On December 15, 2022, the California Public Utilities Commission (CPUC) passed the new net metering policy, NEM 3.0. While the benefits of the outcome are up for debate between CPUC members and solar industry-leaders and customers, NEM 3.0 will go into effect on April 14, 2023.
In this post, we’ll give a brief history of Net Energy Metering (NEM) and what the future may hold for the clean energy policy. We’ll also address some of the most frequently asked questions by homeowners regarding NEM 3.0 in California, how it will impact current solar customers under NEM 1.0 and NEM 2.0, and what impact it will have on new solar customers moving forward.
What is Net Energy Metering?
California’s NEM policy has undergone several changes over the years. The original NEM policy was implemented in 1996 and allowed homeowners with solar panels to sell excess electricity back to the grid at a retail rate. This policy was successful in encouraging the adoption of solar energy in California and contributed to the state’s status as a leader in solar energy production.
NEM offered a valuable incentive to homeowners who were interested in installing solar energy systems but uncertain about whether the investment would pay off. Many consumers began to see the value in installing solar power systems after learning about their ability to “sell” the surplus of energy produced back to the utility company. Paired with additional state and federal incentives and predictable, locked-in rates on financed solar, the adoption of rooftop solar in California naturally increased.
NEM 1.0 successfully persuaded homeowners to switch to solar power and by 2016, the 5% cap on how much residentially produced energy could be sold back to utility companies neared its limit. As a result, the California Public Utility Commission (CPUC) implemented the successor program, NEM 2.0, on July 1, 2017.
One of the major changes that NEM 2.0 brought about was the requirement for all solar energy customers to switch to Time-of-Use (TOU) rates. These rates dictate the price utilities must pay for surplus electricity depending on when it is generated. Utilities traditionally charged customers higher rates during peak demand times (like late afternoons), and lower rates during the off-peak hours when people typically used less energy. Under NEM 2.0, you received almost as much as the retail rate with a small amount deducted to help pay for the power grid.
What Impact Will NEM 3.0 Have on NEM 1.0 and NEM 2.0 Customers?
If you installed a solar system under NEM 1.0 or NEM 2.0, there are no changes to your service agreements and you may continue to enjoy the same benefits as before. All the benefits of NEM 1.0 and NEM 2.0 have been grandfathered into the new system for existing solar customers, securing your investment for 20 years from the date you received Permission to Operate (PTO) from your utility company after installing solar panels.
If you’re a homeowner in California who wants to add additional solar panels, you can revise your existing solar system by up to 10% without changes. Any expansion exceeding 10% will require a new application for NEM 3.0. You will be able to add battery storage, with no changes to your existing plan through your utility company.
Can Homeowners Still Apply for NEM 2.0?
The documentation states that all accurately completed interconnection application packages must be submitted to your utility company by 5 p.m. PST on April 13, 2023 in order for you to qualify for NEM 2.0. Once you have an approved application, you will remain eligible as long as you have your final building permit within 3 years of your approval date.
Keep in mind that if you wait until the last minute and any changes are needed on the application, you may run into qualification issues. We recommend getting all applications submitted by the end of March to allow for any changes or updates needed on your application. Also, be aware that it takes time to properly prepare your application, so we encourage all homeowners to connect with a solar energy provider early to evaluate and submit the application on time.
At Solar Technologies, our solar consultants are up-to-date on all the requirements needed to qualify for NEM 2.0, so you can take comfort in knowing we’ll prepare and submit all the necessary documentation on your behalf.
How Will NEM 3.0 Be Different?
NEM 3.0 was finalized on December 15, 2022 and includes several changes from previous net metering plans, including the removal of fixed charges and other added fees. Simply put, NEM 3.0 DOES NOT impose a punitive “solar tax.” However, there are changes that will impact the amount homeowners can recoup when selling excess energy to the utility company. This will ultimately impact your savings potential.
NEM 3.0 will tie the value of credits for net exports to California’s Avoided Cost Calculator (ACC). The ACC is a set of formulas that tries to estimate the value of solar generation for the whole electrical grid and other distributed energy resources by modeling how much money a utility would save if it didn’t have to generate or purchase an extra megawatt-hour’s worth of energy.
