What is NEM 3.0 in California?

What's NEM 3.0 All About?

Net Energy Metering (NEM) 3.0 is California's latest tweak to its solar energy policy.

On December 15, 2022, the California Public Utilities Commission (CPUC) voted unanimously to approve this third iteration of net metering, which has significantly reduced compensation rates to homeowners for new California solar customers by 75%.

If you've got solar panels on your roof, this policy lets you rack up credits for the extra juice you send back to the grid. Those credits can then help slash your electricity bills, making solar power a sweeter deal.

NEM 3.0 builds on the older versions, NEM 1.0 and NEM 2.0, by tweaking how much you get paid and adding some new rules. The aim? To keep things fair and make sure the grid stays in good shape.

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What's Changing for Homeowners?

NEM 3.0 shakes things up with a few key changes you should know about.

The new version is based on "avoided cost" rates, meaning your utility pays you for electricity you send to the grid that is no longer based on your typical electricity rates, like traditional net metering, but rather calculated outside this normal regime.

The rate now varies depending on the hour of the day, day of the week (i.e., weekday vs. weekend), and month you export the energy. There's now about 576 different export rates in total!

The avoided energy costs rates come out to about 25 percent of retail electricity rates during those same hours, meaning the value of net metering credits has decreased by about 75 percent under NEM 3.0.

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What Does This Mean for You?

For more on NEM charges, check out our article on why are my nem charges so high. Curious about the solar buyback program by Southern California Edison? Head over to southern california edison solar buyback.

If you're curious how this will affect payback and other arbitrages you can employ, read further.

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Solar payback periods

When the CPUC passed NEM 3.0 in December, our initial analysis indicated an eight to ten-year payback period for solar installations, with a shorter period for those who also installed a battery.

However, since NEM 3.0 took effect in mid-April, the payback period for solar quotes in California has been much shorter than anticipated. In January, all three of California's investor-owned utilities significantly raised their electricity rates, with San Diego Gas & Electric increasing rates by 25% over the NEM 3.0 filing rates.

Higher electricity rates directly lead to shorter payback periods.

Additionally, solar prices in California have decreased recently, with quoted prices dropping over 5% in the third quarter of 2023 compared to their peak in April 2023. Lower solar costs also contribute to faster payback periods.

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Increased importance of solar batteries

NEM 3.0 has increased the savings potential of pairing your solar panel system with a battery.

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Under NEM 3.0, the payback period for a solar-plus-storage installation is now shorter than for a solar-only installation. As a new customer under these rules, if you install a solar battery and store excess surplus energy onsite, you can charge your battery system for later use, maximizing the value of your solar power and minimizing exports to your utility company through self-consumption, especially when time-of-use rates are higher.

While the payback period for a solar-plus-storage system may still be longer under NEM 3.0 compared to NEM 2.0, it is now shorter than for a solar-only installation. This means that under NEM 3.0, you will save the most over your solar energy system's lifetime if you add a battery.

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Essentially, NEM 3.0 has shifted more capital costs to homes and the grid is facing more interesting changes as the Duck Curve smoothes out. Batteries are a big part of this and so are virtual power plants.

Overall, NEM 3.0 is a significant change to the old regime deployed by CPUC. Time will tell if NEM 3.0 sees an increase in solar installations across the state.