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What You Need To Know About NEM 3.0

House with solar panels

Even with the federal solar tax credit back at 30% until 2032, there’s a pretty good reason for Californians 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. This would lower their monthly energy bill savings.

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:

  • Solar energy export value*
  • Required rates for solar customers
  • Solar fees

*Solar energy export value is the value a customer receives for the solar power that they send back to the grid.

What is the CPUC?

The California Public Utilities Commission (CPUC)is a regulatory agency that regulates privately owned public utilities in the state of California. It regulates privately owned telecommunications, electric, natural gas, water, railroad, rail transit, and passenger transportation companies.

The CPUC is responsible for assuring California utility customers have safe, reliable utility service at reasonable rates, protecting utility customers from fraud, and promoting the health of California’s economy.

What is NEM?

Net Energy Metering, or NEM, is the primary money saver for using solar panels. How it works is by making sure that every excess kilowatt-hour (kWh) of electricity your solar panels produce directly offsets the cost of each kWh you consume from the grid when the sun isn’t shining.

NEM has been the standard practice in California since 1995, covering all customers that fall under the state’s three largest utilities—PG&E, SCE, and SDG&E.

What will change with NEM 3.0?

The proposed decision outlines significant changes to the current net metering policy such as, among other things, revised time of use plans, lower energy credits, and additional monthly fees.

Changes to Revised Time of Use (TOU) Plans

Under the new TOU plans for solar consumers, electricity rates are highly diversified based on times of highest grid usage. Due to this, homeowners using solar can expect to be charged higher during peak hours and lower for off-peak hours.

This was included in the proposed decision in order to encourage people who install solar panels to also add battery storage. A TOU rate with high per-kWh charges in the peak evening hours would mean solar users would experience much lower savings unless they choose to install batteries that would store excess power during the day and use it at night when the solar panels aren’t actively producing power.

The proposed decision includes one TOU rate from each of the three main utilities. It also allows the utilities to come up with new rates that meet its definition of “highly differentiated”. An important aspect to note is that people with lower income who qualify for the California Alternate Rates for Energy (CARE) program can choose any available TOU rate.

Lower Energy Credits

Currently, the credit for exported surplus energy ranges between $.022/kWh and $0.36/kWh. With NEM 3.0, the rate would drastically reduce to only $0.047/kWh and $0.058/kWh.

NEM3.0 would call for utilities to base their updated rates on California’s Avoided Cost Calculator, a complex calculation of the value that distributed solar (like home installations) adds to the grid. The calculator produces this value for each of the three major utilities during every hour of the day, every month of the year.

Just like the changes to TOU rates, this drop in credit for energy being redistributed to the grid is meant to compel solar owners to add battery storage. If you manage to consume all of the solar energy you produced, you wouldn’t have to stress about sending electricity back to the grid for pennies on the dollar you would have paid.

Additional Monthly Fees

While adding battery storage could alleviate both the TOU and reduced energy credits, it doesn’t resolve all of the new fees being proposed. Along with higher rates for electricity that is consumed while solar panels aren’t actively generating power, NEM consumers have to pay $8 per installed kW of solar capacity per month.

On average, solar users install a 6 kW system on their home. That $8 fee would end up being a charge of $48 per month, which would directly reduce their savings from installing solar panels with no way to decrease the charge. Eventually, that equates to $14,400 over the 25-year life of a home solar system. Low-income solar users qualifying for CARE rates would not be subject to the $8/kW charges.

Is NEM 3.0 already in effect?

No. NEM 3.0 is currently just a proposed decision, though it is scheduled to be enacted by 2023. 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.

When will it be in effect?

NEM 3.0 has been under consideration, debate and discussion for a couple of years, and now California regulators want to take another year to evaluate potential changes to the state's net energy metering policy.

A draft decision calls for the statutory deadline for completion of NEM 3.0 to be extended to Aug. 27, 2023.

What happens if NEM 3.0 Goes Into Effect?

Two things to note regarding NEM 2.0 are a reduction in the NEM 1.0 and 2.0 term of agreement and the deadline to sign interconnection agreements.

Reduced Term of Agreement for NEM 1.0 and NEM 2.0

All current solar owners that earn credits from the previous NEM agreements, NEM 1.0 and 2.0, will have the term of their NEM agreement reduced from 20 to 15 years. This changes the original deal that Californian solar owners thought they were getting when they signed up for NEM.

Deadline to Sign Interconnection Agreements

The proposed decision sets a deadline of 120 days after the decision is adopted for people to sign interconnection agreements and still get NEM 2.0 for the allotted 15 year term. If that 120-day period is not changed before NEM 3.0 takes effect, a customer would need a complete, non-deficient interconnection agreement.

What Homeowners Should Do Now?

While the NEM 3.0 timeline and decision remains in the air, the policy’s proposed changes have dropped the value of going solar in what was originally one of the best states for sustainable energy. Instead of the promised financial rewards, solar owners would experience fewer incentives while prospective solar users are becoming less likely to make the switch.

So how can you be ready for NEM 3.0?

Install Solar Panels

If you’re planning to purchase solar, now is absolutely the best time. While CPUC might exempt existing systems from policy changes and uphold the original terms of the agreement, even if they don’t you would still gain 15 years of the NEM 2.0 agreement. By getting solar now, you can keep the benefits of remaining under NEM 2.0 for 15 to 20 years.

Add Storage

NEM 3.0 greatly reduces the appeal of putting excess energy back into the public grid due to the implementation of lower credits and higher electricity rates. Avoid both of those drawbacks by using the surplus energy to power your home during times when your solar panels cannot actively produce by installing a backup storage system.

Under the proposed changes proposed with NEM 3.0, like additional fees, lower energy credits and revised TOUs, a homeowner purchasing solar in California would be in for a much different experience than they would experience now.

Currently, under NEM 2.0, a homeowner choosing a 6 kW solar system and getting service from PG&E would see an average monthly savings of $183, and their system would pay back its cost in just over 6 years. Under the proposed design of NEM 3.0, CalSSA estimates the payback time for that same customer would increase to 11.6 years.

If you’re ready to take advantage of NEM 2.0 while you still have the chance, work with true experts in solar energy storage and give us a call.