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Understanding NEM 3.0 In California

Updated: May 30

What is NEM 3.0

The California Public Utilities Commission (CPUC) approved the proposed NEM 3.0 changes that make going solar less beneficial for most Californians. Renewable energy advocates say this decision could dramatically impact the nation’s most successful marketplace, which has more than 1.5 million solar-powered homes in California alone and employs approximately 68,000 people.

So what is NEM 3.0, and what changes occurred in April 2023 when it took effect? This guide explores California NEM 3.0 and provides high-level details, deadlines, and other important information your Californian customers should know.

What Does NEM Stand For?

NEM stands for “net energy metering.” This electricity bill structure allows homeowners with grid-tied photovoltaic (PV) systems to earn credits for excess energy their solar panels generate.

Utility companies track how much electricity customers with solar arrays generate compared to how much they pull from the grid. Many utility companies also use time-of-use (TOU) billing, which charges more for any electricity used during peak hours.

California’s previous net metering laws allowed homeowners to receive the retail rate for excess solar energy generation. NEM 3.0 is a drastic departure from these older laws.

What Is NEM 3.0 in California?

NEM 3.0 is the third version of California’s Net Energy Metering policies, which took effect in April 2023. Therefore, solar energy customers who submit interconnection applications after this date fall under NEM 3, which decreases the amount utility companies compensate solar system owners for the surplus electricity they feed to the power grid.

Utility Companies Impacted By California NEM 3.0

The investor-owned utility (IOU) companies in California that are impacted by NEM 3.0 include:

  • Pacific Gas and Electric Company (PG&E): Serving Northern and Central California, PG&E is one of the largest IOUs in the United States.

  • San Diego Gas & Electric (SDG&E): SDG&E serves the San Diego and southern Orange County areas.

  • Southern California Edison (SCE): Operating primarily in Southern California, SCE is another major electric utility provider in the state.

Publicly-owned utilities, such as municipal utilities and rural electric cooperatives, can also participate in NEM 3.0 if they choose to adopt the net metering program. Currently, the Sacramento Municipal Utility District (SMUD) and Los Angeles Department of Water and Power (LADWP) have not adopted NEM 3.0. SMUD operates under its existing net metering rules. Therefore, SMUD and LADWP have not transitioned to the new NEM 3.0 framework.

NEM 3.0 Cuts The Value Of Customer-Generated Solar Power

Previously, NEM policies credited homeowners in California with the full retail rate of the electricity they generated. So, if the utility company charged 25 cents per kilowatt-hour (kWh), the company would credit the homeowner 25 cents for each kWh they generated. Starting in the late 1990s, these policies were major drivers of solar adoption in California. However, critics of NEM 1.0 and 2.0 argue that these net metering arrangements provided excessive compensation to solar owners, leading to concerns about cost-shifting onto non-solar customers.

NEM 3.0 only credits solar customers based on an “avoided cost calculator.” This essentially looks at what costs the utility company avoided thanks to alternative energy generation practices like rooftop solar. The export prices – the amount a customer receives for excess electricity – also vary by TOU rates. Typically, TOU electricity rates are highest during times of peak demand, such as morning and evening.

What Are NEM 3.0 Export Rates?

NEM 3.0 rate plans significantly reduce how much money California solar homeowners receive. According to PV Magazine, NEM 3.0 is a 75% reduction that took average export rates from 30 cents per kWh to 8 cents per kWh when it went into effect on April 14, 2023.

The Net Energy Metering (NEM) 3.0 export rates in California represent a significant shift from previous versions. Under NEM 3.0, the value of credits for excess solar energy sent back to the grid is calculated using an Avoided Cost Calculator (ACC), rather than the retail electricity rates used in NEM 1.0 and NEM 2.0. This generally results in lower export rates.

The exact NEM 3.0 export rates vary depending on the time of day, the season, and the specific utility. However, for Pacific Gas and Electric (PG&E) and Southern California Edison (SCE) customers, additional export rate adders are available for the first five years of NEM 3.0. These adders start at 2.2 cents per kWh for PG&E and 4 cents per kWh for SCE in the first year, decreasing annually. These adders are designed to encourage the early adoption of solar systems under NEM 3.0​.

california solar mandate

How Is NEM 3.0 Affecting the California Solar Market?

NEM 3.0 has significantly impacted the California solar market. Following the regulatory decision to reduce the compensation for solar panel energy exported back to the grid, the rooftop solar industry in California experienced job losses and a decline in sales.

NEM 3.0 Impact on California Solar Installations

Despite installing a commendable 6.2 GW of new solar capacity, recent regulatory decisions by the California Public Utilities Commission have isignificantly harmedthe state's rooftop solar sector. Consequently, the overall solar market in California is projected to decline by 36% across all solar energy market segments in 2024.

NEM 3.0 Impact on Solar Jobs

The implementation of NEM 3.0 resulted in sweeping solar industry job cuts, with a survey by the California Solar and Storage Association reporting that state solar and storage companies planned to cut down on 17,000 jobs by the end of 2023. This represents 22% of all solar energy jobs in the state, and a majority of contractors surveyed anticipate further layoffs in the future.

