What is NEM 3.0 and Why it Matters for Solar Companies

User AvatarDiana May-Jennings

Big changes are happening in solar.

If you haven’t been keeping up with California’s recent solar program change, don’t worry. We have and we’ve got all the information for you here (plus candid thoughts about the new policy).

Check it out now. 

What is NEM 3.0?

Net Energy Metering 3.0 or NEM 3.0 is a regulatory policy being considered by the California Public Utilities Commission (CPUC) to support the growth of distributed energy resources (DERs) and the transition to a cleaner energy system.

NEM 3.0 is the next iteration of California’s net metering program which allows homeowners, businesses, and other customers who generate their own electricity from solar panels or other renewable sources to sell excess electricity back to the grid. As of December 2022 NEM 3.0 has replaced the current NEM 2.0 program, which was set to expire at the end of 2021.

What’s the Purpose of NEM 3.0?

The proposed changes in NEM 3.0 would continue to credit customers for excess energy produced by their solar panels or other DERs, but at a reduced rate compared to previous programs. The proposed changes would also impose fees for new installations of rooftop solar systems, and increase fixed charges for all utility customers.

The purpose of NEM 3.0 is to ensure that the costs and benefits of rooftop solar and other DERs are more fairly shared among all customers, while still encouraging the growth of clean energy in California. 

NEM 2.0 vs. 3.0

Keep in mind that NEM 3.0 is not retroactive, so all solar systems installed under NEM 1.0 or NEM 2.0 will remain under their current policy for 20 years from the date they received permission to operate (PTO).

To be “grandfathered” into NEM 2.0, California residents had to have submitted an Interconnection Application for a new solar system by April 14, 2023. Unfortunately since this date has already passed, all residents will now automatically be under NEM 3.0. For those still under NEM 2.0, the Solar Learning Center provides tips and tricks:

The big thing to know is, on average, NEM 3.0 export rates are around 75% lower than the export rates for NEM 2.0.

Image Source: Public Utilities Commission of California Appendix A

According to this report, if California residents apply to connect your solar system to the electric grid before the end of 2027, then for the first nine years after your solar system is interconnected to the electric grid, these prices will be based on what was predicted before you installed solar, to provide a measure of certainty for the purpose of predicting bill savings. 

Concerns We’re Seeing

With how unfamiliar this program is, there’s always cause for concern. And we’re not the only ones thinking about it. A few of the potential issues with the shift from NEM 2.0 to 3.0 are things like:

  • Possible reduction to the financial incentives for customers to invest in rooftop solar systems and other DERs, which could slow down the growth of clean energy in California. 
  • Reduction in credit rates and the imposition of new fees for solar installations could make it harder for customers to recoup their initial investment in renewable energy systems.
  • Increased fixed charges for all utility customers could disproportionately affect low-income households and those who cannot afford to install rooftop solar systems. These customers would have to pay more for their electricity, regardless of whether they use grid-supplied electricity or generate their own with solar panels.
  • Creating regulatory uncertainty and making it harder for businesses to plan and invest in clean energy projects in California.

So, What does NEM 3.0 Mean for Solar Companies?

As of December 15, 2022, NEM 3.0 has officially been approved. The changes and estimated impacts that had been released by the CPUC includes:

  • Reduction in the retail credit rate for excess energy exported to the grid from solar and other DERs
  • Implementation of non-bypassable charges (NBCs) for new solar installations, which would add fees to a customer’s bill to cover costs that cannot be avoided even with the use of DERs
  • Increase in fixed charges for all utility customers, which would also include those who use solar and other DERs

According to a report by the Solar Energy Industries Association (SEIA), these changes to NEM 3.0 could reduce the financial benefits of rooftop solar systems, which could result in a decline in solar installations in California. 

The report estimated that the changes could result in a reduction of up to 40% in the net present value of a typical residential solar system in California.

It’s Not the End of Solar Sales in California

Although it’s fair to have concerns, this isn’t to say that the future of solar is dead in California. It’s simply evolving and with that many companies will also have to adapt their approach to customers living in states that may pass something similar to this program in the future. And whether we like it or not, the landscape of solar sales and solar billing has changed forever in California.

Possible future hopes to the changes that NEM 3.0 poses are:

  • Pairing solar with battery storage will be more beneficial under NEM 3.0
  • There are no new charges or fees, commonly known as “solar taxes”
  • There will still be a market for solar sales
  • NEM 2.0 status can still be maintained for residents, NEM 3.0 isn’t retroactive

This Still Matters Outside of California

If you sell solar in California, then this article holds no surprises for you. But for solar teams outside of California this is still something to keep top of mind. Although it may not be happening where you’re currently selling, that doesn’t mean it can’t in the future depending on how it performs in California. 

Passing NEM 3.0 is a reminder that states can alter their legislation and dramatically change the future of our industry at any time. So stay up-to-date with changes like these.  

Join the Bigger Conversation

There is a lot of controversy and discussion over the topic of NEM 3.0 that all solar companies and team members should be actively following. 

Get answers to the most common questions asked about NEM 3.0 from industry leading solar experts, so you can be informed on the implementation stage of NEM 3.0 and how it will continue to affect solar sales in California for the next decade.

What Do You Think?

What are your thoughts and opinions about this new program? Whether you’re in solar or not we would love to know what you think about how the sales industry is developing down below.  Don’t be shy, your insights could help someone in this situation or at least get the conversation going about the future of solar sales.

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