By Sam Wasson
Updated Jan 17, 2023
The solar industry in California is about to change, and, unfortunately, not for the better. On December 15, 2022, the California Public Utilities Commission (CPUC) unanimously voted to pass an update to its Net Energy Metering (NEM) program. This update is called NEM 3.0, and it’s set to replace NEM 2.0 on April 14, 2023.
California’s new NEM policy will see customers of major utility companies receive 75% less for the electricity they send back to the grid compared to the average amount of the current model. Customers using solar panels can receive an average rate of 30 cents per kilowatt-hour under NEM 2.0, but under NEM 3.0, this rate would be reduced to only 8 cents per kilowatt-hour. Thankfully, California residents and businesses can be grandfathered into the NEM 2.0 system for 20 years if their installers file interconnection applications before April 13.
NEM 3.0, also called Net Billing or the Net Billing tariff, is a change in California’s net metering policy. The bill is not retroactive, so anyone with a solar power system will continue using NEM 2.0 or NEM 1.0, whichever policy was active at the time they signed up. Only customers of Pacific Gas and Electric Company (PG&E), Southern California Edison (SCE), and San Diego Gas & Electric (SDG&E) will be affected.
Several major changes are coming in NEM 3.0, but the largest is the value of exported electricity. Net metering is a system by which homeowners who produce electricity through solar power can send excess energy back into the grid to offset their remaining electricity bills. Until now, California’s net metering policy has been retail rate – a one-to-one system that values the electricity sold back to the utility company at the same amount the company would charge. Under NEM 3.0, they’re switching to a cost avoidance system.
An avoided cost system is the lowest amount a company can pay customers under the Public Utility Regulatory Policies Act of 1978, or PURPA. Under this model, the company pays the customer the amount of money it would have cost it to produce that amount of electricity, which is significantly less than what it typically charges (retail rate). To further complicate things, the rates for each customer will vary by month and by hour. If that sounds complicated, well, it is. Ultimately, the math works out to customers receiving, on average, 75% less for the electricity they sell back to the grid. This chart from the California Public Utility Commission titled Decision Revising Net Energy Metering Tariff and Subteriff shows how much less customers can expect to receive.
This new proposal is not all bad, and there are a few upsides to NEM 3.0. The initially proposed solar taxes that were part of the bill have been dropped. These taxes would have added up to around $60 a month for solar panel system owners, but they have been scrubbed from the bill. Next, this system incentivizes solar batteries by altering the rate of returns for solar energy. Looking at the above chart, you can see that the electricity price and export rate skyrocket from 4:00 p.m. to 9:00 p.m. With a solar battery, homeowners could store their excess power, then deposit it all during these times, maximizing the amount of money sold per kilowatt-hour. While NEM 3.0 won’t ever provide the same amount customers get under the current system, they can offset the damage with careful planning so long as they have a solar battery.
Overall, this decision is a massive disappointment for solar advocates in California. This state has been one of the leading figures in green energy, with its previous NEM policies supporting 1.3 million customers in producing 10,000 megawatts of renewable power, most of which came from solar power. While not all elements of this bill are for the worst, we cannot help but feel like this is a massive step backward.
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