Is Solar Worth It in California? The Real Math for 2026

California has the highest residential electricity rates in the continental United States at $0.33/kWh (EIA, March 2026). That single fact drives the entire solar calculation. High rates mean high savings per kilowatt-hour your panels produce. But the shift to NEM 3.0 in April 2023 changed the export math materially, and ignoring that change leads to wildly overoptimistic payback projections.

Here’s what the numbers actually look like in 2026.

What Californians pay for electricity

The statewide average residential rate is $0.33/kWh (EIA Electric Power Monthly, March 2026). But averages hide a lot. PG&E customers on tiered plans can pay $0.35–$0.46/kWh in higher tiers. Southern California Edison’s average reached $0.345/kWh effective June 2026 (SCE Rate Advisory). SDG&E customers now face a bundled average of roughly $0.457/kWh as of January 2026 (SDG&E Bundled Rate Alert).

Most California utilities now default to time-of-use (TOU) rate plans. That matters for solar because your panels produce the most electricity in the middle of the day, which under current TOU schedules is often the cheapest period. Peak pricing (4–9 PM) hits after solar production drops off.

The average California household uses about 550 kWh per month. At $0.33/kWh, that’s roughly $2,178 per year in electricity costs.

California’s solar resource

California averages 1,825 peak sun hours per year (NREL PVWatts). That’s strong by any measure, but varies by region.

Southern California (Los Angeles, San Diego, Imperial Valley) gets the most sun, often exceeding 1,900 peak hours. The Central Valley (Fresno, Bakersfield) is similarly strong. The Bay Area and coastal regions see more fog and marine layer, dropping closer to 1,700 peak hours. Northern California mountains are lower still.

A typical 7 kW system in Southern California produces roughly 10,500 kWh per year. In San Francisco, that same system produces closer to 9,100 kWh.

Available incentives

Federal Investment Tax Credit (ITC): The 30% residential solar credit (Section 25D) expired December 31, 2025, accelerated by the One Big Beautiful Bill Act signed July 4, 2025 (IRS Residential Clean Energy Credit). Homeowners who purchase and install a system in 2026 receive no federal credit. Systems installed on or before December 31, 2025, still qualify if you have the tax liability. Lease and PPA customers are unaffected: the leasing company claims the commercial credit (Section 48E), which runs through 2027, and passes a portion through as lower rates.

State incentives: California has no statewide upfront solar incentive (DSIRE, 2026). The former California Solar Initiative rebate program is long closed.

Self-Generation Incentive Program (SGIP): This is a battery storage incentive, not a solar panel incentive. SGIP provides rebates for battery systems, with higher rebates in fire-threat districts and for low-income households. If you’re adding a battery (which NEM 3.0 makes much more attractive), SGIP can offset $200–$1,000/kWh of battery capacity depending on your eligibility tier (EnergyScout SGIP guide, 2026). Note that some higher-tier funds are currently fully reserved; check CPUC’s SGIP portal for current availability.

Property tax exemption: California excludes solar energy systems from property tax assessment. Your home value goes up; your property tax stays the same.

Sales tax exemption: Solar equipment purchases are exempt from California state sales tax.

NEM 3.0: the big change

This is the most important section of this article. If you’re evaluating California solar in 2026, NEM 3.0 (technically “Net Billing”) defines your financial return.

Under the old NEM 2.0, your utility credited exported solar at the full retail rate. Send a kilowatt-hour to the grid at 2 PM, get $0.28–$0.35 credited against your evening usage. That math was extremely favorable.

NEM 3.0, effective April 2023, changed export credits to an “avoided cost” rate that averages roughly $0.05–$0.08/kWh, depending on time of day and month. That’s 75–80% less than the retail rate you’d save by using the electricity yourself.

What this means in practice: a kilowatt-hour you consume directly saves you $0.33+. A kilowatt-hour you export earns you $0.05–$0.08. The gap between self-consumption and export is now enormous.

The practical effect: NEM 3.0 makes batteries dramatically more valuable. Storing midday solar production and using it during evening peak hours (when you’d otherwise buy at $0.35–$0.50/kWh) can nearly double your effective savings compared to exporting. A solar-plus-battery system under NEM 3.0 can outperform a solar-only system under NEM 2.0, but the upfront cost is $8,000–$15,000 higher.

Realistic payback period

Let’s run the math on a typical California installation.

Assumptions: 7 kW system, $25,000 gross cost, no federal ITC for a 2026 owner-purchased installation (net cost = $25,000), 70% self-consumption rate (no battery), 30% exported at $0.07/kWh average, $0.33/kWh retail rate (EIA, March 2026), 1,825 peak sun hours.

Simple payback: roughly 9.7 years on the net cost ($25,000 ÷ ~$2,570). The ITC expiration is the dominant factor: the same system had a ~7.9 year payback when the 30% credit was available. Higher 2026 electricity rates help offset some of that, but the credit loss adds roughly two years.

Add a battery and push self-consumption to 90%, and the payback shifts to roughly 12–14 years (higher upfront cost, only partially offset by higher annual savings). Without a battery in a NEM 3.0 world, you’re leaving $600–$900/year on the table in low-value exports.

With electricity rate increases well above historical norms (California utilities raised rates 8–15% in recent rate cases), year-10 savings will be substantially higher than year-1, tightening the effective payback.

