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

NEM 3.0 Final Decision: The California Public Utilites Commission (CPUC) unanimously voted to approve NEM 3.0. Under NEM 3.0, customers of PG&E, SCE, and SDG&E with solar systems will receive an average of 8 cents per kWh for the excess power they push onto the grid. This is roughly 75% less than the average export rate of 30 cents per kWh under NEM 2.0. IOU customers have until April 13, 2023 to be grandfathered into NEM 2.0 by submitting a complete interconnection application for a new solar system. Even with the federal solar tax credit back at 30% until 2032, Californians have plenty of reason to go solar sooner than later. On December 15, 2022, The California Public Utilities Commission (CPUC) passed NEM 3.0, a new net metering policy that will ultimately reduce the monthly energy bill savings for new solar owners. NEM 3.0 key takeaways: Current solar owners will remain under their existing net metering policy Solar owners under NEM 3.0 will earn around 75% less for the excess electricity they push onto the grid Under NEM 3.0, the payback period for solar and battery storage systems will be roughly equal to the payback period of solar only systems Californians can be grandfathered into NEM 2.0 by submitting an Interconnection Application for their solar system by April 13, 2023 Compare multiple quotes from vetted local installers to start a solar project under NEM 2.0. In this article, we’ll break down: How Net Metering works The proposed changes for NEM 3.0 The utilities’ perspective The timeline for implementing NEM 3.0 Frequently asked questions about NEM 3.0 Let’s dive in with a quick review of how net energy metering works. What is Net Energy Metering (NEM)? Net Energy Metering describes a billing structure between utilities and homeowners with solar. Under net metering, solar owners earn credit for the excess electricity they push onto the grid when the sun is shinging. This credit is used to offset the cost of the electricity they pull off the grid when the sun isn’t shining. Net metering policies have traditionally had a one-t0-one offset. That means, the price of a kWh of electricity pushed onto the grid was equal to the price of a kWh pulled off the grid. Under this structure, solar owners with systems designed to produce the same amount of electricity as the household consumes essentially replace their utility electricity bill with a lower monthly payment on their solar equipment. Over the 25-year warrantied life of a solar system, this leads to energy costs savings in the tens — or hundreds — of thousands of dollars. What is NEM 3.0? NEM 3.0 is a new version of net energy metering policy approved by the CPUC on December 15, 2022. It applies to utility customers in the territories of California’s three major investor owned utilities: Pacific Gas & Electric (PG&E) Southern California Edison (SCE) San Diego Gas & Electric (SDG&E) It’s important to note that NEM 3.0 is not retroactive, so solar systems installed under NEM 1 or NEM 2 will remain under their current policy. The biggest change between NEM 2.0 and NEM 3.0 is the value of export rates — or the value of excess electricity produced by solar systems. Under NEM 3.0, residential solar export rates will be based on an “Avoided Cost Calculator” instead of retail rates (what customers pay for electricity). We’ll explain how this works in a moment. The big thing to know is, on average, NEM 3.0 export rates are around 75% lower than the export rates for NEM 2.0. Lower export rates means longer payback periods and less cost savings for solar owners under NEM 3.0. Here’s how that looks based on actual bids generated on the solar.com marketplace. Payback period and savings under NEM 2.0 vs NEM 3.0 Scenario 1: Cash purchase of an average 7.6 kW system with 100% offset   SOLAR UNDER NEM 2.0 SOLAR UNDER NEM 3.0 Monthly energy bill (previously $250) $18 $96 Payback period 4.6 years 6.5 years Lifetime savings $116,680 $73,620 Scenario 2: 12-year loan for an average 7.6 kW system with 100% offset   SOLAR UNDER NEM 2.0 SOLAR UNDER NEM 3.0 Monthly energy bill (previously $250) $162 $239 Down payment $0 $0 Lifetime Savings $110,308 $67,248 Scenario 2: 20-year loan for an average 7.6 kW system with 100% offset   SOLAR UNDER NEM 2.0 SOLAR UNDER NEM 3.0 Monthly energy bill (previously $250) $123 $200 Down payment $0 $0 Lifetime Savings $105,844 $62,784   Connect with an Energy Advisor to compare your solar savings under NEM 2.0 vs NEM 3.0   5 things to know about NEM 3.0 It features a major reduction in the net metering value of solar electricity There are no new charges or fees, commonly known as “solar taxes” Pairing solar with battery storage will be more beneficial under NEM 3.0 Solar customers that submit an interconnection application before April 13, 2023 can be grandfathered into NEM 2.0 for 20 years Solar owners that are grandfathered into NEM 2.0 will be able to add battery storage later and remain on NEM 2.0 The first and most critical point is the changing rate structure that will reduce the value of solar energy. Lower solar export rates The biggest change from NEM 2.0 to NEM 3.0 are the rates at which solar owners are compensated for the excess electricity they put on the grid (known as export rates). Under most net metering policies, including NEM 2.0, solar owners are credited for the full retail value of each kWh of electricity they put on the grid. Under the NEM 3.0 proposal, the value of solar exports are no longer be based on retail rates. Export prices are be based on the “Avoided Cost Calculator” and vary by the month and hour. Since this structure is even more complicated than it sounds, here’s a chart to summarize how people will be paid for their excess solar production. The gray bars indicate what homeowners pay per kWh for grid electricity and the black bars indicate the rate at which solar owners are be credited for excess solar production under NEM 3.0. Image source. Clearly, they are not the same, and the price of exports is much lower than the price for imports. “The solar industry and clean energy supporters are still reviewing the CPUC’s proposed decision, but based on an initial analysis, it would cut the average export rate in California from $0.30 per kilowatt to $0.08 per kilowatt and make those cuts effective in April 2023, resulting in a 75% reduction in value of exports,” the California Solar and Storage Association (CALSSA) said in a release. No new solar taxes The new rate structure will substantially eat into solar savings and drag out the paypack