Since the California Public Utilities Commission (CPUC) proposed NEM 3.0 in December 2021 it has ruffled feathers. According to Executive Director of the California Solar & Storage Association, NEM 3.0 could “slam the brakes” on California’s solar adoption.
Looking at the proposed changes confirms this statement.
Residential users don’t benefit from NEM 3.0. While policymakers have postponed proceedings, California’s rooftop solar users hang in the balance.
Why has NEM 3.0 caused so much public outcry? Let’s find out. But first…
What Is NEM?
NEM is the acronym for Net Energy Metering. It’s a billing system to incentivize solar users. Under NEM, users receive a financial reward for every kWh of electricity sent back to their regional power grid. The surplus electricity a solar user creates offsets their consumption from the supplier’s grid. If there’s a surplus after, they get paid a tariff. Users are “grandfathered” into their local NEM regulations. This protects them from changes utility companies make in the future.
Financially Beneficial
Solar users earn credits for their surplus energy. They offset their consumption with the extra power they produce. This leads to savings on power bills. While the savings may not seem huge, consumers save in the long run.
Cost Effective
Rooftop solar users don’t need generators or batteries to store extra electricity. Instead, it’s stored in the local utility service’s power grid. Generators and batteries cost more and require maintenance. Eliminating them from a solar power setup is more affordable.
Net Energy Metering is commonly used to make solar accessible to the masses.
When NEM was introduced in California in 1995, it had a similar agenda.
History of NEM in California
CPUC implemented its NEM policy to inspire solar power adoption in 1995. Residential solar owners could earn for electricity sent back to the grid for a tariff, but with a caveat.
The system size for consumers was limited to 10 kilowatts (kW) with a 0.1% net metering cap.
Initially, NEM had several policy changes to create 2.0. It’s active where Pacific Gas and Electric (PG&E), Southern California Edison (SCE), and San Diego Gas & Electric (SDG&E) are utility providers.
The introduction of NEM 2.0 played a definitive role in solar power adoption in California.
NEM 2.0 and Its Impact on Solar Consumer Producers
NEM 2.0 ushered in changes, but the larger framework remained the same.
Under NEM 2.0, consumer producers could:
- get retail value for their extra power, except for non-bypass charges (NBCs).
- enjoy no cap limit on system sizes, up to 1 MW.
Although NEM 2.0 reduced the compensation rooftop solar users received for surplus energy, it was still a big win.
NEM 2.0 removed the 5% cap on consumers within a utility grid. Only a fixed number of residents could adopt solar under NEM 1.0, but there was no limit in NEM 2.0. This triggered a shift to solar installations. Each NEM participant earned an average of 5.8 cents in solar credits.
As of 2022, California has approximately 1.2 million solar panels in use. This comprises 11% of the state’s power production capacity.
However, new users not grandfathered into NEM 2.0 may need more incentive to invest in green energy. Even existing producers could lose protections.
NEM 3.0: The Changes and Implications
CPUC believes large-scale solar adoption shifted California’s clean energy goals. Hence these proposed changes under NEM 3.0:
- An average “grid participation charge” of $8/Kilowatt of the installed solar capacity. This is charged monthly.
- A new “net billing” system factoring in TOU (Time of Use) rates.
- NEM 1.0 and NEM 2.0 customers are automatically updated to NEM 3.0 after 15 years.
- Discounts offered on solar storage to offset grid charges.
- Market Transition Credits to offset costs of installing solar panels.
These changes could be harmful if NEM 3.0 is implemented
Going Solar No Longer Financially Rewarding
The charges to rooftop solar users will increase significantly.
Two factors come into play:
- The new TOU rate, which charges solar users during peak hours.
- Additional grid participation charge.
Let’s look at the chart below for better understanding:
| Utility | Solar Fee (per KW) | Highest On-peak Rate (per KWh) | Lowest Off-peak Rate (per KWh) | Grid Participation Charge (per KW) |
|---|---|---|---|---|
| SCE | $7.39 | $0.482 | $0.186 | $8 |
| PG&E | $10.93 | $0.499 | $0.176 | $8 |
| SDG&E | $11.09 | $0.082 | $0.547 | $8 |
These charges decrease the ROI for homeowners. While solar users under NEM 2.0 could get a payback in six years, under NEM 3.0 it will take 17!
CPUC’s counter is to bridge the gap between low-income families paying high rates and those under NEM.
If the reduction in credits hinders solar adoption, it harms California’s clean energy goals.
Existing Customers Forced into Reduced “Grandfathering”
Grandfathering protects participants from changes to existing rules. NEM 2.0 users will only enjoy 15 years in the program if 3.0 is implemented.
NEM 3.0 proposes reducing this period from 20 to 15 years. Many find this unfair because 15 years is not what NEM 1.0 and 2.0 participants signed up for!
If users want to participate in NEM 2.0, they’ll only have 120 days after 3.0 is passed. Although proceedings are halted until after elections, it’s still a good time to go solar.
Solar Industry May Die An Untimely Death
Despite the payoffs of Market Transition Credits, NEM 3.0 harms California’s solar adoption. The state generates 29.7% of the country’s solar sector jobs. CPUC’s decision could eliminate nearly 70,000 jobs in the sector. NEM 3.0 could set back California’s progress by years and have a negative economic impact.
The Bottomline
The proposed decision by the CPUC may be postponed, but changes will still deter homeowners from going solar. This negatively affects retailers too. The only ones who stand to gain from NEM 3.0 are the utility companies. Given this may lower the economics of going solar by 50-75%, CPUC needs to proceed carefully.
Authored by Ryan Douglas
NRG Clean Power's resident writer and solar enthusiast, Ryan Douglas covers all things related to the clean energy industry.
