November 18, 2022

Power Struggle: The Impact of NEM 3.0

The conversation about Net Energy Metering has been front and center for the solar industry in the last few months, as analysts and installers waited to hear what the NEM 3.0 proposal would contain. We have known for some time that this proposed update could contain such odious inclusions as a solar tax, and we’ve worked tirelessly to make it clear to the California Public Utilities Commission that such anti-consumer measures should not be ratified.

While we’ve heard rumblings time and again that a decision was forthcoming, the updated NEM proposal was held back time and again, whether from external pressure from consumer advocacy groups or to hold for more advantageous timing. As election season has just come and gone, the floodgates have seemingly been opened, and the NEM 3.0 proposed decision has finally arrived. The entire proposal can be found here, but don’t plan on reading the document cover to cover unless you have a particularly long lunch break, as it clocks in at a whopping 241 pages.

For those who don’t have the bandwidth to take on a book report of this size, do not fret, as the good people of CALSSA put together an informative webinar chock full of analysis of the new agreement, and we’ll review the top takeaways for you to make sure you’re armed with the most important insights. Specifically, if you’re a homeowner who is considering solar, there are some critical deadlines to be aware of, as well as some sizable changes to understand. Let’s dive into the nitty gritty of NEM 3.0.

What is NEM 3.0?

NEM 3.0 is the proposed third iteration of Net Energy Metering, a program which allows customers with a solar installation or other means of onsite energy generation to export their surplus energy back to the utility in exchange for a financial credit on their electricity bills. NEM 3.0 proposes sweeping changes to the current “time of use” model used by NEM 2.0.

What is changing with NEM 3.0?

On Thursday, November 10th, the California Public Utilities Commission, or CPUC, released their proposed decision for NEM 3.0, which aims to cut the average export rate in California by roughly 75% - from $0.30 per kWh to $0.08 per kWh. Export rate in this instance refers to the rate that homeowners are compensated by the utilities when their solar system feeds energy back into the grid.

Prior to this proposed update, homeowners were paid the same rate for their exported energy as they would pay the utility to use energy from the grid, meaning that home generated energy was respected financially at the same level as energy purchased from the utility. If NEM 3.0 passes, the utility would be able to charge homeowners a premium for their energy, yet significantly undercut the value of home-generated energy. Bearing in mind the fact that not all grid energy is cleanly generated, this seems out of step with California’s own green energy goals. Home-generated solar energy represents a step forward from fossil fuel power plants, yet the utility will be able to benefit from the efforts of conscientious homeowners without properly compensating them for their contribution.

From Time of Use to Hourly Values

Another way that Net Energy Metering is changing is the shift from Time of Use to Hourly values. This is one of the most complex changes coming with NEM 3.0, and it’s the one we are most hopeful will change before the final vote. Under the current agreement, the value of your solar credits are determined by the time of day. While the cost of electricity would vary throughout the day based on demand, the variance would be in larger time blocks, typically determined as Peak and Off-Peak. If you exported energy during Peak hours, you would get more value for your credits, but it was a simple calculation on the part of the customer - do I want to export in Peak or Off-Peak hours?

With Hourly values, you’re going to need to put on your thinking caps, because there are different hourly values for weekdays and weekends, with adders and different monthly periods to consider. What this amounts to is 576 discrete values per year, some much more lucrative than others. Managing your energy exports just went from a binary to a spreadsheet bonanza, and consultants will have to strategize with their customers about the best way to make use of this new export schedule. 

We’ve included a table that illustrates the expected rates by utility.  The “Avoided Cost” is the best pricing that the utilities can get on the open market when buying power from large power plants, which could be anywhere from 3-5 cents per kWh. A homeowner in the PG&E area can then add an additional 1.8 cents to that rate, and this would ultimately be the rate that PG&E will buy back electricity from your solar system.

When does NEM 3.0 actually start?

Based on the schedule outlined by the CPUC, the new agreement will go into effect 120 days after it is voted in, which, if the December 15th vote is not delayed, puts the start date for NEM 3.0 in April 2023. This means that as a prospective solar adopter, you need to be aware of what will happen over the course of these 120 days, and what will happen once the window closes.

As it stands, we are anticipating several implications for our customers within this timeframe, including the following possible outcomes:

  1. Statewide demand for solar panels and batteries is expected to rapidly drive prices up and availability down as interest surges and people try to beat the deadline. 
  2. Lead times from order to installation will likely increase due to delays from overwhelmed permitting authorities and utilities.
  3. NEM 3.0 will go live after a 120 day transition notice, so enrollment in NEM 2.0 will end sometime in April 2023. Applications must be submitted before then to qualify.

These expected policy changes will certainly impede California’s clean energy adoption, though the value of a solar installation remains strong. As the California solar mandate evolves to include battery storage options, homes with an existing installation will only increase in value. Despite the utility-driven push to remove customer benefits, solar installations are still the most effective way to combat rising energy prices and rate hikes, and savvy homeowners will find ways to make the most of the new hourly values.

Simply Solar is committed to helping our customers make the most of the current and future NEM agreement, whether that’s NEM 2.0 or NEM 3.0. To make the most of your solar investment before the enrollment window closes for good, reach out to one of our expert solar consultants today!

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