How NEM 3.0 Affects Solar Customers

Key takeaways:

• NEM 3.0 reduces the value of net metering excess energy export rates by about 75%
• Although NEM 3.0 significantly decreases the potential savings offered by NEM 2.0, NEM 3.0 will not introduce new solar taxes
• NEM 3.0 incentivizes solar battery storage and promotes equity
• NEM 2.0 customers can be grandfathered into NEM 2.0, but solar owners must apply before April 13, 2023

Solar energy is one of the best ways to support clean energy while saving money on your electricity bills.

California knows this better than anyone—no state has more solar installations or generates more solar energy than California, which generates nearly a quarter of its energy from the sun.

Californians have long been encouraged to take advantage of their sunny days, and programs like NEM 1.0 and NEM 2.0—which provide solar users with credits on their electricity bill for the extra energy that comes from their panels—have provided substantial incentives to adopt solar power and contribute to the state’s clean energy goals.

On December 15, 2022, NEM 3.0 was approved in California. This new policy will introduce significant changes to California’s net metering system.

It can be difficult to understand the ins and outs of the solar industry and how NEM works. Read on to find out what changes are coming with NEM 3.0 and what they mean for Californians.

What is Net Energy Metering (NEM)?

In order to better understand California’s NEM 3.0 policy, let’s do a quick overview of NEM. For homes with rooftop solar panels, their solar system might generate more energy than their home needs. This excess energy is sent back—or exported—to the electric grid, which can then be accessed by everyone.

NEM (Net Energy Metering) is a program that provides solar users with credits on their electricity bill for the extra energy that comes from their panels.

The amount you are paid for excess energy is known as the export rate. California’s NEM 1.0 required that the three investor-owned utility companies —Pacific Gas and Electric (PG&E), San Diego Gas & Electric (SDG&E), and Southern California Edison (SCE)—provide an export rate that is equal to retail rates.

This was designed to help ensure NEM customers were fairly compensated for the energy their solar systems generate. This financial incentive encouraged many Californians to go solar and helped further the state’s clean energy initiatives.

NEM 2.0 vs. NEM 3.0—What’s the difference?

Most Californians who have solar now are part of NEM 2.0. Here’s how NEM 2.0 works now, and what will change when NEM 3.0 takes effect.

NEM 2.0 basics and incentives

NEM 2.0 is similar to NEM 1.0 in that PG&E, SDG&E, and SCE still provide California solar customers with retail credit rates for their excess energy, meaning the value of credits for solar electricity is equal to the value of a kWh of utility electricity.

It also uses a Time of Use (ToU) system to determine the value of these credits. Energy is more expensive during peak times of high demand, including late afternoon and early evening. Utility companies charge more for each kWh during these times. However, it also means that any energy you send back to the grid during peak hours is worth more, too, giving you a higher credit on your bill.

NEM 2.0 also introduced a one-time interconnection fee, which covers the cost of the required inspection and approval of your solar system, and non-bypassable charges (NBCs), which are charges built into utility rates that cover funding for energy efficiency, low-income assistance, and other programs.

NEM 3.0—background and final decision

There are a number of reasons an overhaul to NEM 2.0 was proposed, including:

• Reliance on non-renewable energy sources. More customers use grid electricity—which is powered by fossil fuels—during the evening.
• Disadvantage for non-solar customers and low-income residents. Many Californians who don’t have solar systems felt they were unfairly shouldering the costs passed on to ratepayers by utility companies.

The changes under the California Public Utilities (CPUC)’s proposed NEM 3.0 policy were meant to address these issues by:

• Incentivizing solar storage
• Ensuring rate customers and solar customers pay the same fixed costs of the electric grid
• Providing a $600 million Equity Fund for low-income Californians

On December 15, 2022, the CPUC voted to approve NEM 3.0.

Net 3.0 changes

There are a number of key changes that will come along with NEM 3.0, including:

• Net billing. Rather than net metering, CPUC will use net billing. Basically, this means solar customers’ excess energy credits will be valued at an hourly avoided-cost rate equal to the wholesale price for utility companies. In California, this rate is about 75% lower than the average retail rate customers receive now. This is the biggest (and most controversial) change under NEM 3.0.
• Increased payback period. The payback period is the amount of time in years it takes a solar homeowner to recoup their investment. The shorter the payback period and the more incentives you receive (such as rebates, solar tax credits, and net metering credits), the higher your return on investment. The reduction in credit rate means a longer payback period under NEM 3.0, approximately 9 years versus 6 under NEM 2.0.
• Incentives for pairing solar with battery storage. Customers with battery storage can store their solar energy generated during the day, and then push it back to the grid during peak hours when export rates are highest. NEM 3.0 incentivizes battery storage by providing storage rebates to customers who purchase batteries. When combined with a 30% federal tax credit, initial analysts estimate that adding battery storage will result in the same payback period as NEM 2.0, along with the benefit of having storage. (Learn more about how solar storage systems work.)
• Grandfather into NEM 2.0 for 20 years. Current customers—and those who get solar prior to April 13, 2023—will be grandfathered into NEM 2.0 for a 20-year period. To do so, new customers must submit a complete interconnection application no later than April 13. This is typically done by your solar company. (It’s also important to note that your solar system doesn’t need to be installed by this date if you’re a new solar customer; you just need to have accurate, completed interconnection application paperwork filed.)
• Add battery storage later. NEM 2.0 customers can retain their NEM 2.0 status even if they add battery storage at a later date. This also applies to new solar customers who submit their interconnection application for a new system without battery before April 13, 2023.
• No new solar taxes. The initial proposed decision called for about $60 a month in additional taxes to solar homeowners’ electricity bills. The final decision, however, eliminated this proposal, and customers will not be footing the bill for new taxes.

What NEM 3.0 means for Californians

So what does this mean for Californians who have solar now or are considering solar? A few things:

Decide whether to go solar now to take advantage of NEM 2.0 benefits

NEM 2.0 provides the most cost savings for solar owners. (This chart provides an example of costs under 2.0 and 3.0) If you would like to be grandfathered into NEM 2.0, you must do so by April 13, 2023. To qualify, you will need to:

Submit a solar interconnection application to your utility before April 13, 2023

A solar interconnection application is a set of documents that give your utility company information about your system in order to ensure it will operate safely. These documents should include:

• Complete application
• Signed contract
• Single-line diagram
• CSLB Disclosure Document
• Signed consumer protection guide
• Oversizing attestations (if applicable)

Your solar company should submit this documentation on your behalf. If you are looking to take advantage of NEM 2.0, it’s important to contact your solar company and ensure they submit your solar interconnection application as soon as possible.

Install and receive permission to operate your solar system within three years of submitting your interconnection application

If you don’t yet have a solar system but are looking to take advantage of NEM 2.0, NEM 3.0 allows you 3 years to install your system and receive permission to operate from your utility if you submit your interconnection application before April 13.

Most solar companies submit an interconnection application after the system has been installed. However, because installation times can be months out, it’s important to find a solar company that will agree to submit prior to installation to ensure you are grandfathered into NEM 2.0.

Keep in mind that any modifications you make to your solar system after NEM 3.0 can affect your grandfathered status as well. You can modify your solar system by up to 1 kW or 10% (whichever is less), and still stay within NEM 2.0 rates. However, this also requires a complete interconnection application by April 13.

Let Vivint Smart Energy help

For California residents who are on the fence about installing a new solar energy system or upgrading their current system, now is the time to act and still take advantage of the cost savings of NEM 2.0.

Vivint Smart Energy is a leader in the solar industry and can help you navigate the ins and outs of solar in California. Contact us today and find out how you can save with Vivint.