NEM 3.0 Redefines California Solar

On December 15, 2022, the California Public Utility Commission (CPUC), at the direction of Governor Gavin Newsom, redefined and reduced the state’s incentives for going solar. The surprising NEM 3.0 decision was derided as a solar killer by a chorus of angry constituents and industry specialists.
Net Energy Metering

Changing the Rules in 2023

The new rules, which slash compensation for solar export credits and extend the payback period on a system by years, are challenging to understand. (Especially when it comes to determining when a solar system breaks even.) But the main difference between NEM 2.0 and NEM 3.0 is how PG&E credits you for the excess power you feed back to the grid.

NEM 2.0 solar export credit is the same amount as charged by the utility company or retail value

Under NEM 2.0, whatever PG&E charges you per kilowatt hour (kWh), is the same amount they have to credit you. The exception would be if you were pulling power from the grid. Then PG&E would add an extra 2 ½ cents per kWh to your base rate. So, for example, during peak hours, if the rate is 49 cents per kWh, you would be charged 51 ½ cents per kWh under NEM 2.0.

NEM 3.0 reduces the solar export credit to .06¢ on average

Under NEM 3.0, PG&E will only give you an average of about .06¢ per kWh when you feed excess power to the grid. During the day, all the extra energy produced by the solar system will fill your “solar credits bank account” at a rate of .05¢ to .08¢ per kWh. When your system pulls from PG&E, the rates charged will be full retail value. So credits earned will deplete rapidly.

Reading Between The Lines…

The biggest takeaway from NEM 3.0 is that utility companies want solar customers to install batteries and store the surplus energy. And they would like the customer to manage their own energy supply. This would allow the “energy management companies” to avoid incurring the costs of building out storage.*

The argument is that solar customers produce their own power during the day and can store the excess in batteries. Then, when the solar system can’t meet the customer’s energy demand, the batteries will supply power to the home.

If the batteries drain, the customer is immediately switched back to PG&E and will be paying whatever rate they are charging at that time. Therefore, solar systems need to be sized with enough batteries to get through most nights without pulling power from the grid.

During the Winter and on cloudy or rainy days, the solar system won’t produce enough to power the home and charge the batteries. As a result, most solar customers with batteries will be unable to avoid pulling power from PG&E. They will still have bills during these months.

How Will Solar Pencil Out Under NEM 3.0?

If you install a system without batteries, the payback period will be much longer than under NEM 2.0. But it’s difficult to say what the payback will be under NEM 3.0 due to the complicated rate schedule.

For example, a typical 8kW solar system priced at $29,500 under NEM 2.0 would be paid back in about 4.5 – 5.5 years (after the Federal tax credit).

Under NEM 3.0, you will only be able to offset about ⅓ of your current PG&E bill with a solar-only system. So the payback will be around 14-15 years, in my estimation.

With a solar-plus-battery system, you can offset more of your PG&E bill under NEM 3.0. After crunching some numbers, I estimate that the payback period on an 8kW solar system with higher-end batteries will be about 12-14 years.

With less expensive battery systems, the payback period is around 10-12 years. These numbers will get lower as battery prices drop in the coming years.

What To Do?

If you are thinking about going solar, do it now! You have until April 13, 2023, to get grandfathered into NEM 2.0 and lock the terms for 20 years.

To qualify, you must sign a contract with a solar installation company. Then, the company must submit a single line diagram (electrical plans for permit) and the NEM 2.0 paperwork to PG&E. You don’t need to pull a permit, and you have up to 3 years to complete the project.

If you install a solar system under NEM 3.0, the fastest path to payback is to include batteries.

Don’t hesitate to contact me if you have questions about the new rules, batteries, or solar in general.
I’m here to help!
Mike Shaheen

*Utility companies in California, like PG&E, are guaranteed a return on the money they invest in infrastructure and new equipment. The California Public Utility Commission (CPUC) determines and allows for rate increases based on project costs and fixing and upgrading equipment – not overall company performance. Therefore, many question why the utility companies aren’t building out infrastructure that addresses the future energy needs and clean energy goals of California.

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