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From NEM 2.0 to NEM 3.0: What You Need to Know About CPUC New Release

Updated: Jan 30



If you're planning on going solar anytime soon, you'll want to pay attention to this news. The California Public Utilities Commission (CPUC) recently gave the nod to NEM 3.0, a solar billing plan that will have a huge impact on residential solar customers. The new plan was passed on December 15, 2022, and will take effect on April 15, 2023. Unfortunately, the changes that come with NEM 3.0 mean that solar customers can expect to see a significant reduction in the value of their solar energy, with export rates being slashed to an all-time low. This is especially devastating for new solar customers throughout California.


However, there is still some good news. There's a limited window of time to get grandfathered into NEM 2.0, which offers more generous rates under net metering. So, if you're considering going solar, it's important to act fast and take advantage of the more favorable rates while you still can.


If you're an IOU customer, you have until April 14, 2023, to lock in the NEM 2.0 rates by submitting a complete interconnection application. But even with the federal solar tax credit now back at a healthy 30% until 2032, this new solar billing plan means that Californians have a lot of good reasons to go solar sooner rather than later.


How Net metering looks like in today’s world

Net metering is a program that enables customers with solar energy systems to send excess energy back to the grid when their homes or businesses are not using it. This causes the utility meter to reverse its direction, and the customers are given a credit on their electric bills for the amount of energy they contribute. The credit is applied monthly for a year, which helps decrease energy expenses and guarantees payment for energy produced. Additionally, the utility compensates customers for the credits they earn through a scheme known as Net Surplus Compensation, which enables solar system owners to balance their energy expenses by using the credits their systems generate when they produce more energy.


The California Public Utilities Commission (CPUC) introduced the first version of net metering (NEM 1.0) in 2013 to encourage homeowners to adopt solar power. However, by 2016, the program reached its limit of how much residentially generated electricity could be sold back to utility companies, which was set at 5%. As a result, the CPUC updated the program to NEM 2.0 in 2017. Under NEM 1.0, customers could only sell back up to 1 megawatt (MW) of electricity to the grid, while NEM 2.0 raised this limit to 5 MW for non-residential customers.


So how is NEM 3.0 any different?

On December 15, 2022, NEM 3.0 was approved, and it includes various modifications from earlier net metering programs. However, NEM 3.0 does not have any set charges or fees targeted exclusively at NEM customers. To put it another way, there is no "solar tax" included in NEM 3.0. Nevertheless, there will be alterations that will affect the amount of money homeowners can earn when selling surplus energy back to the utility grid.


The primary impact of NEM 3.0 is that it lowers the compensation homeowners receive for sending excess solar energy to the electric grid. While many states offer a one-to-one net metering credit, which is equivalent to the retail rate of electricity for exported solar power, NEM 3.0 shifts to a net billing structure that provides a much lower credit value. Instead of using traditional net metering credits, the CPUC will establish new rates for crediting solar exports based on avoided-cost rates. These rates vary depending on the time of day, day of the week, and month of the year, resulting in 576 possible export rates. On average, these rates are approximately 25% of the retail electricity rates during the same hours, implying that the value of net metering credits will drop by about 75% under NEM 3.0.


How best can you prepare for NEM 3.0?

There are 3 basic takeaways for California IOU, customers, when it comes to NEM 3.0:

  1. It features a significant reduction in the net metering value of solar electricity.

  2. With NEM 3.0, combining solar with battery storage will be more beneficial.

  3. Solar users can have a 20-year grandfathered entry into NEM 2.0 by submitting an interconnection application before April 14, 2023.

Reduced net metering value

The decrease in net metering credits will have a considerable effect on solar savings. In California, under NEM 2.0, most homeowners recover their solar investment in around 5 to 6 years. However, under NEM 3.0, the period will extend to approximately 9 to 10 years. Over the system's lifespan, homeowners will miss out on roughly 60% of savings under NEM 3.0, compared to NEM 2.0.


Increased importance of solar batteries

Under the new rules, if you are a new customer and opt for solar, you can further maximize the value of your solar power by installing a solar battery to store excess solar surplus energy on-site. By doing this, you can charge your battery system for later use and reduce what you export to your utility company, particularly during peak rate hours. Although the payback period for a solar-plus-storage system may still be longer under NEM 3.0 than under NEM 2.0, it will be less than installing solar only. Therefore, you will save more over the lifespan of your solar energy system under NEM 3.0 if you add a battery. To determine the best solution for your home or business, you can contact our energy experts to learn more.


20-year grandfathering period for NEM 2.0

For California homeowners, it is recommended to take advantage of the current NEM 2.0 rates before they expire. If you have already installed a solar energy system and have no plans to expand it, you will be automatically enrolled in NEM 2.0 for 20 years without any action needed. It's important to note that if you already have a system, the 20-year period for NEM 2.0 is determined based on when your system was installed, not when NEM 3.0 goes into effect.


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