Why Batteries Are a Luxury Item: NEM 2 vs NEM 3 and Why More Panels Beat Batteries

The Battery Storage Reality Check

Battery storage systems are heavily marketed as essential for solar installations, but the financial reality is stark: For NEM 2 customers, batteries are a luxury item that don't pay back. For NEM 3 customers, you're far better off spending that money on more solar panels and changing your usage patterns.

In this guide, we'll break down exactly why batteries don't make financial sense for most customers, and show you the smarter alternatives that actually pay back.

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NEM 2: Why Batteries Don't Pay Back

If you're on NEM 2 (Net Energy Metering 2.0), you have one of the best solar programs in the country. Here's why batteries are a luxury, not an investment:

How NEM 2 Works

Under NEM 2, your excess solar production is credited to your account at full retail rate:

• You produce excess power during the day → Get credits at $0.28-$0.40/kWh
• You use power at night → Draw from credits at the same rate
• 1:1 credit exchange means your solar production is worth the same whether you use it immediately or send it to the grid
• Credits roll over month-to-month and are reconciled annually

The Battery Math for NEM 2

Let's look at a real example:

The Reality: Under NEM 2, batteries provide zero additional financial benefit. You're paying $15,000+ for backup power during outages—a luxury, not an investment.

When Batteries Make Sense for NEM 2

Batteries only make sense for NEM 2 customers if:

• You need backup power during outages (medical equipment, home office, etc.)
• You value the luxury of having power during blackouts
• You understand it's not an investment—it's a $15,000+ backup generator

If you don't need backup power, skip the battery and save $15,000+.

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NEM 3: The Game Changed, But Batteries Still Don't Pay

NEM 3 (Net Billing Tariff) dramatically changed the economics of solar. But here's the surprising truth: Batteries still don't pay back for most customers. Instead, you're better off with more panels and smarter usage patterns.

How NEM 3 Works

Under NEM 3, the economics are completely different:

• Export credits: You get paid $0.05-$0.08/kWh for excess production (wholesale rate)
• Import charges: You pay $0.28-$0.40/kWh when you draw from the grid (retail rate)
• The gap: 4-8x difference between what you're paid vs. what you pay
• Result: Excess production is worth much less, making self-consumption critical

The Battery Math for NEM 3

Let's compare batteries vs. more panels + usage changes:

The Winner: More Panels + Usage Changes

• 3.4 year payback vs. 11.6 year payback
• $4,380/year value vs. $1,288/year value
• 25+ year lifespan vs. 10-15 year lifespan
• No degradation concerns vs. battery capacity loss over time

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How to Maximize Solar Usage During the Day

The key to making NEM 3 work is self-consuming as much solar production as possible. Here's how to shift your usage to daytime hours:

1. Electric Vehicle Charging

The Opportunity: EVs are one of your biggest electricity users, and they're perfect for daytime charging.

• Current pattern: Charge at night (8 PM - 6 AM)
• Better pattern: Charge during day (10 AM - 4 PM) when solar is producing
• Savings: 4,000-8,000 kWh/year shifted from grid to solar
• Value: $1,280-$2,560/year in additional savings

How to Do It:

• Set EV charger to start at 10 AM (when solar production begins)
• Use smart charger or vehicle scheduling
• Charge during work hours if you're home
• Pre-cool your home before peak hours (3-4 PM)

2. Pool Pump and Pool Heater

The Opportunity: Pool equipment is a massive electricity user, and it can easily run during the day.

• Current pattern: Run pool pump at night (off-peak rates)
• Better pattern: Run pool pump during day (10 AM - 4 PM) when solar is producing
• Savings: 2,000-4,000 kWh/year shifted to solar
• Value: $640-$1,280/year in additional savings

How to Do It:

• Install timer on pool pump (set to run 10 AM - 4 PM)
• Run pool heater during peak solar hours
• Pre-heat pool in morning, maintain during day

3. Air Conditioning Pre-Cooling

The Opportunity: Cool your home during the day when solar is producing, reducing evening AC usage.

• Current pattern: AC runs hardest 4-9 PM (peak hours, no solar)
• Better pattern: Pre-cool home 12-4 PM (solar producing), reduce AC 4-9 PM
• Savings: 1,000-2,000 kWh/year shifted to solar
• Value: $320-$640/year in additional savings

How to Do It:

• Set AC to 72°F during peak solar hours (12-4 PM)
• Set AC to 76°F during peak grid hours (4-9 PM)
• Use smart thermostat with scheduling
• Close blinds during afternoon to retain cool air

4. Water Heater and Appliances

The Opportunity: Run high-energy appliances during peak solar production.

