California was once the best state in the country for rooftop solar. Generous net metering, strong sun, high electricity rates, and a string of state incentive programs made the math work almost everywhere. That era ended in April 2023 when the California Public Utilities Commission (CPUC) replaced the old Net Energy Metering program with Net Billing Tariff, commonly called NEM 3.0.
The change cut the value of exported solar power by roughly 75 percent. Combined with the expiration of the federal Investment Tax Credit at the end of 2025, California’s solar landscape looks very different than it did two years ago. Solar is still worth it — California’s electricity rates are so high that the math still works, especially with battery storage — but the calculation requires more care than it used to.
This guide covers what California homeowners need to know before going solar in 2026.
What NEM 3.0 means in plain terms
Under the old NEM 2.0 program, California homeowners earned a full retail-rate credit for every kilowatt-hour they exported to the grid. If you paid $0.30/kWh for electricity, you earned $0.30/kWh for what you sent back. That made oversizing your system and exporting excess power a straightforward financial win.
Under NEM 3.0, the compensation rate is based on the wholesale avoided cost — what your utility would otherwise pay for electricity on the open market. This rate averages around $0.08/kWh and fluctuates by hour, day of week, and month. There are 576 different possible export rates in the tariff schedule. The result: exported power is now worth roughly a quarter of what you pay to buy electricity back.
The practical implication is the same as in Arizona, but more extreme. Every kilowatt-hour you use directly from your panels saves you the full retail rate — $0.34 to $0.40 depending on your utility. Every kilowatt-hour you export earns you about $0.08. Without a battery to store midday production and discharge it in the evenings, a significant portion of your solar output is being sold cheap and bought back expensive. This is why battery storage shifted from a nice-to-have to essential under NEM 3.0.
One important exception: customers who interconnected before April 15, 2023 are grandfathered under NEM 2.0 for 20 years from their Permission to Operate date. If you have an older system, your economics are considerably better than what new customers face today. Note also that California’s municipal utilities — including SMUD in Sacramento and LADWP in Los Angeles — are not subject to NEM 3.0 and have their own, often more favorable, solar programs.
California electricity rates: the reason solar still makes sense
Despite the NEM 3.0 headwind, California’s electricity rates are so high that solar still produces strong returns. As of April 2026, California’s average residential rate is around $0.34–$0.36/kWh — roughly 70 to 87 percent above the national average. Only Hawaii has higher residential rates in the US.
The rates by utility as of early 2026:
- Pacific Gas & Electric (PG&E) (Northern and Central California): rates have more than doubled since 2015. Residential customers on tiered plans can pay over $0.40/kWh in the upper tier.
- Southern California Edison (SCE) (Southern California outside LA): average residential rate around $0.34–$0.35/kWh as of January 2026. Peak time-of-use (TOU) rates reach $0.63/kWh in summer evenings.
- San Diego Gas & Electric (SDG&E) (San Diego region): the highest rates of the three, approaching $0.40/kWh on average. SDG&E customers have the fastest solar payback in California as a result.
These rates are rising. PG&E rates increased over 40 percent between 2022 and 2025 alone, driven primarily by wildfire mitigation costs, grid infrastructure upgrades, and regulatory compliance. That trend is expected to continue, which improves the long-term case for locking in solar savings now.
California solar incentives in 2026
Let’s clear up the most common misconception first: California does not offer a state income tax credit for solar. This comes up constantly in online searches, but it has never been true. California’s incentives work through exemptions and rebate programs, not a direct tax credit.
What is available in 2026:
- Property tax exclusion. The added home value from a solar installation is excluded from property tax assessment under California’s Active Solar Energy System Exclusion. A typical California solar system adds $15,000 to $25,000 in home value — without the exclusion, that could mean $150 to $250 per year in higher property taxes. Important deadline: this exclusion applies only to systems installed before January 1, 2027. That gives 2026 installers one of the last windows to claim it.
- Sales tax exemption. Solar equipment is exempt from California’s sales tax, reducing upfront installation cost.
- SGIP battery rebates — very limited in 2026. The Self-Generation Incentive Program (SGIP) provided substantial battery rebates and was one of California’s strongest solar incentives. All general market, equity, and equity resiliency SGIP budgets closed December 31, 2025. The only remaining pathway is the RSSE AB 209 budget for income-qualified households (under 80% of Area Median Income), which is fully reserved with waitlist-only applications and no confirmed reopening date. If you are income-qualified, it is worth applying to the waitlist, but do not plan your system economics around receiving this rebate.
- DAC-SASH program. The Disadvantaged Communities — Single-family Affordable Solar Homes (DAC-SASH) program offers up to $3/watt for qualifying low-income homeowners in designated disadvantaged communities served by PG&E, SCE, or SDG&E. Combined with SGIP equity programs for those who qualify, total incentives can cover most or all of installation cost for eligible households. Check eligibility using the CalEnviroScreen tool.
- SMUD rebates (Sacramento area). SMUD customers are not on NEM 3.0 and have access to separate rebate programs including battery incentives. Sacramento homeowners should check directly with SMUD before assuming their solar economics match PG&E customers.
