By Kaitlyn Short and Jenna Vasquez
Californians are feeling the heat, and it’s not just from the sun. The California Public Utilities Commission (CPUC) just passed a new net metering policy that will significantly reduce the long-term economic benefits of going solar.
This new policy has put added pressure on California residents to go solar before April 2023 to lock in the benefits of NEM 2.0 (the previous policy). After April, solar customers will find the best financial benefit by adding solar battery storage to their system.
Solar batteries can help alleviate pressure on the grid and give homeowners peace of mind during power outages. However, adding a solar battery can almost double the cost of your solar system and installation, putting solar out of reach for lower-income households.
In this article we will cover:
Keep reading to learn more about NEM 3.0 or start researching top-rated solar companies in California.
Note: This new policy and the information in this article are related only to the changes in California in the United States. Other states and countries vary in their net metering policies and incentives.
NEM 3.0 is a new version of California’s net metering policy passed by the CPUC on December 15, 2022. The committee unanimously voted to approve the new net metering policy that will go into effect April 13, 2023.
Under the new policy, electricity export rates will decrease by about 75 percent, meaning your utility company will pay you less for the excess energy you send back to the grid.
The current rate averages $0.30 per kWh, but the new policy will bring the average to $0.08 per kWh. Export payments will fluctuate throughout the day based on an “Avoided Cost Calculator”. The new grid access fee will be $45–$70 per month for a standard system.
Solar customers connected to PG&E and SCE will get an export credit adder (a higher export rate). Residents who go solar in the first year of NEM 3.0 can lock in higher credits for the next nine years. These credits will still not be as high as those of customers with NEM 2.0.
NEM 3.0 does offer exceptions for low-income and multi-family households. Homeowners on CARE/FERA rates, homeowners who live in disadvantaged communities, and customers in California Indian Country still qualify for higher export rate credits.
The NEM 2.0 program was approved by the CPUC on January 28, 2016. This was supposed to be an interim decision that gave the CPUC time to evaluate the impact of NEM on the California grid and utility customers.
The biggest difference between NEM 2.0 and NEM 3.0 is the decrease in export rates. Connection fees have also changed. Under NEM 2.0, there was a one-time interconnection fee of $75. With the new net metering policy, solar customers will have a monthly grid participation charge that fluctuates based on the size of the system.
NEM 3.0 will ultimately lead to a longer payback period and a potential slowdown in the California solar market. In a statement, Sean Gallacher, a vice president of the Solar Energy Industries Association, expressed concern about the proposed decision, saying that “the new net billing structure is too abrupt and threatens to slow the deployment of rooftop solar in California.”
If you already have a functioning solar system in California and have been participating in NEM 1.0 or 2.0, you’re in luck. You will see no changes to your net metering policy when NEM 3.0 takes effect in April 2023.
Existing solar customers and any who have already had their system and permits approved prior to NEM 3.0 taking effect will be grandfathered in with their current guidelines for at least 20 years, and will not have to worry about losing the current savings they are experiencing due to net metering.
Keep in mind, if you are a new solar customer, your system does not have to be fully installed in order to participate in the NEM 2.0 grandfather clause. You simply need to submit the proper interconnection paperwork before the April deadline in order to take advantage of NEM 2.0’s structure and savings. We’ll discuss this in more detail in the next section.
The good news is there is still time to take advantage of NEM 2.0. The new policy includes a 120-day grace period, allowing homeowners to be grandfathered in if they file for interconnection by April 15, 2023. You do not need a permit, an installed system, nor a mechanical inspection to apply for interconnection.
What is an interconnection agreement?
An interconnection agreement is a contract between the electric company and the solar customer. This agreement gives the utility company written notice that a customer plans to install and operate a solar panel system that will be connected to the grid. Solar customers need an approved interconnection agreement before their solar panel system can be installed.
If you use Pacific Gas and Electric (PG&E), you can apply by using the online interconnection tool or a PDF download. You will need to fill out the following two documents:
For Southern California Edison (SCE) and San Diego Gas & Electric (SDG&E) customers, you can find the submission guidelines by searching [utility company’s name + “interconnection agreement”].
Keep in mind that most solar providers will submit the interconnection agreement on behalf of the customer, so you probably won’t need to complete this step if you are already working with a company.
NEM 3.0 is the largest export rate cut in U.S history. If you are in the market to go solar, we strongly recommend taking the plunge before April 2023 so you can secure the benefits of NEM 2.0.
Depending on the size of your system, you could save an extra $40,000–$100,000 over the lifetime of your system if you enroll in NEM 2.0 as opposed to NEM 3.0. The current payback period (the time it takes to break even and start making money off your solar system) of around four years is also projected to double.
For maximum savings, start your search today by finding top-rated solar companies in your area. You’ll be able to research and compare quotes before the new net metering policy goes into effect.
You may be wondering, with so much negative sentiment surrounding this decision by the CPUC, why it even came to be in the first place.
The short answer is that California's solar policy is always evolving. This was just another step in a long-term move toward meeting the state’s renewable energy goals by 2045, which include producing only zero-carbon electricity and ending the use of fossil fuels.
Additionally, the CPUC is required to update its net metering rules periodically according to state law. Thus, NEM 3.0 in one form or another was going to happen, regardless of the specific changes within the policy.
As for why the committee voted to overhaul the policy (and cause solar owners and businesses to take a financial hit), the main reasons for the decision revolve around
Whether or not the new policies sit well with you, the changes were voted on unanimously and will take effect next year. Read on for more information on solar battery storage and whether solar is still worth it for you even after NEM 3.0 changes take effect.
With NEM 3.0, adding solar battery storage will be crucial for solar customers who sign up after April 2023. Under the new policy, electricity payment rates will fluctuate based on time of use.
This new structure is meant to encourage solar battery use and energy export during the evening when electricity rates and export payments are highest. The hope is that this will lessen the load on the electric grid and make California’s energy system more reliable.
You can maximize energy savings by using stored energy during the evening to avoid high energy rates and exporting any excess energy back to the grid when the payback rate is highest. During prime electricity time, you can avoid using large appliances such as a washer, dryer, dishwasher, pool pump, etc.
Essentially, adding a solar battery to your home will help lessen the impact of NEM 3.0’s unfavorable rates on your wallet. Read on for a couple of other silver linings related to the new policy.
SunPower's SunVault Home Battery System. Source: us.sunpower.com/home-solar/storage-config
While you may feel that the changes in NEM 3.0 aren’t the most favorable to the solar industry, we do want to acknowledge some solar owner wins that came from the CPUC’s decision:
While these positive factors don’t necessarily make up for the losses in solar savings when NEM 3.0 goes into effect, they do provide some solace to those looking to buy solar who can’t meet the April deadline to be grandfathered into NEM 2.0.
The short answer is yes. Solar in California is still a great investment and has a good payback period compared to other states because electricity rates are high in California if you don’t own a solar system and are fully reliant on the grid.
The Inflation Reduction Act extended solar and other consumer tax incentives through the end of 2032. So you can still use that solar credit against your taxes owed. (Consult a tax professional for tax-related advice and information specific to your situation.)
We haven’t even gone into the environmental impact of solar as clean energy. Of course, there are other benefits besides financial ones that make solar a sound decision.
Ultimately, each homeowner has their own motivations for making this investment.
But the bottom line is that solar simply won’t pack as powerful a financial punch in California come April. We want to acknowledge that clearly.
That being said, even if you miss the April deadline, we’ll still recommend going solar. Electricity costs from the grid are so high in California that your payback period on a solar system — paid in full or even financed — is likely to precede the degradation of the panels.
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