How to Maximize Savings with NEM 3.0

December 14, 2023

Published by Solar Discovery at December 7, 2023

What is NEM 3.0? Implications of the New Net Energy Metering System

If you’re reading this, you’ve probably heard a bit about California’s new Net Energy Metering policy, or NEM 3.0. However, this new billing system has likely raised more questions and concerns and left you wondering what it means for your future energy bills, as well as the future of solar in general. As California produces over 30% of the United States’ solar energy, any changes in net metering will cause ripples throughout the solar industry. Let’s take a deeper look into NEM 3.0 and what it means for you going forward.

What is Net Energy Metering?

Let’s start with the basics. Net Energy Metering, or simply NEM, is a billing system designed to promote the adoption of renewable energy, such as solar power. This incentivizes homeowners and businesses to install solar panel systems by offering them credits for surplus energy production.

NEM is based on the flow of energy between your home and the electric grid. Solar panels produce electricity during the day, often generating more than is necessary to power your home. In general, your home will produce excess power during the day when the sun is out. This excess energy can be sent back to the electric grid in exchange for credits, which are used to offset your future electricity bills. At night, when your solar system isn’t generating electricity, those credits are used to buy power from the electric grid.

Net Energy Metering therefore encourages the use of solar energy by compensating homeowners and businesses for the excess energy they produce, making going solar a wise financial decision. Not only does it promote the use of clean, sustainable energy, but it drastically reduces electricity bills.

In California, the Net Energy Metering policies are formulated by the California Public Utilities Commission (CPUC), which oversees the state’s electric utility companies. NEM applies only to PG&E, SCE, and SDG&E. These policies are subject to change, which leads us to the newest version, NEM 3.0.

NEM 2.0 vs NEM 3.0

NEM 3.0 is the third iteration of the NEM policy, put into effect by CPUC on April 15, 2023. The previous version, NEM 2.0, allowed solar customers to be fairly compensated when receiving credit for surplus energy sent to the grid. NEM 3.0, however, has introduced substantial changes that have drastically altered the payback system for homeowners in California. Some of the key differences between NEM 2.0 and NEM 3.0 include:

Reduction in Credit. The compensation rate under NEM 3.0 is substantially lower than NEM 2.0. This significantly affects the financial benefits of going solar, with homeowners earning approximately 75% less in credits than they did under NEM 2.0.
Avoided Cost Rates. The new model is based on avoided cost rates, which calculates compensation based on specific avoided energy costs during different hours, days, and months, resulting in varied credit values. Rates are significantly lower than utility prices, meaning homeowners earn less credit than under NEM 2.0.
Time-of-Use (TOU) Rates. NEM 3.0 emphasizes time-of-use rate plans, where the cost of electricity varies based on peak and off-peak consumption periods. This means that electricity will cost significantly more during peak hours, and homeowners with solar systems that are required to sign up for these plans will have their savings slashed.

All in all, these changes have made going solar a much less lucrative, and therefore less appealing, option for homeowners. It has been controversial to say the least, and has raised questions about the stability of sustainable energy initiatives moving forward.

NEM 2.0 Eligibility

Understandably, many people want to remain on the NEM 2.0 plan. In order to secure NEM 2.0 benefits, homeowners needed to submit a complete interconnection application by April 14, 2023. If you successfully applied before that deadline, installation of your system and connection to the grid must be completed by April 14, 2026, in order to retain NEM 2.0 status for the next 20 years. Those who get into NEM 2.0 before this deadline, as well as existing solar owners, are eligible to add an energy storage system without losing NEM 2.0 status.

Failure to comply with these deadlines could result in falling under the updated NEM 3.0, which most see as a less than desirable outcome.

Is Going Solar Still Beneficial Under NEM 3.0?

The short answer is yes. Despite the shortcomings of NEM 3.0, going solar is still a good idea. While the amount of money saved may not be as high as it was under NEM 2.0, you’ll still earn substantial savings on your electric bill each month. Getting your energy from a solar system is still a wiser financial decision than getting all of your power from the grid, especially as utility companies raise their rates annually.

