NEM 3.0

Overview

The solar landscape in California is changing as of April 2023. You need to equip yourself with the knowledge and skills to thrive in the new environment.

Check out the ESPGPT NEM Battery Calculator tool

Utilities Impacted By NEM 3.0

As of now, only customers of the three big investor-owned utility companies in California are impacted by NEM 3.0:

• PG&E - Pacific Gas & Electric
• SCE - Southern California Edison
• SDG&E - San Diego Gas & Electric

If your customer isn’t on one of these, then you can go about your day as usual!

What is NEM?

Net Energy Metering (NEM), also just called Net Metering, is an agreement between a utility customer and the utility or power company. Under any NEM agreement, utility customers (homeowners in our case) who generate their own solar power receive a credit on their electric bills for excess energy fed back to the grid. For many customers who are able to size their system appropriately, solar power exported to the grid ‘offsets’ the cost of using utility power almost 1 to 1 (also known as ‘100% offset’), and these savings help in paying off the cost of the solar system installation itself. 

What's the Difference Between NEM 2.0 & NEM 3.0?

NEM 3.0 is a new version of the billing structure that goes into effect on April 14th, 2023, in California, enabling the three big investor-owned utilities to reduce homeowner export rates. The new billing plan is called Net Billing instead of Net Metering, but for common usage, we’ll still refer to it as NEM 3.0.

The major differences on NEM 3.0 are as follows:

• Reduced Value of Exported Energy - The monetary value of solar energy sold back to the grid is reduced on average by around 70-75%. (Previously 1 to 1, now extremely varied depending on the hour of the day)
• New Rate Plans - each utility is allowed to impose new “highly differentiated” time-of-use (TOU) rate plans. Every hour of every day in each month is assigned a different value. (TOU has been in place for a while, but used to be much simpler than the proposed structure)
• 150% cap on oversized systems - Customers will be capped out at sizing a system up to 150% of their current energy usage. (Previously up to 200%)
• Monthly “True-Up” Bill Payment - Customers will be required to pay all monthly charges on each utility bill, including ones not offset by solar production. (Previously an Annual true-up)
• Generation Incentive & Legacy Period - this incentive, known as ACC Plus, is designed to reduce the impact of the rate switch by offering slightly more credits for excess energy production in the first 9 years (the “legacy period”), and will benefit homeowners who sign up early. This is also referred to as a “glide path” for solar credits, intended to step down the incentive amount every year. The longer a homeowner waits to purchase solar, the lower their solar exports will be worth.

Here is an example of the TOU rates for import (buying) and export (selling) on a daily basis (Note: this will change based on the month):

When Does NEM 3.0 Go Into Effect?

These changes are scheduled to take effect on April 14th, 2023. All customers who have a complete NEM application submitted by April 13th, 2023 will be grandfathered into NEM 2.0 for a full 20 years. 

Pre-Sale Concepts NEM 3.0

Sizing the system is critical. With too little storage capacity sold, the system will produce enough to cover some loads, but most likely will run out and force the homeowner to purchase the utility company’s electricity. With too much sold, the system will constantly self consume (that’s good - they get full value of the solar production), but may max out storage reserves and send more back to the grid (that’s bad - the buyback credit for excess will be much less than in the past). 

Backup vs. Self-Consumption

Batteries have the natural benefit of offering security in emergency situations as well as savings through what’s called “self-consumption”, aka behind-the-meter usage. Designing a system for backup is different than designing for self-consumption, so it’s important to discuss the benefits with your customer and determine which matters more to them. The backup interface installation can often one of the most expensive and complex components of an energy storage system. Either way, they’re becoming more energy-independent so it’s a win.

Capacity vs. Power

Capacity is the amount of electricity a solar panel battery can store, and power is how much electricity it can provide at any given moment. A battery’s capacity is measured in kilowatt-hours (kWh). The battery’s power rating will tell you the amount of electricity that the battery can deliver at one time, measured in kilowatts (kW). Think of it as the gas tank and the horsepower rating of a car's combustion engine - how far can you go, and how fast can you rev up. 

Battery Life (Cycles) vs. Warranty

Because the life of any battery naturally degrades over time, just like cellphones, it’s important to know the expected lifespan of the potential solar battery you will be selling or purchasing. A battery’s lifespan is usually measured in either a total number of full cycles or in years, and the warranty will generally cover one or the other, whichever comes first. Over time, it will lose some of its capacity as well.

