NEM 3.0 is Here: What You Need to Know [Updated for 2024]
On December 15, 2022, the CPUC voted unanimously to pass NEM 3.0. The changes went into effect on April 15, 2023, and apply to residential and commercial solar installation applications approved after April 14th, 2023.
In this post, we’ll provide an overview of net metering 3.0 (also known as the Net Billing Tariff) in California and what you can do to maximize your solar savings now that NEM 3.0 is in effect.
Let’s dive in.
Key Takeaways
For solar-only systems, NEM 3.0 lowers the financial benefits of solar power by reducing the credits earned from excess solar energy exported to the grid.
To counteract NEM 3.0’s reduced incentives, integrating battery storage with solar systems is now more advantageous, allowing homeowners to use stored energy during peak rates and reduce reliance on the grid.
Existing solar panel systems under NEM 1.0 or 2.0 remain unaffected for 20 years from installation, but new installations under NEM 3.0 face the revised, less favorable tariff structure.
Homeowners with existing solar panel systems under NEM 1.0 or 2.0 in PG&E territory can now add more solar without losing their original NEM status if they install the new solar as a “non-export” system.
What is Net Metering?
Net Energy Metering (NEM) is a program that allows businesses and homeowners to generate electricity with a private solar energy system and to send the power they do not use during the day back into the grid for a billing credit.
These credits can offset nighttime electricity costs and help customers lower their utility bills.
The NEM program was developed in 1996 to incentivize utility customers to start producing clean energy. For years, the NEM program has been an attractive perk for customers interested in installing solar energy systems.
For many, the program justified the initial expenses of installing solar panel systems and helped them save money on energy bills for years. In fact, NEM 1.0 was so successful that the initial 5% cap on how much residential-produced power could be sold back to the grid started to near its limit in 2016.
To cope with the rising demand for solar power incentives, The California Public Utility Commission (CPUC) launched a successor program – NEM 2.0 – in 2017.
NEM 2.0 allowed residential producers to earn close to the retail rate for the power they produced, minus a small amount (approximately $0.02 – $0.03/kWh) the utility provider deducted to pay for the power grid infrastructure.
The latest iteration introduced in April 2023, NEM 3.0, makes it less advantageous for customers to rely on the grid for energy.
Put simply, NEM 3.0 makes it so that any excess solar power exported during the day earns a fraction of the cost of electricity provided by the utility at night, resulting in a reduced overall financial incentive to go solar.
The best way to save money under NEM 3.0 is to install an integrated solar and battery storage system.
A solar storage system is an excellent way for customers to avoid paying peak energy prices by “self-supplying” the electricity they need at night.
Put another way, by storing excess energy produced during the daytime with a battery, customers are able to use their stored energy in the evening hours and avoid having to buy “peak rate” electricity from the utility.
What are the Benefits of Net Metering?
With the history of the NEM program in mind, here are a few significant benefits of NEM for customers:
Cost savings. Thanks to NEM, customers with residential solar panel systems get bill credits for excess power that their systems produce and send back to the electric grid. This allows customers to offset their electrical bills and save money. Sadly, NEM 3.0 decreases the value of those bill credits, but installing a solar power and battery storage system reduces (and in some cases eliminates) the need for exporting energy back to the utility and is the best way to save money on electricity.
Reflection of true energy costs: The goal of this program, and NEM 3.0 specifically, is to accurately reflect the costs of customers’ electricity production and consumption throughout the day. According to the California Public Utilities Commission (CPUC), NEM 3.0’s instantaneous billing model will do this more efficiently than previous billing structures.
Carryover credits. One of the biggest benefits of the California net metering system is that it doesn’t operate on a month-by-month basis. Solar panels will generate power during the day, with the majority of annual energy produced during spring, summer, and fall. However, users likely need to draw from the main electricity grid at night. Under California’s net metering system, those credits operate in annual cycles and carry over monthly for 12 months before they start over. This means customers can use credits from solar panel overproduction during the summer to help pay for their energy costs at night and in the winter.
Efficiency. Under the NEM program, excess energy produced by solar panels doesn’t go to waste – exported solar energy from one house is delivered to the grid and then to nearby homes needing energy. This benefits everyone on the grid – even those who don’t have solar panel systems.
Reduced energy loss. Utility companies that receive solar energy through home solar systems reduce the energy loss associated with long-distance electricity transmission.
Reductions in greenhouse gasses. Solar energy is cleaner than traditional energy. Research has shown that when homes without solar panels use solar energy, it helps cut greenhouse gas emissions related to the production and use of power.
Promotion of Grid Stability: By adjusting compensation based on demand and supply, NEM seeks to support a more stable electrical grid system.
Encouragement of Battery Storage: With Time-Of-Use rate plans becoming standard, and those plans increasing the cost of electricity each evening, there’s an increased incentive for solar customers to store excess energy produced during the daytime. By stocking excess energy in batteries during hours when electricity values are lower and then exporting it during peak value hours, customers can optimize their earnings and continue saving money on energy.
Sharing of Grid Maintenance Costs: NEM 3.0’s shift to monthly compensation and instantaneous billing is designed to ensure that all users contribute fairly to the grid’s maintenance and operation costs, regardless of a household’s solar status.
How NEM 3.0 Affects Homeowners in California
The new NEM 3.0 rates were finalized on December 15, 2022, and went into effect on April 15, 2023.
These rate hikes will have a long-lasting impact on solar production and storage.
Of course, there are exceptions:
Suppose you already have a residential solar panel system that you installed under NEM 1.0 or NEM 2.0.
In that case, you won’t see any changes to your service agreement since you’re grandfathered into those earlier programs for 20 years from the date your system was placed into service.
