy to offset loads, and Yellow shows the energy sold to the grid. Since the x-axis is hours and the y-axis is kW, the shaded areas represent the energy in kWh.

Chart (c) shows the hourly total kWh in each of three categories. While the billing process takes place continuously, breaking these into hourly totals makes it easier to explain what’s going on.

Charts (d), (e), and (f) take the data in chart (c) and show hourly kWh totals of grid usage, self consumption, and exports separately. As expected, there is no grid usage during the middle of the day because the PV system produces more energy than the house needs. Self consumption runs from about 6am until 8pm, and the system sends excess energy to the grid from 9am until 5pm.

Charts (g) and (h) show the EV-TOU-5 rate, which represents the cost to buy energy and the savings of self-consumed PV energy ($/kWh). Electricity costs the most from 4pm – 9pm, roughly $0.82/kWh for SDG&E. 

Chart (i) shows the hourly ACC export rate for 2023 ($/kWh), which is the credit a customer receives for energy sent to the grid. It’s very low until about 2pm in the afternoon, and is highest from 5pm – 7pm.

Grid usage

The customer’s grid usage is spread out across on-peak, off-peak, and super-off-peak hours, despite having no grid usage during the middle of the day. Energy usage during the peak 4pm – 9pm hours is the most expensive, while usage between midnight and 6am is exceptionally cheap. 

Totals: 16.2 kWh used from the grid, $7.13 of energy charges

Self consumption

Self consumption is concentrated on off-peak hours, with some usage avoided during peak hours. Avoiding grid usage is very valuable to a California customer after recent rate hikes. While self consumption does not affect the customer’s bill — the customer isn’t charged or credited for this amount of usage because it is self-supplied — it’s important to understand the value of avoiding energy from the grid when designing a PV system.

Totals: 17.7 kW of PV energy self-consumed, avoiding $10.66 of energy charges

Exports to the grid

In this particular example, exports of excess PV energy mostly occur during hours with a low ACC, and only some exports happen during the highest ACC export hours of 4pm – 7pm. You can see above in charts (f) and (i) that the timing of the exported electricity is poorly aligned with the high ACC export hours.

Totals: 13.3 kWh exported, earning $1.16 of credits


The average cost of 16.2 kWh taken from the grid was 44¢ per kWh, resulting in charges of $7.13 on the day. The value of 13.3 kWh of exported energy is only 8.8¢ per kWh, far below the retail rate, and only results in a $1.16 credit.

However, self consumption has a fairly high average value of 57¢ per kWh. This allows the homeowner to avoid $10.66 of electricity charges for the day. In general, self consumption is the most valuable aspect of a PV design with the NBT billing rules.

Wrap up

Self consumed energy is still just as valuable as it was previously, or perhaps even more so than before due to recent rate hikes. 

However, exported energy is not particularly valuable unless you can export to the grid between 4pm and 7pm during summer months. Unfortunately, the sun goes down around that time so exports are limited. Stay tuned for a future post that will examine how to best design a PV system under the NEM 3.0 rules!

Energy storage systems are another way of making use of energy that would normally be sent to the grid for a low value. We’ll also be discussing batteries in a future blog post.

Ready to learn more?