Financing options

Cash purchase: Pays the most over the system’s life because you avoid both interest and a contract. There is no federal credit to claim on a 2026 install, so the full gross cost is your net cost. One California wrinkle: under NEM 3.0 the low export rate makes a battery central to the economics, so most cash buyers here are paying for panels plus storage, and the SGIP battery rebate (covered above) offsets part of that storage cost rather than the panels.

Solar loan: Common at 5–9% APR over 10–25 years. Monthly payments often match or slightly exceed the electricity bill savings in the early years, then shift positive as rates rise. Make sure you compare the total interest paid against the total electricity savings. Some 25-year loans cost more in interest than the system saves.

HELOC: Lower rates than solar loans (typically 7–9% in California’s current rate environment), and the interest may be tax-deductible if used for home improvement. Shorter terms mean higher payments but less total interest.

Lease/PPA: You don’t own the system. A third party installs and owns the panels; you buy the electricity at a set rate (usually lower than the utility rate). No upfront cost. Notably, the leasing company can still claim the commercial credit (Section 48E) through 2027 and typically passes a portion through as lower electricity rates, so lease and PPA customers effectively benefit from federal incentives that owner-purchasers no longer have. Savings per kWh are real but smaller than ownership, and the system does not add to your home value in the same way.

The honest verdict

At 2026 electricity rates ($0.33/kWh statewide average), a 7 kW owner-purchased system at typical gross cost shows roughly 9.7 years to payback on first-year savings alone. That is a workable figure given a panel lifetime of 25 to 30 years: the back half of the system’s life produces pure savings with no offset cost. California’s high rates and 1,825 peak sun hours still do real work in the math; the property and sales tax exemptions remain intact; and lease or PPA customers still benefit indirectly from the commercial credit (Section 48E) through 2027, which typically passes through as lower electricity rates.

The credit picture did change: the 30% federal credit (Section 25D) expired December 31, 2025, for owner-purchased systems, which adds roughly two years to a typical payback compared to prior projections. Anyone quoting a NEM 2.0 era payback (5–6 years) or a post-30%–ITC payback (7–9 years) for a new 2026 owner-purchased installation is working from outdated inputs. But a 9.7-year payback over a 25–30 year system life means 15 to 20 years of savings after breakeven, sized against California’s rate trajectory.

At California’s rate level, even weaker scenarios sometimes show positive math over a 25-year panel lifespan, though the margin narrows and financing terms matter more.

FAQ

How much does solar cost in California in 2026?

A typical residential system (6–8 kW) costs $22,000–$28,000 gross (market data, June 2026). For a system installed in 2026 by an owner-purchaser, there is no federal tax credit, so the gross cost is also the net cost. California’s costs run about 10–15% above the national average due to higher labor costs and permitting requirements. Prices vary significantly by installer and region.

Does California have a state solar tax credit?

No. California does not offer a state-level solar tax credit or upfront rebate (DSIRE, 2026). The 30% federal credit (Section 25D) expired December 31, 2025, for owner-purchased systems. The remaining financial incentives for 2026 are the property tax exemption, the sales tax exemption, and the SGIP program for battery storage.

Is solar still worth it after NEM 3.0?

The math is more demanding in 2026. Under NEM 3.0, exported solar earns $0.05–$0.08/kWh instead of the full retail rate. This makes batteries much more valuable, since storing and self-consuming your solar is worth 4–6x more than exporting at current CA rates. A 2026 owner-purchased solar-only system at typical cost shows roughly a 9–10 year payback at statewide average rates; actual payback depends on your utility, rate plan, and self-consumption ratio.

Is the federal solar tax credit still available in 2026?

Not for most homeowners. The 30% residential solar credit (IRS Section 25D) expired December 31, 2025, accelerated by the One Big Beautiful Bill Act (IRS). Homeowners who purchase and install a system in 2026 receive $0 in federal credits. Two exceptions: (1) systems fully installed and placed in service on or before December 31, 2025, still qualify if you have the tax liability; (2) lease and PPA customers benefit indirectly because the leasing company can claim the commercial credit (Section 48E), which runs through 2027, and typically passes some savings through as lower electricity rates.

How long do solar panels last in California?

Most panels carry a 25-year warranty and continue producing electricity for 30–35 years with gradual degradation (roughly 0.3–0.5% per year). After 25 years, a typical panel still produces 85–90% of its original output. The inverter typically needs replacement once during the system’s life, at a cost of $1,500–$3,000.

Should I add a battery with solar in California?

Under NEM 3.0, a battery makes the math significantly better for most households. Without a battery, you export midday solar at $0.05–$0.08/kWh. With a battery, you store that energy and use it during peak hours when you’d otherwise buy at $0.35–$0.50/kWh. The battery adds $8,000–$15,000 to system cost (before SGIP rebates), but increases annual savings by $600–$1,200 in most cases.

Comparing other states

Solar math shifts with each state’s electricity rates, sun hours, and net metering rules. See the state-by-state solar comparison to weigh your options side by side.

Data sources: electricity rates (EIA Electric Power Monthly, March 2026; SCE Rate Advisory June 2026; SDG&E Bundled Rate Alert January 2026), federal ITC status (IRS Residential Clean Energy Credit, June 2026; One Big Beautiful Bill Act, July 2025), incentives and net metering (DSIRE, 2026; CPUC), battery rebates (EnergyScout SGIP guide, 2026), sun hours (NREL PVWatts). Energy rates and incentive programs change over time; verify current figures for your utility and state before deciding.