California now values solar exports at roughly 5-8 cents per kilowatt-hour. Here's why.

California's shift to net billing in April 2023 fundamentally changed the economic case for rooftop solar. Excess electricity homeowners send to the grid now earns roughly 5 to 8 cents per kilowatt-hour on average, compared to the 28 to 35 cents they received under the prior system. That's a 75 percent reduction that has reshaped solar economics and forced manufacturers to compete on install costs and system efficiency rather than rate-stacking alone.

The new compensation structure relies on the avoided cost calculator, a tool the California Public Utilities Commission created to value solar exports based on what utilities would pay to buy that electricity elsewhere—a wholesale valuation rather than a retail one. Understanding this mechanism reveals why battery storage has become economically important for new solar owners and why export rates differ dramatically throughout the day.

How the avoided cost calculator values solar exports

The avoided cost calculator estimates what it costs a utility to generate or purchase electricity at any given moment. When a homeowner's solar panels send power to the grid, the calculator assigns a value based on that moment's wholesale costs. This approach differs fundamentally from the previous net metering system, where solar customers received credits at the retail rate they would otherwise pay for electricity.

Three primary factors influence avoided cost calculations. Time of day matters most—exported power is worth more during peak demand periods, typically weekday afternoons and early evenings in summer, when wholesale prices spike. Fuel prices also drive valuations: natural gas costs, renewable energy supply, and grid congestion all affect what utilities pay for emergency purchases. Operational costs such as transmission losses and infrastructure maintenance factor in as well.

The California Public Utilities Commission updates the avoided cost calculator every two years with predictions spanning nine years ahead. If a homeowner interconnects during those two years, their export rates lock in at the values the calculator set during that period, protecting them from sudden drops if energy markets shift.

The 576 rate combinations and hourly variation

Residential solar customers do not receive a single export rate. Instead, the avoided cost calculator generates 576 possible rates for each utility—one for every combination of month, hour of day, and weekday or weekend. A solar export in February at 3 p.m. on a Wednesday earns a different rate than one in July at 6 p.m. on a Saturday.

This granularity means solar customers' financial returns depend on when their panels produce excess power. Daytime exports, when grid-wide solar generation peaks and wholesale prices plummet, often earn only 1 to 2 cents per kilowatt-hour. Evening exports during summer peak demand can exceed 50 cents per kilowatt-hour in the most valuable hours, though such high rates occur infrequently. An annual average for a typical household usually falls in the 5 to 8 cents per kilowatt-hour range, depending on location and season.

Battery storage and shifting export value

The 75 percent reduction in export compensation has created an unexpected advantage for battery-backed solar systems. The reason is economic: a battery allows homeowners to store daytime solar energy and export it during evening peak hours, when avoided cost rates are substantially higher.

Under traditional net metering, a battery provided value mainly by reducing reliance on grid power during outages or peak rate hours. Under net billing, a battery essentially allows homeowners to time-shift their exports and capture more lucrative rates. A kilowatt-hour of solar energy exported at 3 p.m. might earn 2 cents; the same kilowatt-hour stored and exported at 6 p.m. could earn 15 cents or more. That flexibility has compressed payback periods for solar-plus-battery systems to between 7 and 9 years, faster than solar-alone systems which now require 9 to 14 years to break even.

The ACC Plus incentive and interconnection timing

The California Public Utilities Commission recognized that the avoided cost calculator's lower valuations could slow residential solar deployment and created a temporary incentive called ACC Plus. Residential customers in PG&E and SCE territories who interconnected before the end of 2027 receive slightly higher bill credits for exported energy for their first nine years, an adder worth less than one cent per kilowatt-hour but designed to improve economics during the program's early phase.

For PG&E customers who interconnected in 2024, that adder equals about 1.76 cents per kilowatt-hour, a modest but meaningful boost above the base avoided cost rate. For a customer who interconnected in April 2023, the ACC Plus adder expires nine years later. The program accepts new interconnection applications through the end of 2027, with each customer receiving the adder for nine years from their interconnection date. This creates a deadline that affects both financial returns and system design; a solar installation before the ACC Plus cutoff will carry higher export rates for nine years than one installed after.

Monthly bills and the shift away from annual true-ups

Under NEM 2.0, homeowners received monthly credits for excess exports and a true-up statement once yearly, when the utility cashed out any surplus credits at avoided cost rates. The net billing tariff changed this to monthly settlement, with export credits applied to the bill each month rather than accumulated annually. This approach eliminates the annual surprise of a cash-out at dramatically lower avoided cost rates.

Homeowners also must enroll in specific time-of-use rate schedules that charge less during off-peak hours, typically late night and early morning. These rates, sometimes called electrification TOU plans, encourage adoption of electric vehicles and heat pumps by offering the lowest rates when those devices operate. The tradeoff is that peak-period electricity costs more, making daytime home electricity use more expensive and further incentivizing solar self-consumption over grid exports.