What’s Happening in Solar? NEM 3.0 + Rising Interest Rates

User AvatarDiana May-Jennings

California has been a pioneer in promoting renewable energy, particularly solar power. Over the years, the state has implemented various policies and incentives to encourage the adoption of solar energy systems, including net metering, tax credits, and renewable portfolio standards.

In its early days, solar energy was considered a niche market, embraced primarily by environmental enthusiasts. But, over the years, technological advancements, declining costs, and growing environmental concerns have propelled solar energy into the mainstream. Solar has become a viable and attractive option for homeowners, businesses, and even utility-scale projects.

However, the solar industry is always subject to fluctuations due to a variety of factors, including changes in government policies, economic conditions, and technological advancements; and the most recent fluctuations have come in the form of NEM 3.0. See what’s happening in California, what real solar executives are saying, and what to do next.

Table of Contents

Understanding California NEM 3.0

First things first; on December 15, 2022, the California Public Utilities Commission (CPUC) issued a decision that changes the way net energy metering works in California. Because of this decision, on April 15, 2023 new solar customers will automatically be enrolled in the new Net Billing Tariff (NBT) where customers will be credited for electricity they export based on its value to the grid. 

Based on the CPUC, these changes were made to promote grid reliability, incentivize battery storage, and help to control electricity costs for all Californians.

Net Energy Metering (NEM) 3.0 only affects the three largest investor-owned utilities: Pacific Gas & Electric, Southern California Edison, and San Diego Gas and Electric.

NEM 2.0 vs. NEM 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. Since this date has already passed, all residents will now automatically be under NEM 3.0. 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. Use this guide for more information on the net energy metering comparison.

Another part to NEM 3.0: fixed-income rates

As if the shift to NEM 3.0 isn’t big enough, California legislators have introduced a new component: fixed-income or income-based rates for power. California’s three largest power companies, Southern California Edison, San Diego Gas & Electric, and Pacific Gas & Electric, have submitted a joint proposal to the state’s Public Utilities Commission to simplify electricity bills to include a fixed-rate billing system based on household income. 

Simply put: the more you earn, the more you pay.

The fixed rate will cover “the costs of safely building, maintaining and operating the electric grid, of providing customer support, and the cost of state initiatives to help income-qualified customers and energy-efficiency programs.”

—Southern California Edison, SCE

Why California changed rooftop solar laws

California’s decision to modernize the Net Energy Metering (NEM) solar tariff is meant to equalize the cost of energy among California residents and replace the use of fossil fuels, making for a more eco-friendly process. 

Although, many are arguing that this new law defeats the purpose of buying solar since its advantages of saving money are diminished under the new tariff. 

According to Commissioner John Reynolds, “Today’s decision will bring rooftop solar into a new and more sustainable age. NEM has left an incredible legacy and brought solar to hundreds of thousands of Californians, but it is also profoundly expensive for non-solar customers and was overdue for reform.”

What solar policy change means for Californians

The decision has no impact on your existing rooftop solar customers, maintaining their current compensation rates. 

However, under the new tariff, average residential customers who install solar are reportedly going to save $100 a month on their electricity bill, and average residential customers who install solar paired with battery storage are expected to save at least $136 a month. 

With these savings on their electricity bills, new solar and solar plus battery storage customers should fully pay off their systems in just 9 years or less on average.

However, residents are realizing that the policy change will reduce the money credited to rooftop solar owners for sending excess power into the grid, a reform adopted after critics successfully argued the perk is unfair to those without panels.

According to the Public Utilities Commission, the new tariff:

  • Applies new residential rates to encourage electricity use when it is most beneficial for grid reliability. These rates have significant differences between peak and off-peak prices to incentivize battery storage and load shifting from evening hours to overnight or midday hours. 
  • Credits solar and solar plus battery storage customers for the electricity they export to the grid based on its value. 
  • Provides extra electricity bill credits to residential customers who adopt solar or solar paired with battery storage in the next five years, which are paid on top of the avoided cost bill credits. Customers are guaranteed these extra bill credits for nine years.
  • Expands access to solar and storage for low-income customers, residents living in disadvantaged communities, and residents living in California Indian Country by providing a larger amount of extra bill credits.
  • Increases the allowable size of rooftop solar systems to cover 150% of a customer’s electricity usage to accommodate future electrification of appliances and vehicles.
  • Does not include any charges specific to solar customers.

In order to support the evolution and growth of the solar industry, California is providing extra bill credits to residential customers who adopt solar over the next five years. Hopefully, allowing California businesses to gradually transition from solar-only sales to solar plus battery storage sales, fostering a stronger local economy. 