• Dishwasher: Run during day (use delay start for 12 PM)
• Washing machine: Run during day (10 AM - 4 PM)
• Dryer: Run during day (solar producing)
• Water heater: Pre-heat during day, reduce evening usage

5. Home Office and Electronics

The Opportunity: If you work from home, maximize daytime usage.

• Run computers, monitors, and office equipment during day
• Charge laptops, phones, and devices during solar hours
• Run server equipment, network gear during day

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Real-World Example: More Panels vs. Battery

Let's look at a real Orange County home to see the difference:

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Why Batteries Don't Pay Back: The Hidden Costs

Beyond the upfront cost, batteries have hidden expenses that make them even less attractive:

1. Capacity Degradation

• Batteries lose capacity over time (typically 2-3% per year)
• After 10 years: 70-80% of original capacity
• After 15 years: 55-70% of original capacity
• Result: Your $15,000 battery becomes less valuable every year

2. Replacement Costs

• Battery lifespan: 10-15 years
• Replacement cost: $12,000-$15,000 (in 10-15 years)
• Result: You'll need to replace the battery 1-2 times over 25 years
• Total cost over 25 years: $27,000-$30,000

3. Limited Daily Cycles

• Most batteries are rated for 1 full cycle per day
• If you need more capacity, you need multiple batteries
• 13.5 kWh battery = ~10 kWh usable (after depth of discharge limits)
• Result: Limited ability to shift usage

4. No Additional Production

• Batteries don't produce electricity—they only store it
• You're still limited by your solar production
• More panels = more production = more value
• Result: Panels create value; batteries just shift it

5. Maintenance and Monitoring

• Batteries require monitoring and maintenance
• Software updates, system checks
• Potential warranty issues
• Result: Ongoing attention and potential costs

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When Batteries Actually Make Sense

Batteries do make sense in specific situations:

1. Frequent Power Outages

• If you experience regular blackouts (medical equipment, home office, etc.)
• Battery provides backup power during outages
• This is a luxury/necessity, not an investment

2. Off-Grid or Remote Locations

• If you're completely off-grid
• Battery is essential for nighttime power
• Different economics than grid-tied systems

3. Time-of-Use Rate Optimization (Rare)

• If you have extreme TOU rate differences (rare in California)
• If peak rates are 5x+ higher than off-peak
• Most California TOU rates don't justify battery cost

4. You Have Excess Budget

• If you've already maxed out your roof with panels
• If you have extra budget and want backup power
• Understand it's a luxury, not an investment

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The Smart Strategy for NEM 3

Here's the optimal approach for NEM 3 customers:

Step 1: Maximize Your Solar System

• Install as many panels as your roof can fit
• Oversize your system to account for future usage (EV, pool, etc.)
• More production = more self-consumption opportunity
• Goal: Produce 120-150% of current usage

Step 2: Change Your Usage Patterns

• Shift high-energy activities to daytime (10 AM - 4 PM)
• EV charging during solar hours
• Pool pump during solar hours
• AC pre-cooling during solar hours
• Run appliances during day
• Goal: Self-consume 80%+ of solar production

Step 3: Monitor and Optimize

• Track your solar production vs. usage
• Identify opportunities to shift more usage to daytime
• Adjust patterns based on seasonal changes
• Goal: Minimize exports (low value) and grid purchases (high cost)

Step 4: Consider Battery Only If...

• You've maxed out panels
• You've optimized usage patterns
• You still have excess production
• You need backup power
• And you understand it's a luxury, not an investment

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The Bottom Line

For NEM 2 customers: Batteries are a luxury item that don't pay back. Skip the battery unless you need backup power.

For NEM 3 customers: Batteries still don't pay back. Instead:

• Spend money on more panels (3-4 year payback vs. 11+ year payback)
• Change your usage patterns (charge EV during day, run pool pump during day, pre-cool home)
• Maximize self-consumption (80%+ of production used directly)
• Minimize exports (low value under NEM 3)

The math is clear: More panels + smart usage patterns beat batteries every time. Don't let battery marketing convince you otherwise.

Ready to maximize your solar investment? Get a free assessment that shows you exactly how many panels you need and how to optimize your usage patterns for maximum savings—without the battery markup.