NEM 3.0 Export Rate Adders: Why It Pays to Go Solar Early in NEM 3.0

The new solar billing structure for California’s three investor-owned utilities has caused many homeowners to pause, alter, or altogether abandon their plans for installing rooftop solar. But while home solar in California isn’t the complete no-brainer it once was under 1-to-1 net metering, it still offers some of the best energy cost savings potential of any state in the US.

This is especially true for the earliest adopters of NEM 3.0 solar systems, who can benefit from three things:

1. Export rate adders up to 4 cents per kilowatt-hour
2. Several months of billing under the NEM 2.0 structure
3. Avoiding imminent utility rate hikes

Don’t get me wrong: We all miss NEM 2.0. But NEM 2.0 is gone, and the early birds in NEM 3.0 will get the fattest worms.

In this article, we’ll break down the three economic advantages of going solar as soon as possible under NEM 3.0

NEM 3.0 residential export rate adders

The first, and greatest, advantage of going solar under NEM 3.0 in 2023 is locking in the highest possible export rate adders.

“Export rates” refers to the value of excess production that solar owners push onto the grid, and “adders” means exactly what it sounds like.

If you’re familiar with NEM 3.0, you know that its defining feature is export rates that are, on average, ~75% lower than they were under NEM 2.0. That’s because under NEM 3.0, export rates are based on the “Avoided Cost Calculator” instead of the retail price of electricity and vary throughout each hour of the day.

Export rate adders are designed to ease the shock of these dramatically reduced export rates, and reward early adopters of NEM 3.0 solar billing. As the chart below shows, export adders are only available for the first five years of NEM 3.0 and decrease by 20% each year, so the earliest NEM 3.0 adopters lock highest export rate adders.

Export rate adders are not available to SDG&E customers.

For example, an SCE customer that gets permission to operate (PTO) in the first year of NEM 3.0 locks in a 4 cents/kWh export rate adder for every single hour of the first 9 years of operation.

Four cents per kilowatt hour may not sound like much but in many cases, this 4-cent/kWh adder would double the hourly export rates for SCE in 2023, as shown in the example day below.

Export rate figures for example purposes only.

And remember, this 4 cent adder is locked in for 9 years and continues to increase the value of your excess solar product, even as NEM 3.0 export rates rise over time. The chart below shows the average NEM 3.0 export rates expected from 2023-2050, based on an analysis by CALSSA.

The lowest rates are between 2023 and 2030, but homeowners can improve these rates by interconnecting a system in the first year of NEM 3.0.

Quick facts about NEM 3.0 export adders

• Export adders increase the c/kWh value of excess electricity pushed onto the grid from NEM 3.0 solar systems
• Adders increase the value of exports for every single hour for the first 9 years of operation
• SCE and PG&E customers who interconnect a solar system in the first year of NEM 3.0 (before April 14, 2024) lock in the highest export adder
• Export rate adders are only available for the first 5 years of NEM 3.0 and decrease by 20% each year
• Adder value is based on the interconnection date of the system

Start a solar project today to lock in the highest export rate adders.

NEM 2.0 billing during the NEM 3.0 transition

In addition to locking in the highest export rate adders, the earliest NEM 3.0 adopters will likely benefit from several months of NEM 2.0 billing that can increase their savings and decrease their payback periods.

NEM 3.0 is an incredibly complicated billing structure that features 576 different export rates throughout the year. And now that it’s approved, the IOUs have the task of building, testing, and launching a brand new software to accommodate solar billing.

Simply put, building this software is going to take time. It’s estimated that the new billing software will be ready by late 2023 or early 2024. And until it’s ready, solar customers will continue to be billed under NEM 2.0 export rates. Better yet, the folks at CALSSA have ensured that there will be no reconciliation period later on.

So, that means if you install a solar system in August 2023, you could very well enjoy 1-to-1 net metering until December and avoid much of the crappy first-year NEM 3.0 export rates. Then, when the new billing system kicks in, you’ll have your Year 1 adder to boost your export rates for the first nine years.

Sam breaks this strategy down in the video below.

Avoiding utility rate hikes

The final advantage of being an early NEM 3.0 adopter is hedging against the IOU rakes hikes coming in the next few years.

For example, SCE is proposing a 6.81% residential electricity rate increase effective on January 1, 2024, and this comes after 7.21% increase that took effect on January 1, 2023.

The chart below shows the electricity rate increases by PGE, SCE, and SDG&E from 2020-early 2023. Based on this pattern, it’s pretty safe to assume that IOU electricity rates will continue to increase by at least 5% per year, and every year you wait to install solar is another year of exposure to higher rates.

The bottom line

There’s no denying that NEM 3.0 solar billing isn’t nearly as favorable to homeowners as NEM 2.0. However, even under NEM 3.0, home solar is far more affordable than purchasing electricity from a utility provider. And thanks to adders and a small window to get NEM 2.0 billing, the early adopters of NEM 3.0 can maximize those savings and make the best of the situation.

If you’d like to see your potential solar savings, connect with an Energy Advisor to design custom solutions and generate binding quotes from vetted local installers.

Start your solar project today.