Implementing new net metering policies is no small feat; many stakeholders are 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 have impacted 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 electricity rate 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 established 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 is no longer 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! 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 has decreased by about 75 percent under NEM 3.0.
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Solar savings: How NEM 3.0 will impact solar payback periods
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When the CPUC passed the NEM 3.0 in December, our initial analysis showed that the payback period for solar would be eight to ten years for solar on its own and shorter for homeowners who installed a battery with solar. However, since NEM 3.0 went into effect in mid-April, the payback period for solar quotes in California has actually been much shorter than we anticipated. In January, all three of the investor-owned utilities in California raised their electricity rates significantly. San Diego Gas & Electric increased their rates by 25% over the rates in the NEM 3.0 filing. Higher electricity rates translate directly to shorter payback periods.
The second major factor that changed since early 2023 is that solar prices in California have decreased recently: quoted solar prices in California have dropped more than 5% in the third quarter of 2023 compared to their peak in April 2023. Paying less for solar translates directly to faster payback periods. Combined, these two factors have meant that solar shoppers in California are still seeing very favorable economics for solar on EnergySage in 2023.
Increased importance of solar batteries
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NEM 3.0 has increased 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 is now faster than for a solar-only install.
As a new customer under these rules, If you install a solar battery and store excess surplus energy onsite, 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 the 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 under NEM 2.0, it’s now less than if you 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.
Grandfather clause
At least some consumers can still qualify for the NEM 2.0 structure, but it’s a small group. If you applied for grid interconnection by April 14, 2023, you have until April 15, 2026 (three years from the date NEM 3.0 began) to make the connection and still qualify for the terms of NEM 2.0. Importantly, you can also change the equipment planned for your system between now and the cut-off date as long as it doesn’t increase its size or decrease it by more than 20 percent.
Source: https://t-tees.com
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