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A California Homeowner’s Guide to Net Metering 3.0

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Net metering changes in California will soon reduce solar energy system credits. Act now to be grandfathered into higher savings!

Net metering — a program that allows solar energy system owners to offset the cost of power they draw from the grid — was first introduced to Californians in 1996. The purpose of this program was to incentivize homeowners to install new solar energy systems, thereby reducing the state’s dependence on finite resources.

The last major update to California’s net energy metering (NEM) policy, NEM 2.0, was enacted in 2016. In August 2020, the California Public Utilities Commission (CPUC) announced plans to update NEM 2.0, resulting in a set of new policies collectively known as NEM 3.0. These changes were supposed to take effect in early 2022. However, in February, the CPUC delayed the vote on the new proposal, putting these changes on hold indefinitely.

With all of the recent news regarding NEM 3.0, you might be wondering exactly how these policy changes will affect you as a current or future solar energy system owner.

In this blog, we’ll explain:

Let’s start by looking at some of the proposed changes in NEM 3.0.

Interested in adding solar panels to your California home or business?

Contact Photon Brothers at (805) 351‑3371. Our solar engineers can help you choose the right solar panel equipment based on your budget and power needs. We can also answer your questions regarding net metering and provide you with financing options.

Proposed Changes in Net Metering 3.0

Compared to the current NEM 2.0 policy, NEM 3.0 would introduce many significant changes, including:

New Time of Use (TOU) Plans

Many of the proposed changes in NEM 3.0 were suggested by utility companies. One of these changes is a new TOU rate (“time of use”), which would increase the cost of electricity during times of high demand.

Utility companies proposed this new rate to incentivize solar energy system owners to install a storage battery. Since electricity demand is highest when the sun is not shining (during the evening hours), relying on a storage battery would reduce the amount of electricity solar homes pull from the grid. However, installing a solar battery puts an extra financial burden on solar energy system owners, often adding thousands to an already expensive solar panel setup.

Reduced Energy Credits

Under NEM 2.0, current solar energy system owners can earn 22 and 36 cents (on average) for every kilowatt-hour (kWh) of electricity they send back to the grid. However, the new NEM 3.0 policy would reduce those earnings to only 4.7 to 5.8 cents per kWh, depending on the utility provider.

This dramatic change in energy credits comes from California’s Avoided Cost Calculator (ACC), which essentially calculates the value of solar power for the major utility companies in the state (Pacific Gas and Electric, Southern California Edison, and San Diego Gas & Electric). However, many solar supporters have critiqued the ACC for not considering solar energy’s environmental and social benefits.

Since solar energy system owners will receive less money for the electricity they send back to the grid under NEM 3.0, purchasing a solar backup battery will be more essential than ever before. A solar backup battery will allow solar-powered homes to become self-sufficient, eliminating the need to sell power back to the utility companies at a reduced price.

Grid Participation Fee

Another change in NEM 3.0 is the addition of a grid participation fee to all solar homeowners. This fee consists of an $8 charge per kilowatt (kW) of solar power capacity. The average size of a solar panel system is 6 kW, which means the average solar homeowner would pay $48 every month. This fee would ultimately reduce the amount of money solar panel owners can save using renewable energy.

That said, this participation fee would be reduced or waived for low-income solar panel customers who qualify for the California Alternate Rates for Energy (CARE) program. Additionally, utility companies will offer market transition credits to reduce grid participation fees for the first 10 years of billing for solar customers switching to NEM 3.0.

Shorter NEM 2.0 Terms

Many solar energy system owners signed 20-year NEM agreements under NEM 1.0 and 2.0. Under NEM 3.0, those agreements would be shortened to 15 years, significantly altering the original deal homeowners signed when they installed solar panels.

What Net Metering 3.0 Means for Solar Energy System Owners

Net metering 3.0 has been controversial because many PV industry leaders fear it discourages homeowners from switching to solar energy. They claim that the rising costs and decreased financial incentives would make solar energy less popular and force more people to continue using conventional electricity.

In a report by energy research firm Wood Mackenzie, researchers estimated that under the proposed changes in NEM 3.0, the solar payback period would increase to 14 to 15 years. This range is more than double the current average solar payback period of 5 to 6 years, which would make rooftop solar increasingly cost-prohibitive throughout the state.

Much of the support for NEM 3.0 comes from utility providers and non-solar customers. They argue that under current policies in NEM 2.0, Californians without solar panels pay $245 per year more than solar energy system owners. The CPUC also attributes net metering overpayments as one of the reasons why the cost of electricity is rising throughout California. To reduce electricity rates and make them more equitable between solar and non-solar customers, utility companies and the CPUC proposed many of the changes we covered in the section above.

If the CPUC approves NEM 3.0, it would significantly shift how consumers purchase solar energy. For example, a storage battery will be an essential component in new solar energy installations. Additionally, smaller PV systems (less than 5 kW) would likely become less common because their high upfront costs and lower energy output — combined with expensive ongoing utility fees — make them a less rewarding financial investment.

The Future of Net Metering 3.0

After solar energy advocates pushed back against the new changes, the CPUC postponed the decision to enact NEM 3.0. As of February 2022, the proposal is at a standstill.

Governor Gavin Newsom commented that we still have some work to do” regarding the new proposal. The new president of the CPUC, Alice Reynolds, requested more time to review the changes and mentioned that she intends to hold a session for oral arguments at an unspecified later date.

Whether or not NEM 3.0 will become the new standard in California remains to be seen. If the CPUC enacts the policy, it could take effect in the latter half of 2022. If you are interested in adding solar panels to your home or business, now is an excellent time to act — before NEM 3.0 becomes law.

Interested in Solar Panels for Your California Home or Business? Call Photon Brothers Today.

Schedule an appointment online or call us at (805) 351‑3371. We’re happy to answer your questions about net metering and help you plan the perfect solar panel setup. When you work with Photon Brothers, you can count on us to deliver 5‑star customer service during every stage of the project, from planning to installation.

Photon brothers David Raichart

David Raichart

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