period of going solar, but there is a shred of good news in the version of NEM 3.0 adopted by the CPUC. A series of charges and fees for solar owners — casually known as “solar taxes” — did not make it into the approved version of NEM 3.0. These fees were, at one time, expected to add around $60 a month to solar owners’ utility bills. They are now off the table. A push for pairing solar and battery A major theme in the NEM 3.0 text is a push for pairing solar with battery storage. That’s because the issue isn’t generating solar electricity in California; it’s storing and using it since peak solar production doesn’t align with peak energy consumption. If we go back to our handy import/export price graph, you’ll see that export prices skyrocket from 7-8 pm. That’s because energy demand is peaking while solar generation is winding down for the night — which is a problem throughout the state. In fact, the new export rates can be as high as $3.32 per kWh during peak demand hours in September. With battery storage, homeowners under NEM 3.0 can store solar electricity generated during the day and push it on the grid in the evening when export prices are at their highest. Initial analyses of the NEM 3.0 proposal suggest that the return on investment for solar and battery storage will be roughly equal to the return on investment of solar alone. With that in mind, pairing solar and battery becomes more compelling because you get the same return on investment PLUS the additional benefits of having battery backup for power outages. In addition to the 30% federal tax credit, there will be an additional $900 million in funding available for the Self Generation Incentive Program (SGIP) available on July 1, 2023. SGIP provides battery storage rebates for SCE, PG&E, SDG&E and SoCalGas customers. 20-year grandfathering period for NEM 2.0 Another crucial part of the NEM 3.0 decision is that the 20-year grandfathering period for NEM 2.0 remained intact. It was proposed, at one time, that the NEM 2.0 grandfathering period would be cut to 10 years. So, to see the grandfathering period remain at 20 years is a good thing for solar owners. That means solar customers that submit a complete interconnection application before NEM 3.0 goes into effect on April 13, 2023 can remain under the much more favorable NEM 2.0. Learn how to grandfather your system into 2.0 here. What consitutes a complete interconnection application? According to CALSSA, a complete interconnection application includes a: Signed contract Single Line Diagram (SLD) Contractors State License Board disclosure (CSLB) Consumer protection guide Oversizing attestation (if applicable) It’s worth noting that you do not need a permit, a completed install, or a completed inspection to be grandfathered into NEM 2. However, there is a three year deadline to complete the actual construction of the solar system as long as the paperwork is filed and accurate. Modifications that increase the size of the system made after NEM 3.0 takes effect may cause you to lose your NEM 2.0 status. Bottom line: There is still time to start a solar project and submit an interconnection application before NEM 3.0 takes effect. NEM 2.0 customers can add battery storage later Another important nugget of the NEM 3.0 decision is that NEM 2.0 can add battery storage in the future and retain their NEM 2.0 status. There are two common scenarios where this comes into play: If you currently have a solar system in California, you won’t be transitioned into NEM 3.0 if you add battery storage after April 13, 2023 If you are grandfathered into NEM 2.0 by submitting an interconnection application for a solar system without battery before April 13, 2023, adding battery storage later will not change your NEM 2.0 status There are several advantages to pairing solar and battery in California, so being able to add battery and remain in NEM 2.0 is a big win for Californians. 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 initial 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 rates are higher.  When Will NEM 3.0 Take Effect? *Update: CPUC unanimously voted to pass NEM 3.0 on December 15, 2022. This kicked off a 120-day sunset period for NEM 2.0, giving investor-owned utility customers until April 13, 2023 to submit interconnection paperwork and be grandfathered into NEM 2.0. The NEM 3.0 timeline is expected to go as follows: California Public Utilities Commission (CPUC) released the draft proposal on November 10, 2022 The release kicked off a minimum 30 day public comment period CPUC voted to approve NEM 3.0 on December 15, 2022 The vote kicked off a 120-day grandfathering window for NEM 2.0  NEM 3.0 takes effect in April 13, 2023 Based on this timeline, Californians have until April 13, 2023 to submit interconnection paperwork to be grandfathered into NEM 2.0. Compare multiple quotes from vetted local installers to start a solar project under NEM 2.0. Did NEM 3.0 Pass? Yes, on December 15, 2022 the CPUC unanimously voted to approve NEM 3.0. The decision followed a public commenting period that lasted more than three hours and featured heavy public disapproval over NEM 3.0 You can read a recap of the NEM 3.0 public comments here:     Cleantech educator Nathan Perry’s exhaustive analyses of NEM 3 contributed to this article. NEM 3.0 frequently asked questions Is NEM 3.0 retroactive? No, NEM 3.0 is not retroactive. This new net metering policy will only apply to homeowners that submit their solar interconnection applications after April 13, 2023. Homeowners that submit a complete interconnection application prior to NEM 3.0 taking effect will be grandfathered into NEM 2.0 for 20 years. Has NEM 3.0 been approved? Yes, on December 15, 2022, the California Public Utilities Commission (CPUC) voted unanimously to approve NEM 3.0. The new policy will take effect on April 13, 2023 following a 120-day sunset period for NEM 2.0. Utility customers can still be grandfathered into NEM 2.0 during this period by submitting a complete interconnection application. What does NEM 3.0 mean for solar? NEM 3.0 reduces the export rate for residential solar electricity by around 75%, from an average of 30 cents per kWh to 8 cents per kWh. Lower export prices will increase the payback period for solar owners under NEM 3.0 and decrease the overall savings. This effectively increases the value of pairing battery storage with solar. Under the new rate structure, the return on investment for solar and battery is similar to that of solar only, but with the added benefits and independence of having a backup power source.