Understanding the NEM 3.0 Proposal and Impacts for California Homeowners
California utilities have proposed Net Energy Metering (NEM) 3.0, which if approved, would significantly alter the utility bill structure, rates, and charges for homeowners going solar. 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. This is beneficial so customers can offset months with higher energy draw by credits from higher-producing solar months.
What are the Proposed Changes in NEM 3.0?
There are three main Investor-Owned Utilities (IOUs) in California: PG&E, Southern California Edison, and Sempra Energy, which owns San Diego Gas & Electric. These main three IOUs jointly filed their NEM 3.0 proposal. The proposal outlines changes in three different areas:
- Solar energy export value
- Required rates for solar customers
- 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).
Under 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 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.
Data from Aurora Solar
From the study, you can see the potential loss of monthly bill savings for the homeowner.
The Utility 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.
What’s Next with NEM 3.0?
First, know that these NEM 3.0 changes are simply a proposal at this 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, will not be as beneficial to homeowners wanting to go solar as NEM 2.0 is to that group today.
A customer’s Net Energy Metering agreement is entered into after utility interconnection – the final stage of going solar. The average installation timeline is three months, so 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.
NEM 3.0 hearings will be conducted through the summer, with a proposed decision by the end of 2021, and a formal decision in January 2022. The effective date has yet to be determined, but is speculated to occur in Q1 or Q2 of 2022.