NEM 3.0: The Key Takeaways and How to Apply

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Net Energy Metering 3.0 (NEM) has been a significant incentive for homeowners and businesses seeking to harness the benefits of solar energy while enjoying NEM 3.0 credits for excess power sent back to the grid. With the introduction of NEM 3.0, there have been some notable changes that you need to be aware of. This blog post will comprehensively explore the key takeaways of NEM 3.0, encompassing its implications for solar owners, the benefits of integrating battery storage, and its influence on payback periods. Furthermore, we will provide a detailed guide to assist you through the application process, guaranteeing that you can fully leverage the opportunities presented by this revised policy. Whether you are an avid solar enthusiast or currently contemplating the adoption of NEM 3.0 solar energy, this comprehensive guide aims to equip you with essential information to confidently navigate the NEM 3.0 landscape. Let’s get started!

Key takeaways of NEM 3.0

  • Solar battery storage enables customers to optimize their self-produced NEM 3.0 solar energy utilization, leading to higher energy consumption on-site and reduced dependence on exporting surplus energy to the grid at unfavorable rates.
  • NEM 3.0 compensation for solar systems will be approximately 75% less for the excess electricity they push onto the grid. From a financial perspective, this effectively reduces the rate from an average of 30 cents per kWh to 8 cents per kWh.
  • Payback periods for switching to solar are increasing to 9-10 years. Nevertheless, given the high costs of buying electricity from the grid for Californians, going solar still the most cost-effective option.
  • NEM 3.0 significantly reduces the net metering value of solar electricity but does not introduce any new charges or “solar taxes.”
  • Pairing solar with battery storage becomes more advantageous under NEM 3.0.
  • Existing solar customers and those who install solar before NEM 3.0 goes into effect will be grandfathered into their original net metering policy.
  • Solar owners on NEM 2.0 can later add battery storage and remain on the NEM 2.0 billing system.
  • There are still numerous NEM 3.0 benefits for going solar, but those who act before April 14 can lock in more favorable net metering credits compared to NEM 3.0 credits.
  • Californians considering solar installations should do so as soon as possible to maximize savings, as NEM 3.0 California could result in a potential loss of up to 60% of solar savings without battery storage.

Advantages of NEM 3.0

Despite its several drawbacks it has received criticism for, mostly due to the 75% reduced export rate, the NEM 3.0 program presents several notable advantages. These mostly boil down to self-reliance in terms of generating energy and de-stressing the grid. In the subsequent sections, we shall provide a comprehensive overview of each of these benefits.

●      1. Incentivizing Self-Consumption of Solar Energy and De-Stressing the Grid

  • NEM 3.0 tariff significantly lowers the export rate for residential solar electricity, slashing it by approximately 75%, from an average of 30 cents per kWh to 8 cents per kWh. While this may result in reduced NEM 3.0 credit earnings for surplus power sent to the grid, it also encourages homeowners to focus on maximizing self-consumption of solar energy.

●      2. Battery Storage Incentive

  • NEM 3.0 aims to promote the adoption of battery storage alongside solar panels. By pairing battery storage with solar installations, homeowners can enhance their self-consumption capabilities and contribute to grid resilience. This incentivizes users to utilize their self-produced NEM 3.0 solar energy efficiently and reduce dependence on exporting excess energy to the grid.

●      3. Faster Payback Period for Solar-Plus-Storage

  • Under the NEM 3.0 program, the payback period for solar-plus-storage installations becomes more favorable compared to solar-only setups. New customers can benefit from this rule by installing a solar battery and storing surplus NEM 3.0 solar energy for on-site use. By leveraging the stored energy during periods of higher time-of-use rates, homeowners can maximize the value of their solar power and minimize grid exports through increased self-consumption.

