The impact of California's NEM 3.0 policy on the renewable energy industry and current and future customers has been a crucial topic of discussion. The first NEM 3.0 proposal was strongly opposed by industry professionals, which delayed the decision for nearly a year. The CPUC then released an updated proposal in November 2022, which will go into effect on April 15, 2023, reducing average export rates from $0.30 per kWh to $0.08 per kWh, resulting in one of the most significant export compensation rate cuts in the nation’s history. Current customers that installed solar systems before the effective date will be grandfathered under the NEM 2.0 structure.
California solar customers expect to earn much less for electricity pushed out to the grid. Compensation cuts for solar owners were prompted by the highly debated cost shift, the argument that rising utility costs are a result of solar customers not paying their share of utility costs, leaving non-solar customers to make up the difference.
Brief NEM Overview
Net Energy Metering (NEM) was established in the US in the 1980s to enable clean energy development. Net energy metering compensates renewable energy system owners for electricity exported to the grid. More than three dozen states in the US have adopted net metering laws, while some other states offer programs based on regulatory decisions, varying how solar customers receive compensation from state to state. In a state with net metering, homeowners earn credits to offset their energy consumption. Net metering enables control over electricity bills by promoting customers to generate clean, renewable energy, according to SEIA.
NEM 1.0 vs. NEM 2.0
Net energy metering in California started in 1996 to boost solar energy growth and incentivize solar system installations, later mandated by state legislation. The original net metering policy was straightforward in accounting for every kWh of electricity generated by solar added to the grid. The evolution from NEM 1.0 to NEM 2.0 involved minor changes but largely maintained specific elements like retail rates and bill credits. In more detail, NEM 1.0 included a $1 monthly connection fee, roughly $0.25 kWh bill credits, no by-passable fees, and an average of more than $200 in monthly savings for 10 kW systems. NEM’s second iteration was established after July 2017 to secure solar customers into 20-year rate plans with one-time connection fees, approximately $0.25 per kWh bill credits, an average of more than $200 in monthly savings for 10 kW systems, and a by-passable charge of $0.02 per kWh. After January 1, 2021, customers were enrolled in NEM 2.0. Customers under NEM 1.0 and 2.0 will remain under these programs.
What to Expect
So, what changes can be expected under NEM 3.0? According to the CPUC, new residential rates for peak and off-peak pricing for battery storage will incentivize innovations that support decarbonization, supplementary electricity bill credits to homeowners who add solar or solar and storage systems within the next five years, authorized solar system size increases up to 150 percent of a homeowner’s energy usage, and broadening solar and storage accessibility for low-income households can all be expected with the new tariff. The CPUC says the decision was prompted by a need to modernize NEM to encourage grid reliability and growth of the solar industry. President Alice Reynolds said the decision will move the solar industry forward by allowing new technology to progress in meeting climate goals and sustainability.
Various groups and organizations have described the CPUC’s decision as detrimental to the solar market. According to a Wood Mackenzie analysis, NEM 3.0 would diminish the California residential solar market by half by 2024. Some sources suggest the solar system payback period could double for solar customers. “Beyond this threshold, customers are less inclined to invest in solar projects, and installers are less motivated to sell them,” said co-author of the report Bryan White. The impact, however, goes beyond solar customers by potentially inundating solar installers with project requests before April 15, potentially leading to continued supply chain instability and product shortages. The implications of NEM 3.0 continue to be up for debate by solar industry leaders.
Notwithstanding state policy changes, solar continues to enjoy robust support at the federal level, with the extension of federal tax credits through the IRA intended to incentivize current and potential customers to add and maintain solar systems. Regardless of where we are on the solar coaster, Greentech Renewables remains steadfastly committed to supporting your solar business with over 90 locations across the US equipped with knowledgeable solar professionals to support your unique solar needs. Our locations offer comprehensive resources like informative training events, financial assistance, design support, and extensive product knowledge. Contact a location near you today!