- NEM 3.0 export adders (SCE customers). SCE offers temporary “ACC Plus” adders that slightly increase export compensation for the first five years. These started at $0.04/kWh in 2023 and decrease by 20 percent annually, so 2026 systems receive lower adders than earlier adopters — but they still provide a modest improvement over the base NEM 3.0 rate.
What your installer should cover vs. what you need to pursue yourself
A reputable installer should model NEM 3.0 export rates, your utility’s specific TOU plan, and battery sizing scenarios in their proposal. They should also flag whether you appear to qualify for DAC-SASH or SGIP equity programs. What they typically cannot do for you: submit your SGIP waitlist application (you or your installer do this jointly), confirm your property tax exclusion with your county assessor (automatic but worth verifying), or evaluate financing options across lenders. Ask every installer to show you a year-by-year cash flow projection, not just a payback period number — the assumptions behind that number matter as much as the number itself.
System costs and payback in 2026
As of April 2026, the average solar installation cost in California is around $2.51 per watt. A typical 9 kW residential system runs about $22,600 before incentives. After the property tax exclusion (which saves $150 to $250 per year, not a lump sum), your primary upfront offset is the sales tax exemption.
Payback periods depend heavily on your utility and whether you add battery storage:
- SDG&E customers with battery storage: typically 6 to 8 years, due to extremely high local electricity rates. San Diego customers get more value from every kilowatt-hour of self-consumption than almost anywhere else in the US.
- PG&E and SCE customers with battery storage: typically 8 to 10 years. CPUC analysis shows solar plus storage saves around $136 per month on average.
- Solar-only systems under NEM 3.0: typically 11 to 14 years. Without a battery, a significant portion of your solar output exports at the low NEM 3.0 rate, lengthening payback considerably. Solar-only can still make financial sense for some households, but the case is weaker than it was under NEM 2.0.
- Low-income households qualifying for DAC-SASH and SGIP equity programs: payback can be immediate or near-immediate since incentives can cover most or all installation costs.
Over 25 years, California homeowners with solar are looking at avoiding $40,000 to $60,000 in utility costs for a well-designed system — more for SDG&E customers given their rate trajectory.
Should you add battery storage?
Under NEM 3.0, yes for most homeowners. The peak electricity rates in California — $0.40 to $0.63/kWh during evening hours on TOU plans — make the value of storing your solar and discharging it at night extremely high. Every kilowatt-hour your battery shifts from the $0.08 export rate to peak self-consumption at $0.40+ saves roughly $0.32. Over a year, that adds meaningfully to your returns and significantly shortens payback.
Battery storage also provides resilience during California’s Public Safety Power Shutoff (PSPS) events — the preemptive grid shutdowns utilities use during high fire-risk weather. These have become a regular part of life in PG&E and SCE territory. A solar-only system provides no backup power during a PSPS event; a solar plus battery system can keep your essential loads running for one to two days.
The main constraint in 2026 is that SGIP rebates are no longer available to offset battery costs for most homeowners. A 13.5 kWh battery adds roughly $10,000 to $15,000 to your system cost. That extends the initial payback period but improves long-term returns given California’s rate trajectory.
Financing options in 2026
With the federal tax credit gone, financing California solar has changed. A few options worth knowing:
- Cash purchase. Maximizes long-term returns. No interest cost, you own the system outright, and all savings accrue to you directly.
- Solar loan. Allows ownership with no upfront cost. Interest rates in 2026 range from roughly 5 to 10 percent depending on term and credit. Compare carefully — longer loan terms lower monthly payments but significantly increase total cost.
- Prepaid lease (third-party ownership). The installer owns the system. You pay upfront at a discount (essentially accessing the commercial tax credit that third-party owners can still claim). This is increasingly popular in 2026 as a way to access what amounts to a 30 percent discount despite the residential credit expiring. You do not own the system, which can complicate home sales.
- Power purchase agreement (PPA). No upfront cost. You pay a per-kWh rate for the power your system produces, typically locked below your utility’s current rate. You do not own the system.
If you lease or enter a PPA, you do not qualify for the property tax exclusion or most other homeowner-facing incentives. Run the numbers on both paths carefully.
Bottom line: Is solar worth it in California in 2026?
Yes — but the answer is more nuanced than it was before NEM 3.0. California’s electricity rates are high enough that solar still produces strong long-term returns, but the design of your system matters more now. A system optimized for self-consumption with battery storage outperforms a simple export-oriented system by years in payback time.
SDG&E customers have the strongest case for solar of any utility customers in California, and arguably in the country. PG&E and SCE customers with battery storage still see compelling 8 to 10 year paybacks on systems that will run for 25 years. Solar-only systems are financially viable but take longer to pay back — the choice comes down to your specific usage pattern, roof, and how much you are willing to spend upfront.
The property tax exclusion deadline of January 1, 2027 is a real reason to act in 2026 if you have been on the fence. Getting at least three quotes from vetted installers and asking each one to model your specific utility, rate plan, and battery sizing scenario is the right first step.