According to Goodleap, under NEM 3.0 legislation, we’re seeing a 75-80% decrease in the value for solar exports. Meaning that customers under this new tariff receive less value for the solar power they send back to the grid.

It’s hard to say whether the adoption of this change will in fact foster a stronger economy in California like legislation is hoping, but it will significantly impact the future of solar sales in the sunshine state.

So, what does NEM 3.0 mean for your solar business?

Because of this new law, it’s likely your business will see a significant decrease in California solar installation for at least the rest of 2023 into 2024. There used to be a significant advantage to installing solar panels—before this legislation—having solar panels meant huge savings on your energy bills. Now, however, it’s based more on your income than your kWH usage, and exporting to the power grid is no longer as financially rewarding. 

While the early solar market primarily focused on selling the idea of going solar, the industry has now reached a critical juncture where selling the technology itself is no longer enough. You have to learn to adapt now. To stay ahead, solar sales organizations must adapt their strategies to emphasize the value and efficiency that solar energy delivers to consumers that are hesitant to purchase.

A Solar CEO’s thoughts on the state of the industry

We all know that there are real changes going on in the solar sales process, but what are actual solar CEOs and executives doing about it? We figured it out for you by interviewing a leader in the solar space: Cody Veibell.

From selling alarm systems door to door to becoming the VP of sales for companies like Vivint, Cody has moved on to a company that was underperforming and helped them boost their revenue and crush all previous sales records.

Cody Veibell CEO of Suntria

What should solar teams be doing?

“Focus on what you can control. You can’t control dealer fees and other necessities of the space. Focus on what you specifically can do to make a change in the market. Build a team that won’t get shook by what’s happening in the industry.”

What other ways can teams create real value for the customer?

“The solar piece is a pretty major transaction for the homeowner. You have to become an important service provider to them. If properly done and managed, you should be in a position to go back and sell them other services and offerings that you may not sell upfront at the time of the solar sale. Then in 6 months, maybe in 12 months, or 24 months you can revisit. You’re gonna build this really valuable customer base and prove a history of going back and upselling them to additional services and offerings, therefore increasing the lifetime value of that client beyond the original economics that you would get from a solar deal.“

“If you take care of your customers and employees you’ll survive these economic changes. Just keep trying to think of ways to create long term customer value. It can be as simple as that.”

What should companies (sales dealers, EPCs, and other solar teams) be doing in terms of cash flow?

“It comes down to leadership. There are EPCs that are running great and sales engines that are running great. If you’re just in it for the money, you’re failing as a company. If you care for your customers you’ll weather the storm. You need the right type of people, in your orgs.”

“As a leader you have to lead by principle. Overextending in incentive plans will set yourself up for failure. If somebody’s paid a little bit less per account, so that we can be profitable, I’ll put in the time to make up the difference. We’ll make up the difference in value. Which you know could be, you know, more people in your organization, or more sales, or drive more volume, or whatever it is. But you have to look at it as being a responsible leader. Focus on keeping a sustainable business model instead of flashy pay. This will naturally attract the right people.”

How can companies reduce expenses without sacrificing growth?

“We spent a lot of time focusing on operations. How can we dial in operations? Automations with our technology. What was tough for us was field operations with installers, electricians sitting on the clocks still. To combat this, we put all of our field employees, electricians, anybody that is customer facing goes to the home on piece pay this year. There was a 40% decrease in employees after this, but the amount of work stayed the same and saved 25% on overhead. We have less people now, but they’re making substantially more.”

What about loans vs. PPAs?

“PPAs don’t mean you can sell more, they mean you can sell differently depending on the customers needs and financial situation. The reps make less selling the PPAs but most don’t know that. PPAs can potentially lead to bad rep and bad customer experience.”

4 Ways to find success selling Solar despite NEM 3.0

Because of this pivot in the solar industry, your solar teams also need to pivot the way they sell their products. While there will be a lot of different techniques that companies find more successful depending on demographics and location, here are some shifts we suggest for solar teams based on what solar executives are saying:

  1. Start selling additional battery storage
  2. Expand to lower-income areas
  3. Start educating your sales team
  4. Invest in the right software

#1 Start selling additional battery storage

For many homeowners, installing a solar battery is not as cost-effective as selling excess energy back to the grid to offset their utility bills. However, because the new laws change how solar energy is bought and sold, solar batteries become the most cost-effective solution for maximizing savings on existing and new solar systems.

Sales teams who embrace change and see the opportunity can get a jump start on the increased demand for batteries before they become too scarce. Since the Solar Investment Tax Credit (ITC) is scheduled to exist until at least 2034, solar batteries can be installed at a discount.