Benefits of going solar include becoming less dependent on utility companies, reducing carbon emissions, increasing the value of your home, and, when paired with a battery, avoiding power outages. The new NEM 3.0 may be a step down from NEM 2.0, but don’t let that distract you from the fact that going solar is still the way to go.

How Homeowners Can Benefit from NEM 3.0

Navigating the complexities of NEM 3.0 may seem daunting, but it’s necessary for homeowners to understand its implications and strategies in order to optimize their benefits and savings. Despite NEM 3.0 being less lucrative than NEM 2.0, there are still ways for homeowners to capitalize on this program:

Energy Storage Systems (ESS). Known in simpler terms as a battery, an energy storage system can help you maximize the power your solar system brings in. Integrating a battery with your solar system allows you to store excess solar energy, meaning you are less reliant on buying electricity from the grid when your solar panels are not producing energy. Additionally, it gives you the flexibility to use your excess power on your own terms and export excess energy back to the grid during times when energy companies buy it back at a higher rate.
Load Shifting. Solar production varies over the course of the day, with the highest production occurring when the sun is at its highest at around noon. Load shifting is the practice of using up as much power during those peaks, and less later in the day when there is less solar production. By doing so, you are getting the most out of your solar power, and therefore paying less for electricity from the grid in the evening. This is especially helpful if you don’t have a battery to store solar power for later. Load shifting strategies include doing laundry, charging your electric vehicle, and running other high consumption appliances during peak solar production hours.
Understanding Avoided Cost Rates. Understanding the rates at which your power will be exported back to the grid is an important part of maximizing your overall savings. These rates vary by hour, day, week, and year, so knowing when to consume power and when to export it will play a big part in getting the most out of your solar system.

Effects on the Industry & The Future of Solar

As California is the national leader in solar power, all eyes are on the state to see what happens next. The implementation of NEM 3.0 has caused ripples throughout the solar industry. Such drastic changes to the economics of solar energy have had a major effect on the general population’s willingness to invest in solar. In fact, recent reports show that rooftop solar installations have dropped by 80% following the launch of NEM 3.0. As a result, solar companies across the state have suffered, with over 17,000 solar jobs being lost in 2023. More layoffs are predicted in the near future.

While there are many benefits to going solar, the biggest draw is undoubtedly the financial gains it provides. Installing an expensive solar system is worth the money because it saves you more in the long run. The drop-off in savings caused by NEM 3.0 has altered this calculus and left many homeowners wondering if solar is a worthy investment. It is important to note once again that while NEM 3.0 does not offer the savings that NEM 2.0 did, it does not change the fact that going solar is still a wise long-term financial investment.

The implementation of NEM 3.0 has made consumers and solar companies more cognizant of the need to optimize the power your solar system produces, which has led to a shift towards pairing solar with storage systems. While batteries used to be more of a luxury item used primarily as backup energy for blackouts, they are now a crucial part of the solar power ecosystem. The best way to maximize your solar power and therefore increase your savings on the new NEM 3.0 is to pair your solar system with a battery.

Policies like NEM, as well as evolving technologies and market trends, will continue to shape the future of solar energy in California, across the United States, and around the globe.

Despite the recent shakeup caused by NEM 3.0, the future of solar energy remains promising. Technological and market innovations including solar-plus-storage integration and advancements in solar panel efficiency will ensure solar energy’s continued success. Policymakers in California remain committed to sustainable energy and will continue their efforts to incentivize clean energy.

As the global focus shifts increasingly toward climate change, countries are setting ambitious climate targets and investing more and more in renewable energy. Solar power, being the most abundant and accessible form of sustainable energy, remains at the heart of these efforts. As technology advances, the shift to sustainable energy is quickly spreading throughout Asia, Africa, and the rest of the world. While NEM 3.0 may be less than ideal, all signs point to solar energy continuing to be the best way forward.

How to Maximize Savings with NEM 3.0

What is NEM 3.0? Implications of the New Net Energy Metering System

What is Net Energy Metering?

NEM 2.0 vs NEM 3.0

NEM 2.0 Eligibility

Is Going Solar Still Beneficial Under NEM 3.0?

How Homeowners Can Benefit from NEM 3.0

Effects on the Industry & The Future of Solar

Solar Discovery

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