What NEM 3.0 Means for Solar in California

This article is brought to you by Sunnova & Infinity Energy

A controversial topic in California’s solar industry since proposed over a year ago, NEM 3.0 is sending shockwaves through the United States in early 2023.

Approved by the California Public Utilities Commission (CPUC) on December 15, 2022, NEM 3.0 will dramatically impact the value of residential and commercial grid-tied photovoltaic (PV) systems for new solar customers.

To help you understand its details and impact, here are the key elements to know about California’s new NEM 3.0 policy.

What is NEM 3.0?

NEM 3.0 is California’s third official net energy metering (NEM) policy for dispersed renewable power generation. As outlined by the California Public Utilities Commission (CPUC), NEM was first introduced in 1996, and later updated to NEM 2.0 in January 2016.

Both in California and across the country, net metering policies have tremendously assisted the sustained growth of residential and commercial solar energy installations in the United States alongside federal and local tax incentives.

Who does NEM 3.0 impact?

The policies outlined in NEM 3.0 directly impact residential and commercial solar energy producers within the service territories of California’s three largest electric utilities. Supplying approximately three-quarters of the electricity in the most populous state in the country, NEM 3.0 affects solar customers interconnected to the grid with:

• Pacific Gas and Electric (PG&E)
• San Diego Gas and Electric (SDG&E)
• & Southern California Edison (SCE)

If you are already generating solar energy in California as PG&E, SDG&E, or SCE customer, NEM 3.0 will not impact your current net metering credit structure. Your solar system will remain locked into its original NEM 1.0 or NEM 2.0 framework as per the 20-year term of your agreement.

When does NEM 3.0 take effect?

Following unanimous approval on December 15, 2022, a 120-day grace period has been established before NEM 3.0 is officially launched in California. With this, NEM 3.0 policies will apply to all new solar energy customers before April 14, 2023.

In the meantime, Californians hoping to lock in a NEM 2.0 contract can do so by applying for a solar interconnection prior to the start of NEM 3.0. With a generous grace period of three full calendar years before the physical installation needs to be completed, home and business owners can lock in their 20-year NEM 2.0 contracts by deciding to go solar before the April 2023 deadline passes.

How does NEM 3.0 work in California?

Since its original form, NEM 3.0 was modified several times before it was ultimately passed by the CPUC. Critically, the final version of NEM 3.0 does not introduce any new “solar taxes,” which would add a flat monthly fee for PV systems interconnected to the grid.

Avoided Cost Rates for Electricity Exports

The most important thing to know about NEM 3.0 is the CPUC’s decision to move from a traditional net metering program to a modified “net billing” structure. While true net metering credits solar producers for the energy they send to the grid based on retail electricity prices, net billing credits compensate customers based on the CPUC’s avoided cost calculator (ACC).

Overall, early estimates project that the switch to avoided cost net billing will decrease the value of solar exports in California by 76%. This is based on a blended average of $0.23-$0.35 per kW that producers currently receive when exporting solar falling to a predicted average between $0.05 per kW and $.08 per kW.

Knowing this, the time it takes for a grid-tied solar energy system to pay for itself in utility energy cost avoided will be extended for home and business owners. While this break-even point was previously about six years in length, Californians can now expect a solar payback period of roughly nine years.

Time of Use and Battery Storage

Compensated at variable rates based on the exact day and hour the solar is produced, homeowners will be credited for their grid contributions at higher amounts during hours of peak local energy demand in NEM 3.0. As such, the policy is another good reason for PV owners to install solar batteries and efficiently manage their energy production, storage, and consumption around utility time-of-use structures.

Nine-Year ACC Plus Credits

To smooth the process of reduced solar export values, NEM 3.0 includes a nine-year fixed price adder credit, available to customers during the first five years of the new policy. Dubbed “ACC Plus” credits, the incentive increases the dollar amount for which solar producers are credited at a fixed rate for nine-full years of production. The value of an individual ACC Plus credit will depend on your utility and installation date, slowly decreasing in worth before becoming unavailable in the sixth year of NEM 3.0.

More Incentives to Go Solar Now

With NEM 3.0 slated to significantly reduce the value of new PV systems in California, homeowners and businesses looking to maximize the value of their investment are encouraged to go solar as soon as possible. By designing your system and filing for interconnection before April 14, 2023, there may still be time to lock in your NEM 2.0 contract as a home or business owner in California.

Get started instantly with a free custom solar quote today.

Sunnova & Infinity Energy