The California Public Utilities Commission's decision had a significant and far-reaching impact on the solar power industry, with uncertain futures for many businesses. Rooftop solar sales were reported to be down significantly compared to the previous year, and residential solar and storage contractors expressed concerns about the industry's overall outlook. The California solar energy market is expected to continue experiencing layoffs and negative effects, both in the residential and commercial sectors.

Disadvantages of NEM 3.0 Rates

There are numerous drawbacks to NEM 3 in the solar power industry.

  • Lower electricity bill savings: With lower compensation rates, solar owners may experience reduced savings on their electricity bills compared to previous net metering structures.

  • Transition period: The transition to NEM 3.0 may create uncertainty and challenges for solar installation companies due to decreased business and market uncertainty.

  • Impact on solar payback period: The longer payback period for solar systems due to reduced compensation rates can make it less financially viable for some homeowners to invest in solar energy.

  • Slower solar panel adoption in California: The reduced compensation rates under NEM 3.0 is decreasing the demand for solar installations in the state.

Benefits of Net Metering 3.0

Although there are numerous drawbacks to California NEM 3.0, there are some advantages.

  • Financial Benefits of Pairing Solar Panels With Batteries: The financial benefits of pairing solar energy with batteries have increased significantly under NEM 3.0.

  • Grandfathering Provisions: Existing solar owners are grandfathered into the NEM 2.0 program and can continue receiving its benefits for 20 years from the date they received Permission to Operate from the utility.

  • Adding Energy Storage to Existing Systems: Solar owners who join NEM 2.0 before the designated deadline may be able to add solar batteries without losing their NEM 2.0 status.

When Did NEM 3.0 Take Effect?

The new NEM 3.0 policies apply to rooftop solar power systems installed on or after April 14, 2023. However, solar systems installed before then are grandfathered into NEM 2.0 policies.

Individual utility companies may also have certain requirements unique to their business. For example, SCE requires that homeowners’ solar installations match the size of their expected usage, and each system must use a compatible meter. However, NEM 3.0 increased the maximum size of the systems to allow for the generation of 150% of the customers' electricity needs. This is to allow for future electrification, such as charging electric cars or converting from gas to electric appliances. Californians should check with their utility company for system size limits.

Are Any Solar Homeowners Benefiting From NEM 3.0?

Solar customers with battery storage could be compensated more during evening hours, when electricity demand is highest. CPUC believes that customers who store electricity in the daytime and discharge it when demand is highest will stabilize the grid and improve their payback period. The CPUC also estimates solar-plus-storage payback at 9 years.

Why Do Homeowners With Solar Batteries Benefit The Grid?

Typically, solar panels generate far more power during daylight hours. When the sun sets, solar panels stop producing power. Utility companies may need peaker plants to address this spike in demand, which is often called the duck curve. Peaker plants, which are typically not clean energy sources, are only used during times of high demand.

Solar-plus-storage could allow homeowners with batteries to add energy to the grid when it’s needed most while relying less on peaker plants that use fossil fuels.

FAQs: The Impact Of California NEM 3.0

Here are a few questions that homeowners may have about NEM 3.0, which has been highly controversial in the California solar energy market.

Can clients add to their system capacity without losing their NEM 2.0 status?

Depending on how much additional capacity is added, some existing systems may be pushed into NEM 3.0. However, solar clients should be able to add energy storage without losing their NEM 2.0 status.

Are there other solar incentives for homeowners in California?

There are still many incentives to install a solar system in California, including the federal solar tax credit. Other solar energy incentives from local governments and utility companies may also be available. The Database of State Incentives for Renewables and Efficiency® (DSIRE) is a helpful resource for uncovering potential solar incentives for homes and businesses.

Does NEM 3.0 require a solar battery?

Although solar system owners in California aren't required to have a battery storage system, like the Tesla Powerwall or Fortress Power eVault, they benefit from greater energy bill savings with one. NEM 3.0 compensates more for power during times of peak energy demand, so having a solar battery makes this more feasible.

The Bottom Line: California NEM 3.0 Is A Mixed Bag

NEM 3.0 has significantly changed the California solar market, leading to job losses and a decrease in sales. While there are challenges ahead, experts believe that the distributed solar industry, driven by high retail electricity rates across the country and the California Solar Mandate, still has potential for growth. Although the national solar energy market is strong, the California market has experienced significant setbacks due to NEM 3.0.

California remains the largest solar market in the nation, with 46.9 gigawatts of installed capacity, enough to power nearly 14 million homes. California state leaders must step up to encourage more solar and storage adoption in the near and long term if California is going to meet its 2030 clean energy goals.

If your business operates in California, be sure to discuss with your clients how NEM 3.0 is impacting them. Work with GreenLancer for help with solar system design, interconnection applications, engineering wet stamps, and PV permitting.


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