What is NEM?

California’s Net Energy Metering (NEM) program is a billing structure that allows homeowners and businesses with solar panels to earn credits for the excess energy they generate. The excess energy is fed back into the power grid, and the credits earned can be used to offset the cost of energy used when their panels aren’t generating electricity, such as during the night or rainy weather.

Currently, the credits earned through NEM can be rolled over from month to month. Any unused credits at the end of a 12-month billing cycle are typically reimbursed to the customer at the wholesale rate. 

On December 15, 2022, the California Public Utilities Commission (CPUC) approved NEM 3.0, which will be effective as of April 14, 2023. A 120-day sunset period will take place prior to NEM 3.0 becoming effective. NEM 3.0 isn’t retroactive, so any solar panels installed under the earlier iterations of NEM 1.0 or NEM 2.0 will carry those program structures into the launch of NEM 3.0.

Once NEM 3.0 goes into effect, new solar panel owners will earn about 75% less on the solar energy they return to the grid than current owners. This means the credits they earn may not be enough to cover energy costs when solar panels aren’t in use. The good news is that there is still time to get grandfathered into the current NEM 2.0 program.

The evolution of NEM

NEM 1.0

NEM 1.0 was the original program that took effect in 1996. Under NEM 1.0, when a solar panel system generated more energy than the customer was using, the excess energy was sent back into the grid. The customer was credited for the excess energy at the retail rate they would pay for electricity from the grid, which could be used to offset the cost of energy the customer used when their solar panels weren’t generating electricity.

The credits earned through NEM 1.0 could be rolled over from month to month, and any unused credits at the end of a 12-month billing cycle were typically reimbursed to the customer at the wholesale rate.

It helped to encourage people to switch to solar energy in California, but as more customers began to generate their own power, utilities began to experience revenue losses due to the credits paid to NEM customers. This led to the introduction of NEM 2.0, which included changes to the way customers were credited for excess energy generated and the introduction of new fees and rate structures to help offset the costs incurred by utilities.

 

NEM 2.0

NEM  2.0 is the current version of the NEM program in California, which took effect in 2016. It is an evolution of the original NEM program and includes some significant changes to the way customers are credited for excess energy generated by their solar panels or other renewable energy systems.

One of the key changes in NEM 2.0 is the introduction of “non-bypassable charges.” These are fees that customers are required to pay for the transmission and distribution of electricity, even if they generate all their own power. Another important change in NEM 2.0 is the introduction of a new “time-of-use” (TOU) rate structure. This means that the amount customers are credited for excess energy generated will vary based on the time of day and the season. Specifically, customers will receive a higher credit for excess energy generated during peak hours, typically in the late afternoon and early evening, and a lower credit for energy generated during off-peak hours.

NEM 2.0 also includes some changes to the rules around interconnection and system size limits. Specifically, customers with solar systems larger than 1 MW must now pay for the costs associated with upgrading the utility’s distribution system to accommodate the additional energy capacity.

Despite these changes, NEM 2.0 still provides a significant financial incentive for customers to invest in solar panels. Under NEM 2.0, customers receive a credit for the excess energy they generate based on the total energy consumed from the grid, including the non-bypassable charges. NEM 2.0 continues to implement credit rollover that can be reimbursed at the end of a 12-month billing cycle. 

NEM 3.0

NEM 3.0 will replace the current NEM 2.0 program beginning in April 2023. NEM 3.0 will implement many changes to the NEM program which will directly affect how much money consumers will be able to save by utilizing solar power. Some of these changes include

System size limits: Solar panel systems larger than 1 megawatt would be subject to a new interconnection fee based on the size of their system. The fee would be used to help offset the costs of upgrading the grid to accommodate the additional energy capacity.

Time-of-use (TOU) rate structure: Similar to NEM 2.0, NEM 3.0 would introduce a new TOU rate structure that would vary based on the time of day and the season. Customers would receive a higher credit for excess energy generated during peak hours, which typically occur in the late afternoon and early evening, and a lower credit for energy generated during off-peak hours.

Non-bypassable charges: Under NEM 3.0, customers would still be required to pay for the transmission and distribution of electricity, even if they generate all their own power.

