NEM 3.0 - Is Solar Still Worth it for California Homeowners?

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Estimated reading time: 5 minutes

On December 15th, 2022, the California Public Utilities Commission (CPUC) unanimously approved the “NEM 3.0” proposal, a decision that has been the subject of debate for over a year.


This updated policy for net metering in California makes solar less beneficial for homeowners, as the value of exported electricity is set to decrease.

However, solar can definitely still be a viable investment, even with these changes (especially compared to some other states’ net-metering policies, or lack thereof).

Overview

The specific impacts of this proposal will vary by utility company, but this decision will affect customers of California's three biggest utility companies the most (Pacific Gas & Electric, Southern California Edison, and San Diego Gas & Electric). 

Customers in other states will not be affected directly, but this decision may set a precedent that could be followed by other areas in the future.


Based on this decision, the value of exported solar power in California is expected to drop by about 75%, according to the California Solar and Storage Association.

Luckily, proposed “grid participation” fees and other so-called “solar taxes” were removed from the proposal, so there won’t be additional fees for solar customers.

The Bad:

Net Billing

Previous net metering policies in California (NEM 1.0 & NEM 2.0) have allowed customers to receive one-to-one credits for excess energy from solar production that is pushed into the grid.

With the new NEM 3.0 policy, California customers will be paid at the avoided cost for energy, using a Net Billing arrangement.

Under Net Billing, exported energy will be metered and credited at a predetermined sell rate, based on the market cost of the energy. These rates will be adjusted regularly.

Unfortunately, the market cost of energy is much lower than the retail rate that most customers pay, meaning customers will not receive nearly as much credit for their exported electricity as they do under the previous NEM policies. 

Extended processing times

Due to the massive influx of applications, California’s utility companies will be bogged down and have much slower processing times until they’re able to catch up.

This backlog will likely lead to some project delays for customers with a submitted NEM 2.0 interconnection application, and customers who are looking to install solar under NEM 3.0 may also feel the effects.

The Good:

Planning your investment

California’s pre-NEM 3.0 high net-metering rates were some of the best in the country, but solar is still a popular, effective investment in other states with less advantageous Net Billing programs.

Solar will still pay for itself in California, just not as quickly as it has in the past--according to EnergySage, the average payback period will increase to 9-10 years, from the previous 5-6 year average.

Plus, there are still some things you can do when planning your investment that can help you decrease your payoff time:

 

  1. Install a battery.
    One of the main points of the NEM 3.0 proposal is to incentivize solar battery storage, as it decreases reliance on fossil fuel energy sources during evenings.

    Solar battery systems can have a quicker payoff time than non-battery solar systems under NEM 3.0, even though the initial investment may be more.

    Batteries store your energy so you can take advantage of solar even during the evenings, when utility rates increase.

    If you can’t afford a battery now, you can install one later down the road. Customers under NEM 1.0 or NEM 2.0 that want to plan for the end of their grandfathering period can add batteries to their systems now without voiding their current agreement, so they’ll still remain grandfathered.

  2. Size your system for daytime use.
    Planning your system to offset only your daytime usage can be another good option--smaller systems have a lower cost, which helps to decrease their payoff time.

    Though the savings are less, lower-offset systems are also a worthwhile investment (or, an even better one in some cases). Plus, they cost less up front.

Renewable Energy Options 

Many electrical and/or energy efficient appliances can become very cost effective when paired with solar.

With the passage of the Inflation Reduction Act, you can receive tax credits on purchases for electrical appliance purchases.

Export Compensation Adder for PG&E & SCE customers

Residential customers with Pacific Gas & Electric (PG&E) or Southern California Edison (SCE) who apply for interconnection before the end of 2027 will receive the Export Compensation Adder, which increases export rates for 9 years--though, this does not apply to homes that are required to add solar (new construction homes/ADUs).

Additionally, low-income families who are part of the California Alternate Rates for Energy (CARE) and Family Electric Rate Assistance (FERA) programs will receive a higher adder.

San Diego Gas & Electric (SDG&E) customers are not included in this, as their utility rates are higher and therefore provide higher savings to solar customers.

Getting the lowest price with Project Solar

At Project Solar, we’re proud to offer high quality, low-cost solar. We aim to make solar accessible to all homeowners, and don’t use commissioned salesmen.

Our no-salesman model allows us to offer pricing at nearly half of the national average, which helps increase ROI and decrease payoff times.

You can also save an additional $3,000-$5000 on solar by using our DIY install option. Our standard equipment is warrantied for 25 years, and full install projects will include a 10 year workmanship warranty.

If you’re looking for a reliable, affordable solar system, there’s no better place than Project Solar.