●      4. Optimized Savings Potential

  • Homeowners stand to gain substantial long-term savings with NEM 3.0 by embracing solar-plus-storage solutions. While the payback period for solar-plus-storage may still be slightly longer than under the previous NEM 2.0, it is significantly shorter than installing solar alone. Adding a battery to the system ensures that users extract the most value from their solar energy over the lifetime of the NEM 3.0 solar energy system.

●      5. Enhanced Energy Independence

  • NEM 3.0 empowers homeowners with greater control over their energy consumption and production. By utilizing battery storage, they can store excess energy generated during sunny periods and use it later during peak demand or when the sun is not shining. This contributes to increased energy independence and reduced reliance on the grid.
  • Three operation modes of EP Cube energy storage system With EP Cube, worrying about unexpected power outages or blackouts effectively becomes a thing of the past. The cutting-edge solar battery storage system is set up in a way to always have plenty energy on hand to power an entire household for prolonged periods time, which also includes periods of low sunlight.

6. Environmental Benefits

The transition to solar-plus-storage systems under NEM 3.0 rules and regulations aligns with sustainable practices, reducing reliance on fossil fuels and decreasing greenhouse gas emissions. By maximizing self-consumption and minimizing grid exports, homeowners contribute to a cleaner and more environmentally friendly energy ecosystem.

7. Grid Resilience

The widespread adoption of solar-plus-storage systems enhances grid resilience by reducing stress on the grid during peak demand and providing a decentralized power supply. In the event of grid outages or emergencies, homeowners with battery storage can continue to access stored energy, ensuring a more reliable and stable energy supply.

NEM 3.0 as a whole

Looking at it as a whole, the NEM 3.0 incentives present a range of compelling advantages that incentivize homeowners to adopt solar-plus-storage systems, thereby promoting:
  • Enhanced energy efficiency
  • Increased savings potential
  • Bolstered environmental sustainability

A brief intro to Net Energy Metering

NEM, or Net Energy Metering, is a policy designed to incentivize the generation of renewable energy by allowing customers to receive credits for surplus electricity they supply to the grid. California introduced different versions of this policy, starting with NEM 1.0 in 1996. Under NEM 1.0, customers were reimbursed at the full retail rate for the excess energy they exported, effectively offsetting their electricity bills with their solar production. This made solar energy more appealing and economical for consumers. Over the years, customer-generators connected their systems to the grid under the NEM 1.0 tariff until its sunset dates in 2016-2017, marking the transition to subsequent versions like NEM 2.0 and NEM 3.0, each with its own set of rules and benefits.

From NEM 2.0 to NEM 3.0 – Changes explained

The transition from NEM 2.0 to NEM 3.0 introduces several changes, not all of which homeowners will be pleased to hear. Nevertheless, this is what’s on the table and we’ve neatly summarized the most notable NEM 3.0 changes below, highlighting the most crucial differences.

Reduced Bill Savings for Solar PV-Only Projects

Under the provisions of NEM 3.0, bill savings for solar PV-only projects exhibit a decline of 18% in first-year savings when compared to the preceding NEM 2.0. This reduction in bill savings is attributed to the decrease in the export rate, leading to diminished credit earnings for the surplus solar power directed to the grid.

Enhanced Economics for Solar-Plus-Storage Systems

NEM 3.0 introduces improved economics for solar-plus-storage installations. By integrating energy storage with solar panels, homeowners can take advantage of higher export rates and optimize energy utilization through activities such as energy arbitrage and peak shaving.

Higher Contribution of Storage Value

Under the NEM 3.0 tariff, storage contributes to a larger percentage of the total value compared to NEM 2.0. With enabled storage exports, 37% of the total value comes from storage, as opposed to 25% under NEM 2.0, reflecting the system’s increased capacity for grid support and optimization.

Varied Profitability under NEM 3.0

While, on average, solar-plus-storage systems may be less profitable under NEM 3.0 compared to NEM 2.0, there are numerous instances where NEM 3.0 presents a more favorable financial outlook. The profitability of a solar or solar-plus-storage system is highly dependent on the host facility’s:
  • Energy load
  • Export patterns
  • Overall flexibility
For some building types, particularly when battery energy storage systems can export, revenue under NEM 3.0 can exceed that under NEM 2.0.

