What NEM 3.0 Means for Solar Customers in California

As per recent NEM 3.0 news, California's Net Billing Tariff (NBT), also known as NEM 3.0, has finally been approved after the California Public Utilities Commission (CPUC) voted on December 15, 2022.

Let's look at the implications of the California solar NEM 3.0 and what it means for solar customers.

What Is Net Metering?

Net metering allows solar customers to sell excess energy generated from their solar power system back to the grid. This feeds into any shortfall in energy production so customers can enjoy uninterrupted access to power.

Net metering policies are typically structured in a one-to-one ratio. This means the cost of electricity produced is equal to the expenses associated with withdrawing electricity from the grid.

Solar installations designed to produce the same amount of electricity used in a household can essentially eliminate utility bills and substitute them with lower monthly payments. During a solar power system's lifespan, it is expected to save homeowners tens or hundreds of thousands of dollars in energy costs.

A robust net metering program is a common denominator across the United States' most robust solar and renewable energy markets. In this vein, California's policy shift to NEM 3.0 has been a much-discussed topic, as the decrease in financial incentives from NEM 2.0 could put a damper on solar adoption rates.

However, some are optimistic that California's shift to NEM 3.0 could serve as an example of how new regulations can encourage competition and promote greater energy efficiency among homeowners.

solar panel system

Net Metering in California: A Background

California has long been touted as one of the nation's leading solar markets, thanks to its robust solar incentives, high electricity rates, net metering policies, and an abundance of Californian sunshine.

As many home and business owners in the state opted to install solar panels over the last decade, investor-owned utilities moved closer to reaching their respective net metering caps, particularly between 2016 and 2017. Consequently, this prompted the CPUC to create NEM 2.0, further promoting renewable energy use through its advanced net metering technology.

California's original net metering policy was tweaked with NEM 2.0, which reduced the solar rebate rate by a slight margin (two cents per kilowatt-hour), allowing for non-by passable charges to fund public benefit programs. Despite this minor change, NEM 2.0 was still considered advantageous, putting the rooftop solar industry on a strong growth trajectory.

What is NEM 3.0 California?

California's solar NEM 3.0 is the third iteration of the state's net metering program. Given the years of back-and-forth that went into the making, NEM 3.0 has prompted many solar homeowners to revisit their solar-saving strategies.

Under net metering 3.0, the credits that customers receive for any extra solar energy sent to the grid will reduce by up to 55%-80%, reducing their financial compensation significantly. In addition, the mandatory switch to a time-of-use rate for solar customers incurs a monthly charge of $14-$16.

small house in the hands of a man

How Will NEM 3.0 Affect Solar Savings?

Solar NEM 3.0 California's updated guidelines impact solar savings in various ways:

Greater savings for low-income Californians

Low-income Californians, in particular, can now capitalize on more savings due to export rates for solar. Lower-income residential customers can receive a 50% discount on their $16 fixed monthly charges, referred to as "electrification rates." These customers include those living in single-family homes in disadvantaged communities and tribal lands.

Lower net metering credits

NEM 3.0 has shifted the energy landscape by decreasing compensation for surplus electricity sent to the electric grid. To incentivize solar production, many states provide credits at retail rates for exported solar production. Also known as one-to-one net metering, this model ensures that customers are credited at a similar rate for solar exports that they would normally pay to harness power from the grid.

California's solar NEM 3.0 shifts the existing structure of net metering to net billing, effectively driving credits much lower. NEM 3.0 works on an "avoided cost" system, so the amount that your utility pays for whatever electricity you send to them will not be contingent on your standard electricity rates like with conventional net metering credits.

More complex computations

Net metering credits will be calculated separately based on various factors, such as the hour of the day, the day of the week, and the month the energy is exported. This new computation model has made calculations more complex, with 576 possible export rates in total.

On average, the avoided energy costs are around 25% of retail electricity rates during these same hours. As a result, net metering credits will decrease by approximately 75% by the time Solar NEM 3.0 California is adopted.

Longer solar payback periods

Under NEM 2.0, most California homeowners had a solar payback period of five to six years. With the emergence of solar NEM 3.0 California, that number is estimated to be around nine or ten years – which means that late solar adopters will miss out on up to 60% in cost savings over their system's lifetime.

The renewed importance of solar batteries

With solar NEM 3.0, customers can maximize the savings of coupling their solar system with a battery. With the new policy change, investing in both is more cost-effective than only installing solar panels.

solar panels on the roof

NEM 3.0 California Timeline

When will NEM 3.0 go into effect? NEM 2.0 is slated to sunset 120 days after the final voting – on April 13, 2023, to be exact. Here's an overview of the net energy metering 3.0 timeline:

December 15, 2022: CPUC approved solar NEM 3.0 California

April 13, 2023: Customers must have a signed contract, a complete interconnection application, a basic electrical drawing of the system, and an attestation if they’re oversizing their system by this date to be grandfathered into NEM 2.0 for 20 years.

April 13, 2026: To take advantage of their NEM 2.0 status, customers must have completed their application before April 13th, 2023, and ensure that their new system is installed and connected to the grid by this date.

Switch to Solar Now

Californians considering going solar should switch to solar power sooner rather than later (and definitely by April 13, 2023) to lock in their NEM 2.0 rates for 20 years.

With the right solar panel installation company, you can have your system up and running in no time. At AMECO Solar & Roofing, our experts will take care of not just your solar panel needs but your roofing services also. Get in touch with us today and get started on your solar journey!