September 19, 2023

What is NEM 3.0 and How Will it Impact California Solar Owners?

What is Net Energy Metering (NEM)?

Net Energy Metering describes the structure of a utility bill for homeowners with solar. The utility will net out energy charges from the grid with excess solar energy sent back to the grid, usually over a 1-year period.

If a customer’s solar system generates more energy than the home consumes (say, on a sunny day), then that excess energy is sent back to the grid. The homeowner earns credits for the excess energy. This is offset when a customer pulls energy from the grid (say, in the evening) and is charged for that energy. 

For customers who overproduce, and have remaining credit at the end of their year, the utility will pay the customer for those credits at a wholesale rate. If a customer consumes more energy than they produce, they’ll settle up with the utility at the end of the year for their remaining balance.

Net metering is beneficial because solar owners can offset months with higher energy draw by using credits from higher-producing solar months. 

What is NEM 3.0?

NEM 3.0 is a new version of net energy metering policy proposed by the CPUC. Released on November 10, 2022, there are five major takeaways for prospective solar customers.

5 things to know about NEM 3.0
  1. It features a major reduction in the net metering value of solar electricity
  2. There are no new charges or fees, commonly known as “solar taxes”
  3. Pairing solar with battery storage will be more beneficial under NEM 3.0
  4. Solar customers that submit their interconnection application before April 14, 2023 may be grandfathered into NEM 2.0 for 20 years
  5. Solar owners that are grandfathered into NEM 2.0 will be able to add battery storage later and remain on NEM 2.0
  6. The first and most critical point is the changing rate structure that will reduce the value of solar energy.
Lower solar export rates

The biggest change from NEM 2.0 to NEM 3.0 is the rate at which solar owners would be compensated for the excess electricity they put on the grid.

Under most net metering policies, including NEM 2.0, solar owners are credited for the full retail value of each kWh of electricity they put on the grid. In this one-to-one exchange, every kWh you put onto the grid (export) offsets a kWh that you pull off (import).

Under the NEM 3.0 proposal, the value of solar exports would no longer be based on retail rates. Export prices would be based on the “Avoided Cost Calculator” and would vary by the hour based on Time of Use rates.

Since this structure is even more complicated than it sounds, here’s a chart to summarize how people would be paid for their excess solar production. The gray bars indicate what homeowners pay per kWh for grid electricity and the black bars indicate what solar owners would be credited per kWh for excess solar production.

nem 3.0 import vs export prices

Clearly, they are not the same, and the price of exports is much lower than the price for imports.

“The solar industry and clean energy supporters are still reviewing the CPUC’s proposed decision, but based on an initial analysis, it would cut the average export rate in California from $0.30 per kilowatt to $0.08 per kilowatt and make those cuts effective in April 2023, resulting in a 75% reduction in value of exports,” the California Solar and Storage Association (CALSSA) said in a release.

In a silver lining, net billing under NEM 3.0 would still be settled on an annual basis instead of a monthly basis, as proposed by utilities. The annual cycle is considered more favorable to solar owners.

No new solar taxes

The proposed new rate structure would substantially eat into solar savings and drag out the payback period of going solar, but there is a shred of good news in the CPUC proposal.

The previously proposed a series of charges and fees for solar owners — casually known as “solar taxes” — are not in the current NEM 3.0 proposal. 

These fees were, at one time, expected to add around $60 a month to solar owners’ utility bills. For now, at least, they seem to be off the table.

A push for pairing solar and battery

A major theme in the NEM 3.0 proposal is a push for pairing solar with battery storage. That’s because the issue isn’t generating solar electricity in California; it’s storing and using it since peak solar production doesn’t align with peak energy consumption.

If we go back to our handy import/export price graph, you’ll see that export prices skyrocket from 7-9 pm. That’s because energy demand is peaking while solar generation is winding down for the night — which is a problem throughout the state.

nem 3.0 import vs export price

In fact, the proposed export rates are as high as $3.32 cents per kWh during peak demand hours in September. By adding battery storage, homeowners can store solar electricity generated during the day and push it on the grid in the evening when export prices are at their highest.

Initial analyses of the NEM 3.0 proposal suggest that the return on investment for solar and battery storage will be roughly equal to the return on investment of solar alone. With that in mind, pairing solar and battery becomes more compelling because you get the same return on investment PLUS the additional benefits of having battery backup for power outages.

It’s also important to note that the NEM 3.0 proposal contains $900 million in new funding for the Self Generation Incentive Program (SGIP), which provides battery storage rebates for SCE, PG&E, SDG&E and SoCalGas customers.

20-year grandfathering period for NEM 2.0

Another crucial part of the NEM 3.0 proposal is that the 20-year grandfathering period for NEM 2.0 remains intact. It was proposed, at one time, that the NEM 2.0 grandfathering period would be cut to 10 years. So to see the grandfathering period remain at 20 years is a good thing for solar owners.