Introduction of Net Billing Tariff (NBT)

NEM 3.0 introduces the Net Billing Tariff (NBT) to govern how customers earn credits for their exported energy. Under NEM 3.0 tariff, NEM 3.0 credits for exported energy are valued based on the avoided cost to utilities, which closely resembles wholesale rates for electricity production and distribution.

Time-Varying Export Prices

Under NEM 3.0, export prices are no longer fixed and vary based on the month and specific hours when the system exports energy to the grid. Prices are generally lower (around $0.05/kWh) than legacy NEM rates, but during times of high demand, such as summer evenings, prices for exported energy can significantly increase (up to $2.87/kWh).
To get a more accurate idea of what you can expect as compensation for the energy you export, the following table is a great resource from PE&G. Not only does it give you the latest data, it also segments it based on individual months, days, and even hours to help you determine the optimal export timing.

Decoupling Export Rates from Retail Rates

NEM 3.0 decouples the export rates from retail rates, which were used in NEM 2.0. Instead, the avoided cost calculator (ACC) model determines the compensation for exported energy. This model estimates hourly utility avoided costs, reflecting the underlying costs of energy delivery that fluctuate throughout the day.

Export Compensation Based on Hourly Utility Avoided Costs

The introduction of the ACC model results in a new set of values for exported energy compensation. These values depend on the estimated hourly utility avoided costs, offering a more dynamic and time-sensitive compensation structure for organizations and homeowners with on-site solar installations. In summary, NEM 3.0 introduces changes that
  • Affect bill savings
  • Promote solar-plus-storage economics
  • Provide variable export compensation based on utility avoided costs
While solar PV-only projects may experience reduced savings, the integration of energy storage and adoption of time-varying export rates offer opportunities for improved profitability and better grid support under NEM 3.0.

How does NEM 3.0 improve bill savings?

NEM 3.0 improves bill savings for customers through multiple mechanisms. Optimized solar utilization is the first that comes to mind. NEM 3.0 encourages customers to maximize their savings by utilizing more of the solar energy they produce. By adding battery storage to their solar panel systems, customers can store excess solar energy for later use instead of exporting it to the grid for minimal economic benefit. As solar energy generation is inherently cheaper than electricity purchased from utility companies, utilizing more self-generated solar power and relying less on grid energy leads to significant bill savings. Then, we have enhanced earnings during what is referred to as “power hours”. Customers utilizing Time-Based Control Mode with battery storage, can benefit from NEM 3.0 by earning more during “Power Hours.” During summer months when solar resources decline and electricity demand increases, modern solar battery storage systems like EP Cube can strategically control the export of solar energy to the grid.
EP Cube measures key energy metrics, meaning it can detect the optimal times to sell to the grid for maximum profit. By taking advantage of “Power Hours,” customers can export surplus solar energy when the export prices are substantially higher, up to 75-times higher than the lowest export prices during the month of September. Storing solar energy during low export value periods and exporting during high-value Power Hours allows customers to optimize earnings and further increase bill savings.

What is the philosophy behind reduced net metering credits?