There’s a lot more to the benefits of adding battery storage to your sales pitch. This is going to be the biggest way solar companies can continue to close deals despite the recession.

NEM 3.0 export rates with battery storage:

A transition from NEM 2.0 to NEM 3.0 was provided in the form of making adders (like battery storage) worth slightly more than traditional grid storage. This adder level is based on the interconnection year and locked in for the first nine years and your Direct Air Carbon (DAC) storage.

For the customers that make the transition to NEM 3.0, adders will start to decline roughly 20% each year over the next five years, until 2028 when the incentive will be eliminated. This is a small boost, but still results in a fairly low export.

Battery storage emerges as a key solution under NEM 3.0. By storing excess solar energy and utilizing it during peak hours, customers can optimize their savings and enhance their energy resilience. Battery systems offer the advantage of capturing solar energy for use during the evening, when energy prices are higher. These systems can also export stored energy back to the grid during specific hours of high demand, providing an additional revenue stream and higher savings.

#2 Expand to middle to lower-income areas

While solar can be beneficial for everyone, under the new legislation of NEM 3.0, those in a lower-income household are entitled to high export rates when selling their stored power back to the grid. The new legislation is leveling the playing field for those that can purchase solar and sales teams should capitalize on it.

Growth in Texas and Florida has helped to increase the number of middle-income installations in the U.S., in addition to a trend in California toward more installations by middle- and low-income households. Forty percent of new solar adopters in Texas had income below their county’s median level, and 37% of new installations in Florida met the same benchmark.

A big part of selling to single households is understanding the benefits and risks of solar loans vs. Power Purchase Agreements or PPAs and which is going to be best for your customer and also for your business.

Solar loans and PPAs are two distinct financing options for individuals and businesses looking to adopt solar energy systems. Both approaches offer unique advantages and considerations, catering to different financial situations and preferences.

A solar loan is a financing option that allows individuals or businesses to purchase a solar energy system upfront while spreading the cost over time through loan payments. This approach provides ownership of the solar panels and the generated energy from the moment of installation. Here are some key points to consider about solar loans:

  • Ownership and Control: With a solar loan, the customer owns the solar panels and has full control over the system. They are entitled to any incentives, tax credits, and excess energy produced.
  • Long-Term Savings: Although there is an upfront cost, the savings on electricity bills and potential tax incentives can outweigh the loan payments over time, resulting in long-term financial benefits.
  • Equity Building: As loan payments are made, the customer builds equity in the solar system. Once the loan is paid off, the electricity generated is essentially free, and the system can continue to produce energy for many years.
  • Credit and Interest: Eligibility for a solar loan often depends on credit history, and the interest rate can vary. However, many financial institutions offer competitive rates for solar loans due to the tangible asset and potential energy savings.

A PPA is a contract between a solar energy provider and a customer. The provider installs, owns, and maintains the solar system on the customer’s property, and the customer agrees to purchase the generated electricity at a predetermined rate. Here are some key points about PPAs:

  • No Upfront Costs: One of the main advantages of a PPA is that the customer doesn’t have to pay for the upfront installation costs. The provider covers the expenses associated with the solar panels.
  • Predictable Payments: With a PPA, the customer agrees to purchase the solar-generated electricity at a fixed rate, providing stability in electricity costs over the contract term.
  • Maintenance Included: The solar provider is responsible for system maintenance and repairs, reducing the customer’s burden of maintenance-related expenses.
  • Limited Financial Benefits: While PPAs offer predictable energy costs, customers don’t receive the same financial incentives and tax benefits as they would with ownership. The provider benefits from tax incentives and credits since they own the system.
  • Contractual Obligations: PPAs typically come with long-term contracts, often spanning 15 to 25 years. Exiting the contract prematurely might come with associated costs.

The choice between a solar loan and a PPA depends on individual financial goals, creditworthiness, and preferences. Solar loans offer ownership, potential for long-term savings, and equity building, while PPAs provide a no-upfront-cost option with predictable payments and maintenance. 

Before making a decision, individuals and businesses should carefully consider their financial situation, long-term plans, and the terms of the financing option that best align with their needs and make the financing choice that’s best for both parties.

#3 Make your sales team recession-proof

Nothing hurts more in trying times like these than losing a sale that should’ve gone through. There are always several factors when selling a customer, some that your team can control and others that it can’t (like NEM 3.0). For the times when your team should be able to influence factors with the customer like trust, product knowledge, and tailored pitches, you need to be prepared. 