That means solar customers that submit a complete interconnection application before NEM 3.0 goes into effect (most likely April 14, 2023) can remain under the much more favorable NEM 2.0.

According to CALSSA, a complete interconnection application includes a:

  • Signed contract
  • Single Line Diagram (SLD)
  • Contractors State License Board disclosure (CSLB)
  • Consumer protection guide
  • Oversizing attestation (if applicable)

It’s worth noting that you do not need a permit, a completed install, or a completed inspection, and there is no deadline to complete the actual construction of the solar system as long as the paperwork is filed and accurate. However, modifications that increase the size of the system made after the deadline may cause you to lose your NEM 2.0 status.

There is still time to start a solar project and submit an interconnection application before NEM 3.0 takes effect. But it is strongly encouraged not to wait for the last minute as delays and corrections can occur.

NEM 2.0 customers can add battery storage later

Another important nugget of the NEM 3.0 proposal is that NEM 2.0 can add battery storage in the future and retain their NEM 2.0 status.

There are two common scenarios where this comes into play:

  1. If you currently have a solar system in California, you won’t be transitioned into NEM 3.0 if you add battery storage after April 14, 2023
  2. If you are grandfathered into NEM 2.0 by submitting an interconnection application for a solar system without battery before April 14, 2023, adding battery storage later will not change your NEM 2.0 status

There are several advantages to pairing solar and battery in California, so being able to add battery and remain in NEM 2.0 is a big win for Californians.

The Utilities’ Perspective

Utilities are responsible for providing reliable, safe, and affordable energy to all users of the electric grid. They have been concerned with potential cost shifts from solar customers to non-solar customers including many low-income customers who are less financially capable of adopting distributed energy resources including onsite solar and energy storage. 

Further, utilities cite their proposal as an incentive for customers to pair storage with their home solar system.

As outlined in their initial proposal, NEM 3.0, “provides a storage incentive through non-tiered cost based TOU rates and ensures customers pay for costs incurred to serve them through a customer charge.”

In practice, this means that customers who add a battery storage system will be able to avoid some of the higher rates associated with pulling power from the grid in the evening, when Time-Of-Use (TOU) rates are higher. 

When Will NEM 3.0 Take Effect?

*Update: CPUC published the new NEM 3.0 proposal on November 10, 2022 and has scheduled a vote for December 15, 2022. Based on the timeline below, utility customers of PG&E, SCE, and SDG&E have until April 14, 2023 at the earliest to submit interconnection paperwork and be grandfathered into NEM 2.0.

The NEM 3.0 timeline is expected to go as follows:

  • California Public Utilities Commission (CPUC) released the draft proposal on November 10, 2022
  • The release kicked off a minimum 30 day public comment period
  • CPUC is scheduled to vote on the proposal on December 15, 2022
  • Following the vote, there is a 120 day grandfathering window for NEM 2.0
  • NEM 3.0 takes effect in April 14, 2023 at the earliest

Based on this tentative timeline, Californians would have until April 14, 2023 to install and file for interconnection to be grandfathered into NEM 2.0.

Will NEM 3.0 Pass?

Whether NEM 3.0 will pass or not is up to the California Public Utilities Commission.

The vote is scheduled December 15, 2022 and it’s expected that there will be minor changes to the proposal. The final agreement for the next iteration of Net Energy Metering will likely lay in a middle ground between the various proposals from all parties intervening at the California Public Utilities Commission (CPUC).

Wherever NEM 3.0 lands, however, it will not be as beneficial for solar owners as NEM 2.0.

If you would like to voice your opinion on this matter:

  • Leave a written public comment for CPUC
  • Make a written or spoken public comment during a CPUC meeting
  • Brush up on 10 reasons why CPUC should reject the utility-proposed NEM 3.0

With that in mind, California homeowners are encouraged to explore solar today and lock in their rate plan under NEM 2.0.

NEM 3.0 frequently asked questions

Is NEM 3.0 retroactive?

No, NEM 3.0 is not retroactive. Based on the current timeline, this new net metering policy will only apply to homeowners that submit their solar interconnection applications after April 14, 2023. Homeowners that submit a complete interconnection application prior to NEM 3.0 taking effect will be grandfathered into NEM 2.0 for 20 years.

Has NEM 3.0 been approved?

No, NEM 3.0 is currently a proposal and has not been approved. The California Public Utilities Commission (CPUC) has scheduled a vote for December 15, 2022, the results of which will decide if NEM 3.0 is approved.

What does NEM 3.0 mean for solar?

If passed, NEM 3.0 would drop the export rate for residential solar electricity by around 75%, from an average of 30 cents per kWh to 8 cents per kWh. Lower export prices would increase the payback period for solar owners under NEM 3.0 and decrease the overall savings.

This effectively increases the value of pairing battery storage with solar. Under the proposed rate structure, the return on investment for solar and battery is similar to that of solar only, but with the added benefits and independence of having a backup power source.

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