Before April 2023, California solar made straightforward economic sense. You installed panels, sent excess power to the grid during the day, and got credited at retail rates - roughly 25-30 cents per kWh. You used those credits to offset what you bought from the grid at night.
NEM 3.0 ended that. California regulators cut solar export compensation to 5-6 cents per kWh - less than a fifth of what you pay to buy power back. For homeowners who own their solar panels, this fundamentally broke the math. For homeowners on a PPA, it mostly does not matter.
1. What NEM 3.0 Actually Changed
Net Energy Metering (NEM) is the policy that governs how California utilities compensate solar customers for excess electricity sent to the grid. Under NEM 2.0, customers received near-retail rate credits - a strong financial incentive to go solar.
Under NEM 3.0, effective April 15, 2023, the export compensation rate dropped dramatically. The new rates are called Avoided Cost Calculator (ACC) rates, and they average 5-6 cents per kWh depending on the hour and season.
If you already have solar and enrolled under NEM 2.0, your export compensation is grandfathered for 20 years from your original enrollment date. New solar customers get NEM 3.0 rates. That distinction matters for whether owned solar still makes financial sense.
2. The 29-Cent Arbitrage Problem
Under NEM 3.0, here is what the math looks like for a homeowner who owns their solar panels:
Solar panels generate most of their power between 10am and 3pm. Households consume most of their power in the morning and evening. Under NEM 2.0, the midday export credited you enough to offset evening consumption. Under NEM 3.0, you sell your midday solar at 5-6 cents and buy it back at 34.5 cents. You are selling low and buying high.
The only way to fully solve this problem when you own solar panels is battery storage - charging during the day from your panels and discharging in the evening instead of buying from SCE. Battery storage adds $12,000-$18,000 to a solar installation cost, on top of the panel system cost.
3. Why SCE Territory Got Hit Hardest
NEM 3.0 affected all California investor-owned utilities: PG&E, SCE, and SDG&E. But the impact was not uniform. SCE customers in the Inland Empire were among the hardest hit for two reasons.
First, SCE rates were already high and rising fast. The gap between what you earn exporting (5-6 cents) and what you pay to import (34.5 cents) is bigger in SCE territory than in regions with lower base rates.
Second, Inland Empire homes - including Temecula, Murrieta, Menifee, Lake Elsinore, and Hemet - run heavy air conditioning loads. AC runs hardest in the afternoon and evening, exactly when solar output is declining and TOU-D peak rates are in effect. NEM 2.0 customers were somewhat insulated from this because their midday credits were large enough to absorb the evening deficit. NEM 3.0 customers are not.
A typical 8.5 kW system in Temecula generates 35-45 kWh per day in summer. Peak generation is 10am-3pm. Peak AC consumption is 3pm-9pm. Under NEM 3.0, roughly 15-20 kWh per day is exported at 5-6 cents and then bought back at 34.5-49 cents. That gap costs owned-solar customers hundreds of dollars per year more than NEM 2.0 customers.
4. How a PPA Sidesteps NEM 3.0
Under a Power Purchase Agreement, you do not own the solar panels. The solar company owns them. The NEM 3.0 export compensation rate applies to the solar company, not to you.
Your agreement is simpler: you pay the PPA company approximately 22 cents per kWh for the electricity your panels produce. That is your price, locked for the contract term, regardless of what SCE charges and regardless of how net metering rules change.
The solar company manages the grid relationship. They handle any export credits, deal with NEM 3.0 compensation rates, and optimize the system. Your bill is straightforward: solar usage at 22 cents, grid backup from SCE at whatever SCE charges for the hours your panels cannot cover.
- Nothing changes. Your locked rate is 22 cents per kWh.
- The solar company handles NEM 3.0 export accounting - not your problem.
- Future net metering rule changes do not affect your PPA rate.
- You maintain the positive arbitrage: paying 22 cents vs. SCE at 34.5 cents or more.
The key insight: a PPA locks in positive arbitrage regardless of future export compensation rates. You are buying from your solar system at 22 cents. You are comparing that to the SCE rate you would otherwise pay, not to some export credit. As long as SCE charges more than 22 cents, you win. And SCE has charged more than 22 cents since 2022.
5. Side-by-Side: Own Solar vs. PPA Under NEM 3.0
There is one scenario where owning solar still beats a PPA in 2026: a homeowner with a high tax liability and capital available who adds battery storage. In that case, battery storage solves the NEM 3.0 arbitrage problem, and a cash purchase with a 25-year ownership horizon maximizes lifetime return. But that describes a small percentage of homeowners.
For the majority of Temecula-area homeowners who do not have $20,000+ in accessible capital or a high tax bill that benefits from depreciation strategies, a PPA delivers better day-one economics with zero risk.
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Frequently Asked Questions
NEM 3.0 is California's current net energy metering policy, effective April 15, 2023. It replaced NEM 2.0 for all new solar installations. Under NEM 3.0, homeowners who export excess solar power to the grid receive compensation at Avoided Cost Calculator (ACC) rates of approximately 5-6 cents per kWh, compared to the near-retail rates under NEM 2.0.
Not directly. Under a PPA, the solar company owns the panels and handles the utility relationship. The export compensation rate applies to the company, not to you. Your PPA rate of approximately 22 cents per kWh is locked and does not change based on NEM policy. Future net metering rule changes also do not affect your locked PPA rate.
The arbitrage gap is the difference between what you earn exporting solar (5-6 cents/kWh) and what you pay to buy power back from SCE (34.5 cents/kWh). That 29-cent gap means homeowners who own solar panels and export excess power to the grid are selling low and buying high. A PPA avoids this problem because your rate is 22 cents regardless of export compensation.
Yes. A PPA at 22 cents per kWh provides a positive arbitrage of approximately 12.5 cents per kWh against SCE's current 34.5 cent rate. That gap is not affected by NEM 3.0 because the PPA pricing model does not depend on export compensation rates. The PPA company manages the grid relationship and handles any NEM 3.0 complexity.
Owned solar with battery storage solves the NEM 3.0 arbitrage problem by storing midday generation for evening use instead of exporting it. This makes sense for homeowners with capital available, high tax liability that benefits from business strategies, and a 25+ year ownership horizon. For most Temecula homeowners, a PPA provides better day-one economics.