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NEM 3.0 — Preparing for California’s Solar Future

California has been at the forefront of solar energy production for a long time. That may be about to change for the first time in decades.

First, here’s a quick historical recap on how solar works in California.

Net Energy Metering (NEM) refers to a contract between solar customers and utility companies. The “net” (plus or minus) of your annual energy transaction will be accounted for at the end of each year. As a home or business owner with a solar system installed, you receive a “true-up” each year. This “true-up” will translate to a credit if you produced more energy than you used. It will translate to a bill (debit) if you produced less energy than you used. Solar customers are well aware of this partnership, however, many without solar are not (hence this explanation).

Over the years, utility companies offered this partnership first under “NEM 1”. With this agreement, you could stay on a “tiered” rate schedule. The tiered rate only increased when you used more than your tier allowed. Solar would effectively erase the higher-priced tiers since in nearly all cases you could (at the least) cover enough production to allow you to remain in the less expensive tiers. NEM1 expired December 15th, 2016.

NEM 2” was then instituted, which mandated a “Time of Use” rate structure. When the sun goes down and your home is no longer producing power, the energy rate you pay to the utility is increased. If you covered your usage 100%+, this new rate didn’t really affect the solar owner. However, if you didn’t produce enough to cover your usage 100%, you would be charged more during the time period when demand is high (late afternoon, early evening), and solar production is low or nonexistent. This made the emerging home battery sector more appealing. Solar owners could utilize the stored power in their batteries instead of paying higher rates.

NEM 3” just passed legislation with the California Public Utility Commission (CPUC) and will take effect April 15th (120 days after the legislation passed). This means if you get your solar installed, and fulfill the necessary requirements for application submittal to the utility company, you will be grandfathered in with a NEM2 partnership agreement for 20 years. This agreement stays with the home, not the homeowner. Meaning, if you sell your home, a NEM2 agreement is a very valuable benefit to the new homeowner(s). Realtors will want to take notice of this fact, as it can greatly increase the appeal for buyers and sellers.

Why would the CPUC do this?

San Diego Gas & Electric (SDGE), Pacific Gas & Electric (PGE), and Southern California Edison (SCE) contributed a combined $1.7 million in 2020 to the Affordable Clean Energy for All coalition (Yahoo Finance). “The group was focused on cutting the value of rooftop solar by dramatically cutting payments for excess solar energy generation, and adding a fixed $8/kW fee per month, a cost of $64 a month to a typical 8kW system owner,” as reported by PV Magazine (Feb 2022). The per-month fee was incredibly concerning to those in the solar industry, and fortunately, this fee was dropped in the final version of the proposal. However, they did “dramatically” cut “the payments for excess solar energy production”.

We should note, PG&E in particular are notorious for spending millions of dollars on lobbying, including $10 million in 2018. They spent $7.4 million in 2020 and 2021, and nearly $4 million in 2022 (according to Consumer Watch Dogs and Open Secrets)

CA Utility companies (i.e. SDGE, PGE & SCE) charge $0.30/kWh on average, and this average increases consistently over the years. Under the new law, customers will receive only $0.08/kWh on average. What this means is that while battery storage was appealing during NEM2, new solar owners under NEM3 must have batteries to reap the full historical benefits of solar in California. For proponents of NEM3, this fact is actually the primary reason for the change.

California's solar industry grew so big, so fast, that on rare occasions throughout the year we actually produce more than we can use (supply exceeds demand). Basically, “high solar adoption creates a challenge for utilities to balance supply and demand on the grid. This is due to the increased need for electricity generators to quickly ramp up energy production when the sun sets and the contribution from PV falls,” (link here). Solar simply over supplies the grid at the wrong times.

Energy storage would solve this problem. Most in the industry, myself included, suspected the utility companies themselves to invest in energy storage to remedy this situation. With NEM3, it is very clear that this is not the direction they are going. Instead, with this aggressive legislation, they are insisting individual customers purchase home batteries if they want to benefit in full from their solar production.

Choosing the right company

Contrary to what many fear, solar is not dead in California. With batteries, you can store and use your own excess power, thereby eliminating any unfavorable utility terms and rates. However, there are a couple of recommendations you should take to heart.

When choosing a company to design and install your system:

(1) make certain the company you choose has battery storage experience.

This is a must. At Sbrega Electric, for instance, 80%+ of our customers get batteries anyway. For battery backup, or even 100% off-grid applications, we are experts in the design and installation process. If you are not in our service area, be sure to choose a company that has years of experience in energy storage applications.

The second recommendation:

(2) choose a company that will be around.

No matter the size of the company, NEM3 rules will wipe out those who cannot adapt to the new storage necessities. Most companies primarily sell solar without batteries. To entirely replace their revenue with battery customers will be very difficult, if not impossible. Those avoiding the battery revolution over the last few years will be left behind. They will be forced out of the California market, even if they stay in business elsewhere.

At Sbrega Electric, we not only have the battery expertise, but we’re also electricians. As electricians, even if our solar department takes a hit (which we do not anticipate), we will still be around to service our existing solar customers. If you are not in our service area, choose a company that is also electricians, and the chance of them disappearing will be highly unlikely.

We service most of Fresno, Madera, and Mariposa County, CA. Contact us today to see if you’re in our service area. We would love to offer you a free first draft design and proposal. Secure your NEM2 agreement before it’s too late. Or, plan on adding battery storage to reap the full benefits of your solar system under NEM3.


NEM 3.0 FAQs

How long do I have to get on NEM 2?

Any application that is not submitted in full (inspection passed, etc.) by April 14th will not be eligible to stay on NEM 2.0. This means you must sign a contract with a company AND trust that the company has the ability to install and submit the paperwork in full on or by April 14th. In most cases, you would want to sign in January or February of 2023 at the latest. If you sign in March, it may already be too late (for many companies).

What happens if someone sells their house?

The new owner is grandfathered into the existing homeowner's rate. It's 20 years from the time the original homeowner purchased the solar. The NEM 2.0 rate stays with the house, not the customer.

What happens if someone installs a solar panel add-on after April 15th?

If they are adding panels after April 15th (greater than 1 kW), they will have to go to the new NEM 3.0 terms & rates.

What happens if someone adds a battery to their existing solar?

That will not change their current rate. They can remain on NEM 2.0 if they are on it currently.


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