By 2023, the anticipated result of this program will be an average net export rate of about 7.5 cents/kWh (across all three California utility companies) for any solar electricity that doesn’t power your home and is “exported” back to the grid. The first five years of NEM 3.0 implementation will include a reduction in rates that includes a small added value: an export credit adder for PG&E and SCE.
Participants in the NEM 3.0 program who join sooner rather than later will experience higher export rates and savings because of this adder. The adder value will be reduced by 20% per year, until the end of the five-year period.
All NEM 3.0 residential customers who go solar in the first five years of this new program will have higher export credits locked in for nine years. While commercial solar customers won’t get an adder, their export compensation term is locked in for nine years.
The overall value of the locked-in export rate credits that are given to NEM 3.0 customers for the first five years will be based on the year they joined the program. For example, participants who sign up in the second year of a program will receive an export rate credit adder 20% lower than those who started participating during the first year.
After the first five years of the program, there will be no further export compensation available for nine years. Instead, the CPUC will set the ACC-based export value each year.
Another significant change in NEM 3.0 will affect the netting period, which is the amount of time over which utilities measure clean energy imports or exports. Generally, longer netting periods have been better for solar power customers because they can maximize their use of the offsets. NEM 3.0 will instead use instantaneous netting, which means interval netting approximately every 15 minutes. This will cause NEM customers to have more of their electricity registered as exports at the lower ACC value.
This new program will provide incentives to customers who use solar-generated electricity with other energy-efficient appliances and technologies, such as electric vehicles or home battery storage because they can generate more savings under this new program.
How to Get the Most Out of Solar + Storage Under NEM 3.0
The timing of your clean energy exports is a major factor in determining their value. The most valuable export and retail rates will be during the evening hours. During the night, your solar battery can kick on and power your home to avoid high retail rates. Any excess energy it generates is sent back to the grid to save money while you sleep.
Many homeowners continue to find that installing a solar system is a smart financial move since it’s a proven way to minimize electricity costs. Plus, when it’s integrated with battery storage, it can provide reliable energy even when the electrical grid goes down. Plus, possible new funding for the Self Generation Incentive Program (SGIP) (which provides battery storage rebates to SCE, PG&E and SDG&E customers) could further incentivize homeowners to pair solar power with energy storage.
Overall, NEM 3.0 is expected to have a mixed impact on home solar systems in California. While the elimination of interconnection fees and the increase in the size of eligible solar systems may be beneficial to some homeowners, the decrease in compensation for excess electricity may offset these benefits for others. As a result, it’s important for homeowners to carefully consider the potential impact of NEM 3.0 on their home solar system and evaluate their options as soon as possible.
If you’re ready to reduce your reliance on the grid and enjoy peace of mind protection from power outages and utility rate increases, contact us today for a free customized quote and to lock in your NEM 2.0 rates and savings.
Resources & References:
- Evaluate the final decision CPUC fact sheet, Q&A, and more information.
- Read the 260-page CPUC Decision to Revise Net Energy Metering Tariff and Subtariffs
- CALSSA’s Statement on CPUC’s Vote
- SunPower’s update on NEM 3.0
Frequently Asked Questions:
Who does NEM 3.0 apply to?
NEM 3.0 applies to California utility customers in the following investor-owned utility territories:
- Pacific Gas & Electric (PG&E)
- Southern California Edison (SCE)
- San Diego Gas & Electric (SDG&E)
Will NEM 3.0 impact current solar customers?
Current solar customers will not be impacted. They will be grandfathered in and remain under their existing net metering policy for the duration of their current eligibility term.
Do I still have time to go solar under NEM 2.0?
Yes. The December 15th vote kicked off the 120-day window to submit your interconnection applications for NEM 2.0. As long as your application is submitted and approved by April 13, 2023, you will be locked in for 20 years under the NEM-2 rate plan.
Does my solar system need to be installed by April 13, 2023 to qualify for NEM 2.0?
No. As long as your interconnection application is submitted and approved by April 13, 2023, you will remain eligible as long as you have your final building permit within 3 years of your approval date.
Will I lose my NEM-2 status if I add energy storage after April 13, 2023?
No. You can add storage after April 13, 2023 without impacting your existing NEM status.