Net Energy Metering (NEM) has been a cornerstone of California’s solar energy policy for years. It allows homeowners with solar panels to send excess electricity back to the grid and receive credits on their utility bills. This system has made solar energy more financially viable, encouraging widespread adoption across the state. However, with the transition from NEM 2.0 to NEM 3.0, many homeowners are asking: What exactly is NEM 3.0, and how will it impact residential solar?
In this article, we will explore the details of NEM 3.0, the changes it introduces compared to previous versions, and what these changes mean for current and future solar homeowners in California.
The Evolution of Net Energy Metering in California
Net Energy Metering was first introduced in California as a way to incentivize the adoption of solar energy. The basic premise of NEM is that when a solar energy system produces more electricity than the home consumes, the excess energy is sent to the grid. In return, the homeowner receives a credit that can be applied to future energy usage, effectively lowering their electricity bill.
Over time, the NEM program has undergone various revisions to reflect the changing dynamics of the energy market and the increasing adoption of solar technology. NEM 1.0 was the original version of the program, which offered one-to-one energy credit rates. This meant that homeowners received the full retail rate for every kilowatt-hour (kWh) of electricity they sent back to the grid.
The best solar companies in California are well-versed in the intricacies of NEM 3.0 and can guide their customers through the transition, helping them navigate the new program requirements and ensure they maximize the benefits of their solar investments. These companies also actively engage with policymakers and industry groups to advocate for policies that continue to support the growth of solar energy in the state.
What Is NEM 3.0?
NEM 3.0 is the latest iteration of California’s Net Energy Metering program, officially approved by the California Public Utilities Commission (CPUC) in December 2022. The new rules went into effect in April 2023 and represent a significant shift in how solar energy is valued and compensated in the state.
One of the most notable changes under NEM 3.0 is the reduction in the value of energy credits for excess solar production. Unlike NEM 2.0, where homeowners received credits at the retail electricity rate, NEM 3.0 introduces the concept of the “net billing” model. Under this model, excess solar energy exported to the grid is compensated at a lower rate, known as the “Avoided Cost Calculator” (ACC) rate.
The ACC rate is based on the value of the energy to the grid at the time it is exported. This means that solar energy sent to the grid during periods of high demand, such as late afternoons and early evenings, will receive higher compensation than energy exported during periods of low demand, such as midday. The ACC rate is generally lower than retail electricity rates, leading to lower energy credits for solar homeowners.
The Rationale Behind NEM 3.0
The transition to NEM 3.0 was driven by several factors, including the need to address the financial impact of high solar penetration on utilities and non-solar customers. As more homeowners installed solar panels and participated in NEM, utilities began to see a reduction in revenue from electricity sales. This, in turn, led to concerns about cost-shifting, where non-solar customers were bearing a larger share of the grid maintenance and infrastructure costs.
NEM 3.0 aims to strike a balance between promoting solar energy adoption and ensuring fairness for all utility customers. By reducing the value of energy credits and encouraging the use of solar energy during periods of high demand, the new program seeks to align solar incentives with the actual needs of the grid.
Another key objective of NEM 3.0 is to encourage the adoption of energy storage systems, such as home batteries. With the lower compensation rates for excess energy, homeowners are incentivized to store their solar energy for use during peak demand periods rather than exporting it to the grid. This shift is expected to help reduce the strain on the grid during high-demand periods and enhance grid resilience.
Changes Introduced by NEM 3.0
NEM 3.0 introduces several changes that will impact how residential solar customers are compensated for their solar energy production. These changes include:
- Reduced Export Compensation: Under NEM 3.0, the value of the energy credits homeowners receive for exporting excess solar energy to the grid is significantly lower than under NEM 2.0. The ACC rate, which determines the value of these credits, is generally lower than retail electricity rates and varies depending on the time of day and season.
- Time-of-Use (TOU) Rates: Like NEM 2.0, NEM 3.0 continues to require solar customers to be on a TOU rate plan. TOU rates vary based on the time of day, with higher rates during peak demand periods and lower rates during off-peak periods. NEM 3.0 further emphasizes the importance of TOU rates by linking the ACC rate to the time of energy export, incentivizing homeowners to use or store their solar energy during off-peak hours.
- Transition Fees: While NEM 3.0 does not impose new fees on existing NEM 2.0 customers, it introduces new interconnection fees for new solar installations. These fees are intended to cover the costs of connecting new solar systems to the grid and ensuring grid reliability.
- Energy Storage Incentives: NEM 3.0 encourages the pairing of solar panels with energy storage systems by making it more financially beneficial for homeowners to store their solar energy rather than export it to the grid. The program aims to increase the adoption of solar batteries, which can help reduce peak demand and enhance grid stability.
- Grandfathering for NEM 2.0 Customers: Homeowners who installed their solar systems under NEM 2.0 will continue to benefit from the program’s terms for 20 years from their system’s interconnection date. This “grandfathering” provision ensures that existing solar customers are not immediately impacted by the changes introduced in NEM 3.0.
The Impact of NEM 3.0 on Residential Solar
NEM 3.0 has significant implications for both current and prospective solar homeowners in California. While the new program still offers financial benefits for solar customers, the reduction in export compensation rates means that homeowners will need to adjust their expectations regarding the savings they can achieve with solar energy.
