What is NEM 3.0 and How Will it Impact California Solar Owners? | Solar.com

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What is NEM 3.0 and How Will it Impact California Solar Owners?

Even with the federal solar tax credit back at 30% until 2032, Californians have a reason to go solar sooner than later.

The California Public Utilities Commission (CPUC) has proposed Net Energy Metering (NEM) 3.0, which, if approved, would significantly alter the utility bill structure, rates, and charges for homeowners going solar and ultimately reduce the monthly energy bill savings.

We’ll break down how Net Metering works, the proposed changes, the utilities reasoning, and next steps for NEM 3.0. 

What is Net Energy Metering (NEM)?

Net Energy Metering describes the structure of a utility bill for homeowners with solar. The utility will net out energy charges from the grid with excess solar energy sent back to the grid, usually over a 1-year period.

If a customer’s solar system generates more energy than the home consumes (say, on a sunny day), then that excess energy is sent back to the grid. The homeowner earns credits for the excess energy. This is offset when a customer pulls energy from the grid (say, in the evening) and is charged for that energy. 

For customers who overproduce, and have remaining credit at the end of their year, the utility will pay the customer for those credits at a wholesale rate. If a customer consumes more energy than they produce, they’ll settle up with the utility at the end of the year for their remaining balance.

Net metering is beneficial because solar owners can offset months with higher energy draw by using credits from higher-producing solar months. 

What is NEM 3.0?

NEM 3.0 is a new version of net energy metering policy proposed by the CPUC. The NEM 3.0 proposal outlines changes in three different areas:

  1. Solar energy export value
  2. Required rates for solar customers
  3. Solar fees

Solar energy export value refers to the value a customer receives for the solar power that they send back to the grid. The below chart reports export values, per IOU, under NEM 2.0 and NEM 3.0, according to a presentation from the California Solar + Storage Association (CALSSA).

NEM 2.0 vs 3.0 Export ValueUnder the NEM 3.0 proposal, all customers would be placed on solar-specific rates. As proposed, this would mean an additional monthly charge from each utility:

  • PG&E: $20.66/month
  • SCE: $12.02/month
  • SDG&E: $24.10/month

Lastly, the utilities are proposing a “solar fee” based on the system size in kW:

  • PG&E: $10.93/kW 
  • SCE: $7.39/kW 
  • SDG&E: $11.09/kW

All of these charges would be settled on a monthly basis, rather than an annual basis as in NEM 2.0, if NEM.30 is approved. 

An Example of NEM 3.0

CALSSA and Aurora put together a case study to compare the value of going solar today under NEM 2.0 to the value of going solar under the proposed NEM 3.0. This is based on the average rates & fees from the three IOUs, and an average system size of 6kW.
Compare the value of going solar today under NEM 2.0 to the value of going solar under the proposed NEM 3.0
Data from Aurora Solar

From the study, you can see the reduced monthly bill savings for the homeowner under NEM 3.0. Even with the extra 4% or 8% solar tax credit from the Inflation Reduction Act, NEM 3.0 will substantially change the payback period for solar customers in California.

The Utilities’ Perspective 

Utilities are responsible for providing reliable, safe, and affordable energy to all users of the electric grid. They have been concerned with potential cost shifts from solar customers to non-solar customers including many low-income customers who are less financially capable of adopting distributed energy resources including onsite solar and energy storage. 

Further, utilities cite their proposal as an incentive for customers to pair storage with their home solar system.

As outlined in their proposal, NEM 3.0, “provides a storage incentive through non-tiered cost based TOU rates and ensures customers pay for costs incurred to serve them through a customer charge.”

In practice, this means that customers who add a battery storage system will be able to avoid some of the higher rates associated with pulling power from the grid in the evening, when Time-Of-Use (TOU) rates are higher. 

When Will NEM 3.0 Take Effect?

First, know that these NEM 3.0 changes are simply a proposal at this time. As of August 19, the soonest NEM 3.0 could go into effect is March 2023 — leaving plenty of time for Californians to install solar and be grandfathered into NEM 2.0.

The timeline is expected to go as follows:

  1. California Public Utilities Commission (CPUC) releases the draft proposal on September 29, 2022
  2. The release kicks off a minimum 30 day public comment period
  3. CPUC will schedule a vote in November or December 2022
  4. Following the vote, there is a 120 day grandfathering window for NEM 2.0
  5. NEM 3.0 takes effect in March 2023

Based on this schedule, Californians would have until March 2023 to install and file for interconnection to be grandfathered into NEM 2.0.

Will NEM 3.0 Pass?

Whether NEM 3.0 will pass or not is up to the California Public Utilities Commission.

The vote is expected to take place in November or December and the proposal can change in that time. The final agreement for the next iteration of Net Energy Metering will lay in a middle ground between the various proposals from all parties intervening at the California Public Utilities Commission (CPUC). Wherever NEM 3.0 lands, however, it will not be as beneficial to homeowners wanting to go solar as NEM 2.0 is to that group today.

With that in mind, the average installation timeline is three months, so California homeowners are encouraged to explore solar today and lock in their rate plan with NEM 2.0. Note that current NEM 2.0 customers are grandfathered into their rate structure for 20 years, but NEM 3.0 is calling for that term to be reduced to 10 years. 

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