“Avoided cost” rates: NEM 3.0 would introduce a new “avoided cost” rate that would be used to determine the value of excess energy generated by NEM customers. The avoided cost rate would be based on the cost of producing energy from traditional sources and would be set by the California Public Utilities Commission (CPUC).

A recent survey says that 95% of consumers would not buy solar under NEM 3.0 due to the vast changes that are to take place. One expert even called it “a proposed dystopia.” The good news is that there is still time to get grandfathered into the NEM 2.0 program.

Why choose NEM 2.0 over NEM 3.0?

People may want to choose NEM 2.0 for a few reasons.

First, NEM 2.0 provides stability and predictability for customers who have already invested in solar energy. The program offers a long-term contract with a fixed rate structure, which can provide peace of mind for customers who have made significant investments in solar panels or other renewable energy systems.

Second, NEM 2.0 offers a more favorable credit rate structure. Under NEM 2.0, customers receive credits for excess energy generated at the same retail rate they pay for the electricity they consume from the grid and don’t have to worry about avoided cost rates or system size limits.

Finally, NEM 2.0 provides a clear path for customers to earn credits for the excess energy they generate, which can help offset the cost of electricity they consume from the grid when their solar panels are not generating enough energy. This can result in lower electricity bills and long-term savings for customers.

There are some risks associated with grandfathering in, such as uncertainty regarding future changes to the net metering program, the potential for lower net metering credits in the future, and possible changes to interconnection requirements and fees. However, the benefits greatly outweigh the risks.

How to grandfather into NEM 2.0

Customers have until April 14, 2023 to get grandfathered into the NEM 2.0 program, which they’ll be able to keep for 20 years. The steps to grandfather into NEM 2.0 are as follows:

1. Submit a solar interconnection application, free of errors, to your utility company before April 14, 2023
2. Install your solar panel system 
3. Receive permission to operate (PTO) within three years of submitting your interconnection application

An interconnection application is a collection of documents that the utility company needs to safely turn on and manage your solar system. To be considered complete, your interconnection application documents must include the following:

• A completed interconnection application
• A signed installation contract
• A diagram of your proposed system
• CSLB disclosure documents
• A completed and signed consumer protection guide
• Oversizing attestations if they apply to your system

All of the documentation must be submitted, complete, and without errors before the deadline in order to grandfather into NEM 2.0.

Typically, your solar company will complete these steps for you, but not all solar companies are offering to grandfather people into NEM 2.0. The process usually takes a few months to complete, so it’s imperative to find a solar company such as Planet Connection that has a grandfathering process in place to lock you into the program.

Comparison between NEM 1.0, 2.0, and 3.0

	NEM 1.0	NEM 2.0	NEM 3.0
Eligible import rate schedule	Any	TOU rates	Specific “electrification” TOU rates
Onsite use of generated energy/avoids energy imports	Yes	Yes	Yes
Credits for energy exports	Import rates	Import rates	Price of energy that IOUs could buy elsewhere instead
Credits for net surplus energy to Investor-Owned Utilities (IOUs)	Wholesale price of energy to IOUs	Wholesale price of energy to IOUs	Wholesale price of energy to IOUs
Non-bypassable charges calculation basis	Net energy consumed (imports minus exports) in a year	Net energy consumed in a metered interval (1 hour for residential and 15 minutes for nonresidential customers)	All energy imports
Interconnection fee	None	$75-145	$75-145
Billing and true-up period	Annual billing, annual true-up (both charges and credits roll over for 12 months)	Annual billing, annual true-up (both charges and credits roll over for 12 months)	Monthly billing (pay monthly); annual true-up (credits roll over for 12 months)
Installation size limit	Customer’s annual electric load with limited exceptions; capped at 1 MW	Customer’s annual electric load with limited exceptions	Customer’s annual electric load plus up to 50% if customer attests to need

Data Source: California Public Utilities Commission

In conclusion, the changes to NEM 3.0 will affect all solar customers in California unless they grandfather into NEM 2.0 It’s important to act quickly in order to lock in the benefits of NEM 2.0, so contact Planet Connection today!