What is NEM 3.0 and How Will it Impact Solar Owners?
On December 15, 2022, the California Public Utilities Commission (CPUC) voted to approve California’s third iteration of net metering, or NEM 3.0. Under the new tariff, NEM 3.0 will significantly reduce net metering compensation rates for new California solar customers by about 75 percent — however, you still have through April 14, 2023 to submit a completed interconnection application and lock in NEM 2.0 rates for 20 years.
Net metering (or NEM) allows you to earn credits for any excess solar electricity you send to the grid when your solar panel system generates more than you need.
Reduced Net Metering Credits
The main impact of the NEM3.0 is that it reduces the compensation for the excess power you send back to the electric grid. Many states offer a credit equal to the retail rate of electricity for exported solar production; NEM 3.0 now establishes a new rate for crediting solar exports, shifting from net metering to net billing, which is much lower in value—like, a lot lower.
NEM 3.0 is based on “avoided cost” rates, meaning what your utility pays for any electricity you send to the grid won’t be based on your typical electricity rates, like a traditional net metering credit, but rather calculated separately. The exact rate varies depending on the hour of the day, day of the week (i.e., weekday vs. weekend) etc.
How This Impacts Solar Homeowners
Under NEM 2.0, most homeowners in California have a solar payback period of roughly 5 to 6 years. Under NEM 3.0, that number now shifts closer to 9 to 10 years. And, over the lifetime of your solar energy system, you’ll lose out on about 60 percent of savings under NEM 3.0, compared to NEM 2.0.
Increased Importance of Solar Batteries
Part of the changes in the NEM 3.0 text is a push for pairing solar with battery storage. That’s because the issue isn’t generating solar electricity in California; it’s storing and using it since peak solar production doesn’t align with peak energy consumption.
In fact, the new export rates can be as high as $3.32 per kWh during peak demand hours in September. With battery storage, homeowners under NEM 3.0 can store solar electricity generated during the day and push it on the grid in the evening when export prices are at their highest. NEM 3.0 does increase the savings potential of pairing your solar panel system with a battery. In fact, under NEM 3.0, the payback period for a solar-plus-storage installation will be faster than for a solar-only install.
An analysis of the NEM 3.0 proposal shows that the ROI for solar and battery combinations will be roughly equal to the ROI of solar alone. With these new changes, it’s clear as to why you absolutely should pair your solar system with a battery to get the same return on investment — plus the additional advantage of having 24/7 backup power in an outage, or at night.
If You’re Looking to Go Solar
If you’re thinking about going solar soon, you’ll need to submit a final interconnection application, including a signed contract, a single-line diagram (a basic system mockup), and an attestation if you’re oversizing your system — before NEM 3.0 goes into effect by April 14. You’ll also need your solar system to be built and connected to the grid within the first three years of NEM 3.0 to retain your NEM 2.0 eligibility.
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