NEM 2.0 vs NEM 3.0 Explained
Net Energy Metering Changes and Requirements for California's Renewable Energy Producers
The California Public Utilities Commission (CPUC) recently approved NEM 3.0, a new policy that will replace NEM 2.0 starting from April 13, 2023. Curious about this update and how it might impact your utility bill? Read on to understand the differences, and make informed decisions on your energy consumption.
Background:
In California, customers can install renewable energy systems like solar panels, wind turbines, and fuel cells to generate electricity. These systems are connected to the main electrical grid, allowing customers to offset their energy needs and even send excess energy back to the utility company.
The state has various laws that require the California Public Utilities Commission (CPUC) to establish rules known as "tariffs," which ensure that utility companies must allow customers who generate their energy, also called "customer-generators," to use the energy they produce on-site and receive a financial credit on their electric bills for any surplus energy they contribute.
It's important to note that participating in these tariffs doesn't affect a customer-generators eligibility for other rebates, incentives, or credits the electric utility provides.
What is Net Energy Metering?
Net energy metering is a billing system that allows customers who generate their own solar or wind power to earn credits for the excess electricity they contribute to the grid. With NEM 2.0, the credits earned for supplying electricity to the grid were equal to the price of consuming electricity from the grid on a one-to-one basis. However, NEM 3.0 will change this price ratio.
What's Changing with NEM 3.0?
Under NEM 2.0, customers could choose their rate schedule if it followed a time-of-use (TOU) structure. However, NEM 3.0 will require customers to be on a specific TOU schedule determined by their energy provider. This change makes NEM 3.0 more restrictive and limits customer choice in selecting their rate schedule.
What is the reason for the change?
The Commission reviewed the NEM program and found it puts too much financial burden on fewer people, especially those with lower incomes.
To address this issue, the November 2022 Proposed Decision introduces changes to the incentive structure.
Starting in 2023, customers installing solar panels will need to use their local utility's rate that promotes reducing carbon emissions.
Excess energy sent back to the grid will be compensated based on its value to the grid.
The new incentive structure will be implemented gradually over five years.
Who will be impacted?
The program modifies the compensation for new residential rooftop solar and solar storage projects in the service territories of SCE, PG&E, and SDG&E..
Customers already participating in NEM before the Proposed Decision adoption and those who register within 120 days after adoption will not be affected.
Based on the Commission's timeline, the existing program may start to phase out on April 14, 2023.
What is the new incentive structure?
Base Rate and Temporary Bonus
The Proposed Decision introduces a new way to compensate solar and battery systems that export energy to the grid. It consists of a base rate and a temporary bonus called an "adder."
Base Rate Determination
The base rate is an estimate of the value of energy supplied to the grid. It considers energy generated by solar panels or stored in batteries. The rate is calculated using the Avoided Cost Calculator, regularly updated by the Commission. This calculator is also used for other energy programs in California.
Temporary Bonus "Adder"
The Commission determines the adder individually for each utility company. It ensures that the average solar project built in 2023 recovers its cost within nine years or less. Projects built in the first year lock in the total adder amount and the nine-year base rate. Afterwards, only the most recently updated base rate applies. The adder amount is about 40% of the average base rate in PG&E's service area. However, the adder in SDG&E's service area is zero because the electricity rates are already high enough for solar projects to recover their costs within nine years.
Discounted Adder for New Projects
New projects built over the next five years will be eligible for a gradually decreasing adder over the following nine years. The adder will phase out entirely after five years. Solar systems constructed to meet the state's new rooftop solar building requirements cannot receive the adder but can still claim the base rate.
Income-Adjusted Adder
The proposed decision includes a higher adder level to ensure low-income customers achieve the nine-year payback period. It recognizes that low-income households pay lower subsidized rates and receive lower incentives than offsetting their electricity costs with rooftop solar.
Would energy storage be included in the new NEM program?
Incentives for New Customers
The Proposed Decision needs to incentivize current NEM customers to combine their solar systems with energy storage. However, the proposed revisions introduce solid incentives for new customers installing solar and storage systems.
Operating Systems for Reliability
Under the revised NEM program, households installing solar and storage systems would need to operate them in a way that promotes reliability. It means they would be required to use an Electrification rate, which varies depending on when the grid is most stressed.
Compensation for Excess Energy
Customers with solar and storage systems would receive compensation for any excess energy they generate. The compensation would be based on the value of that energy to the grid. The proposed successor tariff aims to encourage the pairing of storage with solar by providing an incentive to store solar-generated energy and release it when the energy's value is highest. The current program structure offers a small incentive for combining storage with solar.
Get Expert Guidance on NEM Incentives
By exploring the interconnection guide, you can find a list of California utility companies participating in the NEM program. Additionally, contacting an Eco Home Solar Energy Specialist can provide further guidance and support. Take advantage of these resources to make informed decisions about renewable energy and contribute to a more sustainable future.
1 2022 Rooftop Solar & Storage Net Energy Metering (NEM) 3.0 Proposed Decision Summary
2 SCE stands for Southern California Edison, an electric utility company serving Southern California. PG&E stands for Pacific Gas and Electric Company, an electric utility company serving Northern and Central California.SDG&E stands for San Diego Gas & Electric, an electric utility company serving San Diego and southern Orange counties in California.