The modern buyer sets aside time, they do the research, and eventually come to a decision, all on their own. No wonder visits from door-to-door reps can feel like an intrusion by comparison. But a rep who is informed and considerate can work with clients in a way that feels comfortable to the customer, whether they have already considered solar or not. You need to aim to prepare your reps no matter the buyer.

Educating sales teams is important for several reasons:

  • Product and Service Knowledge: A well-educated sales team possesses in-depth knowledge about the products or services they are selling. This knowledge helps them address customer queries effectively, highlight the benefits, and provide accurate information, building trust with potential buyers.
  • Building Credibility and Trust: When salespeople are well-educated, they are seen as experts in their field. This expertise translates to credibility and trust in the eyes of the customers. Buyers are more likely to make purchasing decisions when they feel confident in the information and recommendations provided by the sales team.
  • Understanding Customer Needs: An educated sales team is trained to listen actively and understand customer pain points and needs. This helps them offer more relevant solutions, positioning the product or service as a valuable solution rather than a mere sale.
  • Adaptation to Market Changes: Markets are dynamic and constantly evolving. An educated sales team is better equipped to understand market trends, competitor offerings, and shifts in customer preferences. This enables them to adapt their strategies and messaging accordingly.
  • Effective Problem Solving: Not all sales interactions go smoothly. An educated sales team can handle unexpected challenges and objections more effectively. They can analyze situations on the spot and provide solutions that align with customer needs.
  • Maximizing Sales Opportunities: Education helps salespeople identify cross-selling and upselling opportunities. They can present complementary products or services that customers might not have been aware of, increasing the overall value of the sale.
  • Efficiency and Time Management: Educated sales teams are more efficient in their interactions. They can quickly gauge a lead’s potential and prioritize their efforts, resulting in better time management and higher productivity.

Educating sales teams is an investment that pays off by increasing sales revenue, enhancing customer satisfaction, and fostering a positive company image. Well-informed sales professionals are more than just transactional agents; they become trusted advisors to customers, driving growth for the business.

#4 Invest in the right software

Solar teams are only as successful as the tools they use to canvass, track, and close deals. Large sales teams are especially to the mercy of their software. If your tech stack can’t meet the demands of a large company, you’re setting yourself up for failure.

Aurora Solar, Goodleap, Eagleview, and other leaders in the solar space already offer amazing tools for teams to pitch to their customers confidently, but it’s gotten even better. These resources integrated with the existing ecosystem we have at SalesRabbit, have resulted in a better way for solar teams to create their proposals. 

In the past, it’s been harder to compare financing options and get design changes approved faster than 24 hours, but we’ve developed a way to display multiple financing options and no redesign fees or wait times for reps knocking at the doors with a more in-depth Proposals software.

We’re no stranger to the fast-paced changes in the solar industry. That’s why we decided to take the guesswork out of the proposal process. It’s never been easier for teams of any size.

Change is something that is normal for solar. This is how the industry keeps getting bigger and bigger. The rapid change is a sign of growth and our technology is meant to be the growth engine for companies. We’re excited to keep evolving and providing solutions for what the industry needs right when it needs it!
Bosley StFort, Principal Product Manager of Proposals at SalesRabbit

On average, our customers have already seen a 3% increase to their close rates with Proposals. And in solar that can mean thousands of dollars. 

What other sales professionals are saying about NEM 3.0

The survival and success of solar companies in the ever-evolving energy landscape hinge upon their ability to adapt and evolve. As the solar industry matures, simply selling solar systems is no longer enough. You have to become a part of the industry conversation to see how others are finding success and what current events are affecting the landscape of solar sales.

Another new development in California power is the PG&E proposed 36.2% increase in electricity rates in Fresno. Pacific Gas & Electric is still seeking approval for the substantial rate increase for 2023. The plan, if approved, hikes throughout the year, including a staggering 23.5% jump in September. California residents are outraged since roughly 25% of the population are living below the poverty line. 

Joining forums and discussion boards are the best way to see what else happens with NEM 3.0 but also what other solar professionals predict for the 2024 sales year.

What now?

So, are solar panels still worth it in California? Yes, solar is still worth it! Despite the changes in legislation, there are still savings with solar panels for Californians and paired with battery storage, purchasing solar is still a great way to save on electricity over the long term and become more environmentally sustainable.

For sales teams to survive and thrive in the new solar industry, the mantra becomes clear: Adapt, evolve, and offer value. By doing so, solar companies can not only secure their place in the renewable energy market but also contribute significantly to a sustainable future driven by the limitless power of the sun. The time for solar companies to embrace change is now, as they embark on a journey towards continued success and a brighter, greener future.

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