If you’re considering adding a solar system now, under the NEM 3.0 program, you’ll be subject to the following changes:
If you plan to install solar panels, you’ll need to enroll in a new electricity rate plan where prices vary by season and time of day, with rates from $0.35 to $0.73 cents per kilowatt-hour, depending on your particular rate plan, your provider and time-of-use.
Under the NEM 3.0 tariff, “Net Consumption” will be billed monthly while credits (net energy production) will, if you have them, accumulate and true-up on a 12-month billing cycle each year. These monthly true-ups for energy consumed above and beyond energy produced impact customers and make NEM 3.0 less appealing.
Monthly fixed charges of about $4.50 for all customers, in addition to existing fixed charges.
Under NEM 1.0 and 2.0 programs, residential customers could expect a return on their solar investment in about 6-7 years. Under NEM 3.0, however, that timeline increases to a 10-12 year payback timeline.
The proposed “monthly solar fees,” also called the “solar tax,” have been removed from the NEM 3.0 policy passed on 12/15/2022. While no solar tax will be associated with NEM 3.0, there will be charges that alter the dollar amount residential solar system owners can recover when they sell their excess energy back to the grid.
NOTE: As of this writing (May 2024) there is current legislation moving through Committees to impose a $24.15 monthly fee for all PG&E customers, including solar customers. This is how the “solar tax,” which was removed from the NEM 3.0 policy language, is being pushed forward by the utility in Central California.
Updated credit reductions for net exports will be based on California’s Avoided Cost Calculator(ACC). The ACC provides formulas designed to estimate the value of solar generation by considering how much cost the utility avoided by not generating the same amount of energy.
Under NEM 2.0, customers can oversize their systems (no limit) if they claim they will add usage in the future, such as an EV charging station, hot tub, or AC unit. NEM 3.0 limits the sizing to 150% of historical use and requires justification if over 100% historical use.
Most importantly, NEM 3.0 introduces credit reductions for contributing customers.
Under this program, the surplus electricity your panels produce and send back to the grid will earn you about .05 to .06 cents per kilowatt-hour.
In other words, NEM 3.0 cuts credits down to wholesale levels, or by about 75% from early NEM values. This even applies to customers sending surplus energy back to the grid on hot summer days.
Under NEM 3.0, solar users who share the electricity they produce will also be subject to new energy charges. Specifically, PG&E will charge those receiving the electricity at night approximately $0.25 – $0.50/kWh while providing a mere 5.7 cents in bill credits to the solar producer.
That changes how customers use NEM to lower their energy bills.
Fortunately, you still have options to mitigate these NEM 3.0 changes and set yourself up for saving money with solar.
With NEM 3.0 Now in Effect, Does it Still Make Sense to Go Solar?
Yes – going solar is still a smart move.
In fact, it’s the best way to save money on your electrical bills now and in the future.
With the implementation of NEM 3.0 solar credits are at their lowest during the times when solar panels produce the most energy. This is bad news for new solar-only customers, and it means that a different approach to energy storage and use is now necessary.
While the impacts of NEM 3.0 may sound negative or intimidating, we encourage customers to see it as a reason to install a solar power system with battery backup OR a simplified solar + battery system in a non-backup configuration – sooner rather than later.
Put simply, use solar + battery systems to reduce what you’re exporting to the grid during the day at low values, and instead store that energy for evening use when Peak Rates kick in. Beat the utility two ways: don’t bother to sell them your precious solar power during the day for pennies, and instead Self-Supply that power to your home from your battery in the evenings when rates are at their highest.
Even though NEM 3.0 reduces customers’ access to solar credits, adding battery storage is a great way to balance the overall cost and lower electricity bills.
Adding battery backup is also an excellent option for solar households who want to reduce (or eliminate) dependence on California’s increasingly unreliable electrical grid and break free of PG&E rate hikes forever.
Start Your Solar Project with Sandbar Today
Don’t wait another day to start the conversation to design and install your solar power and battery backup system. If you live along the Central Coast or in the San Francisco Bay Area, our team can help.
CALL US TODAY to explore your solar options under NEM 3.0: (831) 498-8888
Net Metering FAQs
1. Is NEM 2.0 grandfathered?
Grandfathering for NEM 2.0 is available for customers for 20 years as long as your interconnection application was submitted complete and free from major deficiencies by the due date of April 14, 2023.
If you are expanding an existing solar PV system, the 20 years of grandfathering is tied to your original installation date.
Customers with existing PV systems cannot add more than 1 kW to their older system without losing their existing NEM status, however, a new option has emerged that will allow homeowners to add to their existing PV system with a NON-EXPORTING solar system. Give us a call to discuss how this option works, pricing, and system configuration requirements.
3. Will the revised rate structure start right away?
During the first five years of NEM 3.0, the utility provider will implement a gradual reduction for the revised rate structure.
This reduction will include a small export bonus credit, meaning that customers who engage in NEM 3.0 sooner rather than later will have slightly higher export rates for an initial lock-in period.
Still, the added value reduces by 20% per year until the initial five-year period is over, so we recommend that you sign up sooner rather than later to lock in the highest export values.
4. Is California a good place to go solar?
Yes! In fact, California is one of the best states in the nation for residential solar production, thanks to our warm weather, sunny climate, and pro-solar incentives.
5. Is installing a solar system worth it with NEM 3.0?
If you install a new solar energy system under NEM 3.0, we recommend opting for a solar-plus-battery-storage system, or a less expensive solar-plus-battery-without-backup system.
Curious to learn more about these two options? Give us a call to learn more: (831) 469-8888
While your payback period will be longer under NEM 3.0 than it would have been under NEM 2.0, you’ll save the most over the lifetime of your solar energy system if you add a battery.
Contact us today and let us help you find the best solution for your needs!