The philosophy behind reduced NEM 3.0 credits is driven by the shift from traditional net metering to net billing, which aims to establish a new NEM 3.0 compensation rate for solar exports to the electric grid. Unlike the one-to-one net metering prevalent in many states, where exported solar production is credited at the retail rate of electricity, NEM 3.0 adopts an “avoided cost” approach. Under this model, the credit for solar exports is no longer tied to the typical electricity rates that customers pay for grid electricity, but instead, it is calculated separately based on the utility’s avoided energy costs. This new structure results in a significant reduction in the value of net metering credits. The avoided cost rates vary depending on factors such as:
  • The hour of the day
  • The day of the week (weekday vs. weekend)
  • The month of energy export
All in all, this results in a total of 576 possible export rates. On average, the avoided energy cost rates amount to about 25 percent of retail electricity rates during the corresponding hours. Consequently, the net metering credits under NEM 3.0 decrease by approximately 75 percent compared to previous net metering policies. The underlying philosophy behind this reduction in net metering credits is to align the compensation for solar exports with the utility’s actual costs of obtaining electricity from other sources. By basing the credit on avoided costs, NEM 3.0 intends to create a more economically equitable and sustainable framework, where customers are credited for exported energy at rates that reflect the utility’s expenses when procuring electricity from traditional power generators. This shift aims to strike a balance between incentivizing solar adoption and ensuring the grid’s economic viability, ultimately fostering more efficient and cost-effective energy practices.
The demand for electricity is not always the same. During peak hours, consumption goes up, and so does the pricing, effectively putting more stress on the grid.

NEM 3.0 eligibility – who qualifies?

The following candidates qualify as eligible for the NBT (Net Billing Tariff) under NEM 3.0:
  • NEM 3.0 eligibility extends to customers being served by California Investor-Owned Utilities (IOUs), including PG&E, SCE, and SDG&E.
  • Customers who plan to install a new solar or solar-plus-storage system qualify for participation in NEM 3.0.
  • NEM 3.0 is applicable to customers applying for interconnection on or after April 15, 2023.
Ineligible for the NBT (Net Billing Tariff) under NEM 3.0 are:
  • Customers not receiving service from California Investor-Owned Utilities (IOUs).
  • IOU customers currently benefiting from existing solar or solar-plus-storage systems operating under NEM 1 or NEM 2.
  • IOU customers seeking to add storage to an existing solar array that is interconnected under NEM 1 or NEM 2.
  • IOU customers who initiated the installation of solar or solar-plus-storage and applied for NEM 3.0 interconnection before April 15, 2023.

4 steps to take to apply for NEM 3.0

  1. Check network capacity: The data submitted within the Agreement and Customer Authorization form, alongside the Standard NEM 3.0 Interconnection Application, will be utilized to conduct an exhaustive evaluation of the network capacity. This meticulous assessment endeavors to ascertain the potential requirement for an additional engineering review and to establish the suitability of implementing system upgrades, including transformer replacements.
  2. Complete the Agreement and Customer Authorization (A&A) form: To advance to the next step, it is of utmost importance to meticulously complete and officially endorse the Agreement and Customer Authorization (A&A) form. This document serves as a mandatory prerequisite and must be promptly submitted.
  3. Fill out the Standard Net Energy Metering 3.0 application form: Completing the Standard NEM 3.0 Interconnection Application is a crucial step to request connection to the utility grid under the NEM 3.0 program. Providing accurate and comprehensive information in the application facilitates the evaluation and approval process for integrating the renewable energy system into the grid.
  4. Wait for your NEM 3.0 application to be approved: Upon receipt of the fully completed documentation from a contractor, PG&E typically processes the NEM 3.0 application within 5 to 10 business days, with a maximum timeline of 30 business days, to grant permission for project operation. To expedite the approval process, it is advisable to include both the contractor and customer email addresses on the application, as this enables faster communication and approval via email.
You can read more about the process, forms, and the exact requirements here. Related forms and documentation:
  • Electric Rule 21 Engineering Decision Tree
  • AC Disconnect & Variance Requirements
  • Schedule NEM
  • Form 79-1151A

Other comparable renewable energy programs

The NEM 3.0 program, while quite a well-known government solar incentive, is by no means the only one of its kind. There are other programs similar to NET 3.0 incentives, which you will find neatly summarized below:

Virtual Net Energy Metering (VNEM)

Virtual net energy metering (VNEM) is a mechanism that empowers owners of multi-tenant properties to fairly distribute the advantages of a renewable electrical generation facility among the tenants residing in different units. This innovative approach operates within the framework of tariff rules, enabling system owners to allocate renewable generation bill credits in an equitable manner, both to common load areas and individual tenants across a single or multiple service delivery points. Essentially, the bill credits operate with the same principles and mechanisms as those observed under the standard net energy metering NEM 3.0 tariff. VNEM not only promotes the utilization of renewable energy sources but also fosters a more inclusive and beneficial energy-sharing model for multi-tenant properties.

