Understanding NEM 3.0: What You And Your California Clients Should Know

The California Public Utilities Commission (CPUC) approved the proposed NEM 3.0 changes that make going solar less beneficial for Californians. Renewable energy advocates say this decision could have a dramatic impact on 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 sort of changes are coming as a result of the vote held on December 15, 2022? This guide explores NEM 3.0 and provides high-level details, deadlines and other important information that your Californian customers should know.

What Does NEM Stand For And How Does It Work

NEM stands for “net energy metering.” This is an electricity bill structure that allows homeowners with grid-tied photovoltaic (PV) systems to earn credit 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 wholesale rate for excess energy generation. NEM 3.0 is a drastic departure from these older laws.

What Is NEM 3.0?

NEM 3.0 is the third version of California’s Net Energy Metering policies. Here’s an overview of what installers and clients should know about the new policy.

NEM 3.0 Cuts The Value Of Customer-Generated Solar Electricity

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 you generated. These policies were major drivers of solar adoption in California starting in the late 90s to present day.

NEM 3.0 will only credit 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 will receive for excess electricity – also vary by TOU rates. Typically, TOU electricity rates are highest during times of peak demand, such as morning and evening.

How Much Less Will Californians Get For Excess Electricity?

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

CPUC claims that NEM 3.0 won’t increase utility company profits, however.

“Utilities only make a profit on investments in the transmission and distribution system,” reads a CPUC fact sheet.

Still, it appears that NEM 3.0 will increase the payback period for California’s solar homeowners.

How Will NEM 3.0 Affect the California Solar Market?

According to the Solar Energy Industries Association (SEIA), “the failure to adopt a more gradual transition to net billing risks putting solar out of reach for millions of residents across the state.”

The California Solar & Storage Association (CALSSA) also criticized CPUC’s decision, issuing the following statement: “The CPUC vote is a loser for California on many levels. For the solar industry, it will result in business closures and the loss of green jobs. For middle class and working class neighborhoods where solar is growing fastest, it puts clean energy further out of reach.”

CPUC officials say NEM 3.0 will encourage ratepayers to add storage to new solar power systems on their homes. They also believe it will help low-income residents adopt solar and storage, thanks to $630 million in extra bill credits.

CALSSA is skeptical that NEM 3.0 will accelerate adoption of solar-plus-storage.

When Will NEM 3.0 Go Into Effect?

The new NEM 3.0 policies apply to rooftop solar power systems installed on or after April 14, 2023. Systems installed before then will get grandfathered into the current NEM 2.0 policies.

Homeowners who complete and submit an interconnection application can still take advantage of NEM 2.0. New systems don’t need to be installed by the deadline, but the solar installations must be completed within 3 years of filing the paperwork, which is due by the deadline. Experts expect a sharp increase in homeowners trying to beat the deadline.

Individual utility companies may also have certain requirements unique to their business. For example, SCE requires that homeowners’ solar systems match the size of their expected usage, and each system must use a compatible meter. However, NEM 3.0 increased the maximum size of systems to allow for generating 150% of the customer’s 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.

How Will Solar Homeowners Benefit From NEM 3.0?

Solar customers with battery storage could be compensated more during evening hours when demand for electricity 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. CPUC also estimates solar-plus-storage payback at 9 years.

Why Will More Homeowners With Solar-Plus-Storage 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 NEM 3.0

Here are a few questions that homeowners may have about NEM 3.0.

Can clients add to their system capacity after the deadline without losing their NEW 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 incentives for homeowners looking to go solar in California?

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

The Bottom Line: NEM 3.0 Is A Mixed Bag

While adding more battery storage to the grid can stabilize the supply of electricity, the lower export compensation of NEM 3.0 might price some people out of adding residential solar panels. Overall, solar advocates have little praise for NEM 3.0.

If your business operates in California, be sure to discuss with clients in process or considering a solar installation to get the system approved before the NEM 3.0 deadline. Work with GreenLancer to get help on system design engineering wet stamps and permitting.