If you look at the best solar & renewable energy markets in the U.S., they all have one thing in common: a strong net metering program. Net metering – or NEM – allows you to earn credits for any excess solar electricity you send to the grid when your solar panel system generates more than you need.
NOTE: NEM went into effect on April 14, 2023, meaning you can no longer lock in NEM 2 rates. Learn how to maximize your solar savings under NEM 3.
After years of back and forth before coming to a proposed decision, on December 15, 2022, the California Public Utilities Commission (CPUC) voted unanimously to approve California’s third iteration of net metering, or NEM 3.0. Under the new tariff, NEM 3.0 will significantly reduce net metering compensation rates for new California solar customers (by about 75 percent) – however, you still have through April 14, 2023, to submit a completed interconnection application and lock in NEM 2.0 rates for 20 years. In this article, we’ll explain what you need to know about NEM 3.0 and the steps you need to take now to guarantee the best solar savings.
Key takeaways
The changes to California’s net metering policy will cut the value of solar energy credits by about 75 percent for PG&E, SCE, and SDG&E customers.
This is a big one: existing solar customers – and people who go solar before NEM 3.0 goes into effect (through April 14) – will be grandfathered into their original net metering policy.
Solar shoppers who submit interconnection applications after April 14, 2023 will be under NEM 3.0 and could miss out on 60 percent of solar savings, unless you add battery storage to your solar installation.
Californians considering solar should go solar as soon as possible (and definitely by April 14) to lock in more favorable net metering credits.
What’s in this article?
What’s next: NEM 3.0 and how changes impact solar savings
Implementing new net metering policies is no small feat; there are a lot of stakeholders involved, and the process involves many steps, including studies, proposals, testimonies, and hearings – all before the actual decision! After many years of deliberation, delays, and iterations, NEM 3.0 was finally finalized on December 15, 2022 – let’s explore how the changes will impact the California solar industry:
Reduced net metering credits
The main impact of NEM 3.0 is that it reduces compensation for excess power sent to the electric grid. Many states offer a credit equal to the retail rate of electricity for exported solar production: this is known as one-to-one net metering in which you’re credited at the same rate for solar exports as what you’d pay to use electricity from the grid. In NEM 3.0, the CPUC establishes a new rate for crediting solar exports, shifting the structure from net metering to net billing, which is much lower in value – and by lower, we mean…lower. NEM 3.0 is based on “avoided cost” rates, meaning what your utility pays for any electricity you send to the grid won’t be based on your typical electricity rates, like a traditional net metering credit, but rather calculated separately. The exact rate varies depending on the hour of the day, day of the week (i.e., weekday vs. weekend), and month you export the energy: in fact, there are 576 possible export rates in total! However, on average, 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 will decrease by about 75 percent under NEM 3.0.
Solar savings: how NEM 3.0 will impact solar payback periods
The reduced net metering credits will have a significant impact on solar savings: under NEM 2.0, most homeowners in California have a solar payback period of roughly 5 to 6 years. Under NEM 3.0, that number will shift closer to 9 to 10 years. And, over the lifetime of your solar energy system, you’ll lose out on about 60 percent of savings under NEM 3.0, compared to NEM 2.0.
Increased importance of solar batteries
NEM 3.0 does increase the savings potential of pairing your solar panel system with a battery. In fact, under NEM 3.0, the payback period for a solar-plus-storage installation will be faster than for a solar-only install.
As a new customer under these rules, If you install a solar battery and store excess solar surplus energy for solar on-site, you can charge your battery system for use later, maximizing the value of your solar power and minimizing what you export to your utility company through self-consumption, especially when time of use rates are higher. While your payback period for a solar-plus-storage system may still be higher under NEM 3.0 than it is under NEM 2.0, it’ll be less than if you just install solar. This means that under NEM 3.0, you’ll save the most over your solar energy system’s lifetime if you add a battery.
Supply chain disruptions
If you’re thinking “wow, I better submit my solar application soon!”, you’re entirely correct – but you’re also not alone. Installers will likely be swamped with installation requests in the coming months, leading to equipment shortages in an already unstable supply chain (due to lingering pandemic-related disruptions, labor shortages, and inflation rates). However, you’ll have three years from the date NEM 3.0 begins (April 15) to interconnect your system to the grid if you’ve successfully submitted your application – and, importantly, you can change the equipment planned for your system as long as it doesn’t increase its size or decrease it by more than 20 percent.