NEM Aggregation (NEMA)

Senate Bill (SB) 594, enacted in 2012, introduced the concept of Net Energy Metering Aggregation (NEMA) in California. NEMA permits eligible customer-generators to aggregate the electrical load from multiple meters, and the resulting net energy metering credits are shared among all properties attached, adjacent to, or contiguous with the generation facility. To utilize NEMA, a customer-generator must be the sole owner, lessee, or renter of the properties involved. For instance, an agricultural customer could employ a single renewable generation system to receive NEMA bill credits that offset the electrical load from both their residence and an irrigation pump located on an adjacent parcel. As of November 30, 2022, NEMA projects represented approximately 1% of all Net Energy Metering projects. The California Public Utilities Commission authorized Investor-Owned Utilities (IOUs) to implement NEM aggregation in Resolution E-4610 and established a bill credit calculation methodology in Resolution E-4665.

Renewable Energy Self-Generation Bill Credit Transfer (RES-BCT)

The Renewable Energy Self-Generation Bill Credit Transfer (RES-BCT) tariff offers local governments and universities the opportunity to share generation credits obtained from a renewable energy system situated on one government-owned property with billing accounts at other government-owned properties. Under RES-BCT, the system size is limited to 5 MW, and bill credits are applied to the generation-only portion of a customer’s retail rate. The establishment of RES-BCT was initiated through AB 2466 (Laird, 2008) and is now enshrined in Section 2830 of the Public Utilities Code. In a significant expansion of eligibility, SB 479, passed in 2021, extended RES-BCT participation to California Native American tribal governments. For further details on the RES-BCT programs of the Investor-Owned Utilities (IOUs), information can be accessed through the respective links for PG&E, SCE, and SDG&E.

NEM Fuel Cell (NEMFC)

The Net Energy Metering Fuel Cell (NEMFC) tariff extends eligibility to fuel cells that utilize renewable or non-renewable fuels while adhering to a greenhouse gas (GHG) emissions standard. Established by AB 1214 (Firebaugh, 2003) and enshrined in Section 2827.10 of the Public Utilities Code, NEMFC provides bill credits that are applied solely to the generation portion of a customer’s retail rate. The program operates under a distinct program cap, currently set at 500 MW. As of November 2022, a cumulative total of 120 MW in fuel cell capacity had been installed under this tariff. With the enactment of SB 155 in 2021, fuel cells must commence operation on or before December 31, 2023, to be eligible for participation in the NEMFC program.

Conclusion

In summary, NEM 3.0 marks a significant shift in the net metering landscape, impacting solar owners and renewable energy enthusiasts alike. Understanding its reduced net metering credits and the advantages of battery storage integration allows for informed decisions for solar energy investments. Everything considered, going for the solar panel + battery storage combination (rather than just solar panels) still remains the most financially viable decision for the long-term. In the grand scheme of things, it’s cheaper than drawing power from the grid, not to mention the increased blackout resilience that comes with it. Plus, your investment literally pays for itself within a decade. With this in mind, we encourage you to apply for the NEM 3.0 program if you’re a homeowner. Although the NEM 3.0 application process may seem daunting, with our comprehensive guide, you can confidently navigate through the steps and unlock the full potential of this updated policy. So, whether you are a residential homeowner or a business looking to go solar, embrace NEM 3.0 with confidence and take a step towards a brighter and cleaner energy future. Let’s harness the power of solar energy and pave the way for a sustainable tomorrow.

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