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Understanding Net Energy Metering 3.0 (NEM 3.0): How It Impacts Your Solar Energy Savings

Updated: Apr 8, 2023

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If you observe the most successful solar and renewable energy markets in the United States, you'll notice they all share a common feature: a robust net metering program. Net metering, also known as NEM, enables you to accumulate credits for any excess solar energy you produce and feed back into the grid when your solar panel system generates more than your consumption.

After prolonged discussions, the California Public Utilities Commission (CPUC) initiated a proposal in August 2020 to revise California's net energy metering (NEM) program for the second time in four years, which experts named "NEM 3.0". On December 15, 2022, the CPUC voted unanimously to adopt NEM 3.0.

Under the new tariff, NEM 3.0 will substantially lower net metering compensation rates for new solar customers in California (by approximately 75%), compelling customers to consider purchasing solar battery storage with their solar systems. However, you still have until April 14, 2023, to complete an interconnection application and secure NEM 2.0 rates for the next 20 years. In this article, we will explain everything you need to know about NEM 3.0 and the necessary measures you should take now to ensure optimal solar savings.

The Journey to Net Energy Metering 3.0 (NEM 3.0)

NEM was a valuable incentive for homeowners who were interested in installing solar energy systems but were uncertain if the investment would be worthwhile. The ability to "sell" excess energy produced back to utility companies helped consumers see the value of installing solar power systems, and coupled with additional state and federal incentives and predictable, fixed rates on financed solar, California's adoption of rooftop solar naturally increased.

As the popularity of solar energy grew, the 5% cap on the amount of residentially produced energy that could be sold back to utility companies under NEM 1.0 was nearing its limit. By 2016, the success of the program in persuading homeowners to switch to solar power was evident. Consequently, the California Public Utility Commission (CPUC) implemented NEM 2.0 on July 1, 2017, as a successor program.

NEM 2.0 made several significant changes to the original program. One of the most notable was the requirement for all solar energy customers to switch to Time-of-Use (TOU) rates. These rates determine the amount utilities must pay for surplus electricity based on when it is generated. Utilities typically charge higher rates during peak demand periods (like late afternoons) and lower rates during off-peak hours when people typically use less energy. Under NEM 2.0, customers received almost the same as the retail rate, with a small amount deducted to cover the cost of the power grid.

Despite its success, NEM 2.0 was not without its detractors. Some critics argued that the program unfairly shifted costs onto non-solar customers and that the compensation rates for solar customers were too high. As a result, the California Public Utilities Commission launched a proceeding in 2019 to consider changes to the program. On December 15, 2022, the CPUC voted unanimously to pass NEM 3.0, which will significantly reduce net metering compensation rates for new California solar customers (by about 75 percent) and should encourage customers to purchase solar battery storage with their solar system.

NEM 3.0 Impact on NEM 1.0 and NEM 2.0 Customers

If you have previously installed a solar energy system under NEM 1.0 or NEM 2.0 in California, you can rest assured that the new NEM 3.0 system will not affect your existing service agreements. You will continue to enjoy the same benefits as before, as all the benefits of the previous systems have been grandfathered into the new program for existing solar customers. This means that your investment in solar energy will be secure 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 looking to add more solar panels, you can expand your existing solar system by up to 10% without any changes. However, any expansion exceeding 10% will require a new application for NEM 3.0. Additionally, you have the option of adding battery storage to your existing plan through your utility company without any modifications.

In summary, if you're an existing solar energy system owner in California, you won't experience any changes to your service agreements and will continue to receive the same benefits. If you want to expand your system, you can do so up to a certain limit without any alterations, and adding battery storage to your existing plan is also an option.

How NEM 3.0 Aims to Transform the Power Grid

It is widely known that the power grid in California is facing increasing strain, and as a result, regulators are exploring solutions to enhance the reliability of the grid during peak periods while also promoting distributed storage to help the state achieve its climate objectives. NEM 3.0 aims to modernize the power grid by incentivizing the use of solar power with battery backup, rather than stand-alone solar, through a theoretical approach.

The new rate structure:

  • Replaces net metering with net billing, with the goal of shifting the focus from a primarily solar-only market to one that emphasizes the combination of solar and batteries.

  • Uses a flawed "avoided cost" rate rather than retail value to determine the value of exported solar.

  • Credits solar users about 75% less for the solar power they send to the grid once NEM 3.0 is in place.

  • Would not implement retroactive adjustments for present users, so homeowners who have solar under NEM 1.0 and NEM 2.0 won't be impacted.

  • Targets a nine-year payback term for customers, roughly twice as long as the existing five to six-year payback period.

  • Refuses to implement the monthly $8 per kWh "solar tax" on new home installations.

  • Now necessitates that solar-only customers reduce the size of their systems by a factor of two in order to make up for the sharp decline in export compensation.

If you are a homeowner or business owner in California, you can still be eligible under NEM 2.0 and ensure that your solar panels are at least twice as financially advantageous as they would be under NEM 3.0 (without a battery). However, it is essential to take prompt action to benefit from this opportunity.

Optimizing Your Solar and Storage Benefits with NEM 3.0

Your renewable energy exports' value will be significantly influenced by when you export them. Evening hours will feature the most advantageous export and retail rates. To avoid paying exorbitant retail rates, your solar battery may turn on at night and power your house. To save money while you sleep, it sends any extra energy it produces back to the grid.

Although installing a solar system has been shown to reduce power prices, many homeowners continue to believe that doing so is a wise financial decision. Moreover, it may deliver dependable electricity even when the electrical grid fails when coupled with battery storage. Furthermore, the possibility of new funding for the Self Generation Incentive Program (SGIP), which offers battery storage rebates to SCE, PG&E, and SDG&E customers, may further encourage homeowners to pair solar power with energy storage.

Wrapping Up

NEM 3.0 is anticipated to have a variety of effects on domestic solar energy installations in California. The reduction in compensation for extra power may outweigh the advantages for certain homes that may profit from the abolition of interconnection costs and the expansion of the size of qualified solar systems. As a result, it's crucial for homeowners to thoroughly analyze the potential effects of NEM 3.0 on their home solar system and weigh their alternatives as quickly as feasible.

For a free quotation that is specifically tailored to your needs and to lock in your NEM 2.0 prices and savings, get in touch with us right away if you're ready to lessen your dependency on the grid and experience peace of mind protection against power outages and utility rate spikes.

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