Timeline for changes to net metering
Here’s a quick overview of the NEM 3.0 timeline:
December 15, 2022: CPUC officially approved NEM 3.0.
April 14, 2023: you must have a complete interconnection application, a signed contract, a single-line diagram (a basic electrical drawing of the system), and an attestation if you’re oversizing your system by this date to be grandfathered into NEM 2.0 for 20 years.
April 14, 2026: if you successfully completed your application before April 14, 2023, you must have the system installed and connected to the grid by this date to retain your NEM 2.0 status.
How to lock in NEM 2.0 rates
As a homeowner in CA, you have a lot to gain from locking in NEM 2.0 for the next 20 years while it’s still available – and you still have some (but not much!) time to do that. Here’s what you need to do to ensure you get the best compensation rates, depending on your situation:
You recently installed solar
Assuming you don’t want to increase your system’s capacity in the future, you’ll automatically be grandfathered into NEM 2.0 for 20 years if you’ve already installed your solar energy system – no action required! Note: if you have an existing system, the clock on your 20 years of NEM 2.0 does not restart when the state switches to NEM 3.0 – rather it’s based on when your system was turned on. So if your existing solar panel system went live three years ago, you’d still have 17 years left on NEM 2, not a new 20-year period.
You’re looking to go solar
If you’re thinking about going solar soon, you’ll need to submit a final interconnection application – including a signed contract, a single-line diagram (a basic system mockup), and an attestation if you’re oversizing your system – before NEM 3.0 goes into effect (by April 14). Installers will experience higher demand given this timeline; we recommend asking them about these deadlines and making a decision as soon as possible to get in the queue! You’ll also need your system to be built and connected to the grid within the first three years of NEM 3.0 to retain your NEM 2.0 eligibility.
You want to replace an old solar panel system
Let’s say you installed your current solar system during NEM 1.0 (lucky you!) and have great solar rates – but, your system is nearing the end of its life and will likely need to be replaced in the next five years or so. In this case, you’re probably better off replacing your system now. While you’ll miss out on a few years of NEM 1.0 rates, you’ll likely save more overall by being grandfathered into NEM 2.0 for 20 years, rather than having to switch from NEM 1.0 to NEM 3.0 in a couple of years when your system dies. Just like if you’re going solar for the first time, you’ll need to submit a complete application by April 14 – also make sure to take and include photos in your application to prove that your old system was fully removed.
You need to add more capacity to your system
Let’s say you’re planning on installing an electric vehicle (EV) charger or a heat pump and want to increase the size of your solar energy system. After April 14, you won’t be able to add any capacity to your existing solar energy system and remain grandfathered into NEM 2.0 – so, we recommend you do so as soon as possible. It’s also important to note that if you’re looking to add capacity to a system that’s locked into NEM-1.0 rates, you won’t get a new 20-year term; your lock-in timeframe will depend on your system’s original interconnection date.
If you wait until NEM 3.0 to increase your system’s capacity, you’ll only be able to oversize it to 50 percent of your past year’s energy usage – but you’ll have to submit an oversizing attestation that states you’ll increase your electricity consumption to that level within one year. Essentially, this means you’ll only have one year to make any necessary home electric upgrades. However, if you add capacity before NEM 3.0 goes into effect, you’ll be able to avoid these restrictions.
You want to add a battery to your solar system
The good news is that if you might want to add a battery to your solar energy system, you don’t have to do so immediately. If you’re a NEM 2.0 customer, you can still add energy storage to your system after NEM 3.0 begins without losing your status. Similarly, you can upgrade your electrical panel while still receiving NEM 2.0 rates.
How to know when your application is complete
According to research by the California Solar and Storage Association (CALSSA), a clean energy trade association, you’ll know that your solar interconnection application is complete when you’ve received the following confirmation from your utility provider :
PG&E: “sent for review”
SCE: “deemed valid”
SDG&E: “pending AHJ”
You’ll also want to ensure that the name on your application matches the name on your utility account – if your spouse or partner is on your utility account but you submit the application, this could create issues.