One cycle of a battery is when it is fully charged and then discharged. Different types of batteries will have different “depth of discharge” so this refers to the total energy that can be safely expended without over-shortening the battery life. Some battery systems may only be used (discharged/cycled) a few times a year, whereas others could be every day if it’s an off-grid system.  Check the specs for the different offerings available at time of sale to understand the specifics. 

Top Selling Points Of NEM 3.0

• Are you tired of the utilities changing rates and just sucking it up and paying what you get sent in the mail? This lets you escape that grind by owning your power.
• You don’t need to change your budget to get solar and a battery - you’re replacing your current electric bill with a fixed, affordable solar and battery payment. 
• Wouldn’t you love to have saved thousands of dollars over the next 10-20 years by making a smart investment today?
• You get a really cool app that helps you monitor and control the battery systems
  • If backup: you can select specific devices or appliances to stay on during outages (no more spoiled food).

FAQ’s

Q: If a customer on NEM 2.0 adds to their existing solar system after NEM 3.0 takes effect, will they still have their old NEM 2.0 rates?

A: It depends. If the customer's nameplate rating on the inverter does not change when they install the additional panels, they could still be able to maintain NEM 2.0. For example, if they have 10kW of solar panels on a 15kW inverter and add on less than 5kW, their nameplate rating doesn’t change. If they are only adding a battery (for backup or behind-the-meter usage) then it should not trigger a NEM change. However, new NEM docs are submitted on most loans because finance companies require it as part of their paperwork, and it’s possible they will be switched to NEM 3.0. We are allowing system upgrades with a minimum of 8 panels so long as the homeowner signs a NEM Waiver stating they accept the new billing circumstances of any changes the utility makes to their net metering agreement.

Q: How will NEM 3.0 affect the Return on Investment period for purchasing solar?

A: Under new NEM rules, the return on investment period is expected to be longer compared to previous rates. The CPUC has stated that the ROI is expected to increase from 6.5 years to about 9 years on a moderately low-priced system. According to estimates we’ve seen, the average payback period is expected to be about 2-3 years longer but still quite favorable compared to other locations in the country.

Q: How will utility billing change under NEM 3.0?

A: Under NEM 3.0, payment for bill charges will be due monthly. In months where excess solar energy has been exported and bill credits have built up, the credits will roll over to the following months, until the annual true-up. This is already the case in many other states and helps avoid a big surprise true-up bill at the end of the year if they’ve been using more energy than their solar puts out. Customers can also request a one-time change to their annual true-up date of their choice by contacting the utility

Q: If a customer needs additional equipment that extends the overall project timeline, like a Reroof or Main Panel Upgrade, will that affect their ability to get NEM 2.0?

A: Assuming the NEM packet is submitted with all information before the deadline, then ESP will have three (3) years to install the solar system for the customer to get locked into NEM 2.0. 

Q: Net Metering changes in other states tanked the solar industry, and took a while to recover. Is California different?

A: California continues to boast some of the highest utility rates in the country. The blended NEM 3.0 payback rates are still favorable for solar, especially with a self-consumption battery setup installed. We’re expecting California will go from the first-place best market for solar, to the first-place best market for solar by a smaller lead. Whether you’re able to see savings on a year-one power bill, or if its more of a “bill swap” (think renting vs. owning your house), will depend on the customer and the pricing you’re able to offer.

Q: What are the export rate adders and how does a customer get them?

A: When a customer’s system receives Permission to Operate (interconnection) they are automatically enrolled in the current Export Rate Adders on the nine-year legacy glide path. Every hour of every day will have specific ¢/kWh values added to the given export rates at that time for the first nine years of system operation. Customers who install in the first year of NEM-3 will get the Year 1 adder on top of the export rate for nine years. Customers who install in Year 5 will get the (reduced) Year 5 value for the first nine years of their system. This is automatic and not something the customer needs to apply for, as it’s based on the utility interconnection.

Q: Does NEM 3.0 stay with the property upon sale of a home?

A: Unlike NEM 1 & 2, NEM status does not stay with the system when a property is sold.  The locked-in export rate and adders are limited to “the customer who originally causes the system to be installed” or “a legal partner ... of the original customer.” The new owner still has a NEM agreement but their export rates may fluctuate according to updates to the Avoided Cost Calculator.