Other resources to learn more about net metering
Want to learn more about solar and net metering policies in California? Check out some of the sources below:
Solar and net metering in California
What is net metering? (EnergySage)
California net metering: everything you need to know about NEM 2.0 (EnergySage)
What’s happening to net metering in California? A Q&A with CALSSA (EnergySage)
California solar panels: local pricing and data (EnergySage)
Net Energy Metering (NEM) (CPUC)
Net metering policies: PG&E, SDG&E, and SCE
Understanding Net Energy Metering and Your Bill (Pacific Gas & Electric)
Net Energy Metering Program (San Diego Gas & Electric)
Net Energy Metering FAQ (Southern California Edison)
Will NEM 3.0 impact community solar?
If you subscribe to a community solar project, you’re compensated through a program called virtual net metering (VNEM). Luckily, VNEM will remain in NEM 2.0 until further review and you’ll be locked into your current rates for at least nine years. So, community solar will still present a great alternative to rooftop solar if you can’t or don’t want to install solar on your property: in most cases, you’ll save annually on your electric bills! If you’re a resident of California, you can visit our Community Solar Marketplace to find solar farms near you.
A quick history of net metering in CA
Robust solar incentives, plenty of sunshine, high electricity rates, and existing net metering policies have helped California become one of the nation’s leading solar markets . And as more and more people installed panels in the state, the three investor-owned utilities (IOU) – Pacific Gas and Electric (PG&E), San Diego Gas and Electric (SDG&E), and Southern California Edison (SCE) – inched closer to their net metering “cap,” each respectively hitting it between 2016 and 2017. This prompted the California Public Utilities Commission (CPUC) to create their next generation net metering policy, known as NEM 2.0.
Compared to CA’s original net metering policy, NEM 2.0 provides solar rebates at a slightly reduced rate (about two cents less per kilowatt-hour (kWh) to be specific) after accounting for non-bypassable charges (which support public-benefit programs). But considering what was at stake, NEM 2.0 was a win for rooftop solar; the industry has continued on a strong growth trajectory since, and homeowners taking advantage of this policy today continue to see thousands of dollars in savings on their electricity bills.
We won’t deep dive into the technicalities of NEM 2.0 here, but if you’re interested, we have a whole separate article about its history and mechanisms. With respect to the new changes, though, it’s important to know that this isn’t the first time that CA has instituted a new net metering policy. However, some of the changes for this third iteration will significantly impact the economics of rooftop solar in CA, more so than past modifications and the current NEM rules.
How will NEM 3.0 affect low-income Californians?
Under the new guidelines for net metering, single family residential customers in disadvantaged communities and tribal lands are considered “low-income” and are eligible for a higher export rate adder. This means that they will be able to tap into greater savings based on export rates for solar. Low income residential customers are also eligible to receive half off the $16 fixed-monthly charges known as “electrification rates”.
Frequently asked questions about NEM 3.0
Has NEM 3.0 been approved?
Yes, NEM 3.0 has been approved as of December 15, 2022 and will go live in April 2023.
Is NEM 3.0 retroactive?
No – utilities have to grandfather NEM customers in either NEM 1.0 or NEM 2.0 into their existing net metering rate for 20 years, unless you add capacity to your system.
Is NEM 2.0 still in effect?
Yes – NEM 2.0 is still currently in effect but will be replaced by NEM 3.0 after April 14, 2023.
Could NEM 3.0 be reversed?
It’s possible – but very unlikely – that NEM 3.0 will be reversed. The most likely ways in which it could be overturned would be through legislation or through a ballot measure. While it’s still worth contacting California legislators to let them know you don’t support NEM 3.0 changes, it’s important to know that both of these initiatives would take a long time to implement and would cost a lot of money.
What if you buy a house with solar?
If you buy a house with solar panels after April 14, 2023, you’ll be under the net metering rate plan of the original property owner – so, if the previous homeowners were grandfathered into NEM 1.0 or NEM 2.0, you will be too.
Exploring solar options in California
If you’re a California homeowner or business owner, make sure to start your solar application as soon as possible to lock in the best long-term savings. On the EnergySage Marketplace, you can receive up to seven quotes from local, pre-screened installers. These quotes will include cost information and savings estimates tailored to your property and current net metering incentives. If you’d prefer to start out with a quick ballpark estimate on solar savings, try our Solar Calculator.
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