All You Need to Know About the Net Energy Metering 2.0 to 3.0 Transition

Have you always wished that you could have energy sustainability in your home? Then net energy metering is your viable option in California.

What is NEM?

Net Energy Metering is a solar incentive framework that allows you to store energy in the electric grid. Essentially, when your solar system generates more energy than consumed, the owners have the ability to sell the excess production back to utilities and receive credits to their monthly bills. 

Then, at night or other times when your solar panels are under producing, you pull energy from the grid and use these credits to offset the costs of that energy.

Isn’t that amazing, having to invest in solar and it in turn earns you money? It’s the dream of every homeowner. 

So, how does net metering work in California?


(Source: SEIA)

The Net Metering Energy program is eligible to California’s Customers who install small solar, biogas, wind, and fuel cell generation facilities to serve all onsite electricity.

Net metering 2.0 in California is significant. It allows residents with solar energy to serve their energy needs directly on-site and receive financial credit on their electric bills for any surplus energy fed back to their utility bill generator.  

As a person looking to invest in solar energy, you should know that your participation in the NEM does not in any way limit your eligibility for any other rebate, incentive, or credit provided by an electric utility. 

The current NEM 2.0 program was adopted by the California Public Utilities Commission (CPUC) on January 28, 2016, and is available to customers of PG&E net metering, SCE, and SDG&E. The program often provides customer-generators full retail rate credits for energy exported to the grid. However, it requires them to pay a few charges that align NEM customer costs more closely with non-NEM customer costs. 

In this article, we look at the transition from NEM 2.0 to NEM 3.0 and what it means to the customers and California residents. 

Let’s examine:

  • What is NEM 3.0?
  • The Background of NEM
  • The Concern for NEM 3.0
  • Expected structure and Impact of NEM 3.0
  • Elements expected to be considered for NEM 3.0
  • Exported Energy Rate Solar System 
  • The structure of the tariff
  • Impacts of NEM 3.0 on Solar PV Generated Energy Value

What is NEM 3.0?


(Source: Renewable Energy World)

Net Energy Metering (NEM) 3.0 remains likely to result in a steep reduction in the value of energy produced by residential and commercial solar PV systems in California, to the order of 40 to 80 percent.

The people who experience the impact will include current solar customers under NEM 1.0 or 2.0, who will bump to NEM 3.0 while their systems still have life. Customers that want to expand their systems could bump them to NEM 3.0; and all future customers. Anything that significant will only add to the industry’s challenge from the step-down in the federal solar tax credit

If you have any planned California solar project, you should do everything possible under the current NEM 2.0 rules. Since May, the California Legislature has voted down Assembly Bill 1139 (Gonzales), which would have had a significant impact on the NEM 3.0 proceeding currently underway at the California Public Utilities Commission and solar PV customers under NEM 1.0 and NEM 2.0. 

California Public Utilities Commission (CPUC) can still make the decisions; however, as the transition from NEM 2.0 to 3.0 is on track for sometime next year for customers of the three regulated utilities, Pacific Gas & Electric (PG&E) program, Southern California Edison (SCE), and San Diego Gas & Electric (SDGE).

The Background of NEM


(Source: Energy Sage)

NEM has existed in California since 1995 and has undergone various revisions over time. The most significant revision of NEM occurred in January 2016, when the California Public Utilities Commission (CPUC) created NEM 2.0, which was rolled out to utility customers in late 2016 and early 2017. Both NEM and NEM 2.0 customers have been under those tariffs for 20 years from when their solar PV system or another form of on-site generation first went into operation.

NEM 2.0 is identical to the original NEM except that customers do not receive bill credits for the “non-bypassable” rate tariff components on the energy exported. Non-bypassable rate components are currently the Wildfire Fund Charge, Competition Transition Charge (CTC), Nuclear Decommissioning (ND), and Public Purpose Program (PPP) charges, which add up to approximately two cents a kilowatt-hour ($0.02/kWh). This change to NEM 2.0 reduced the value of exported energy by roughly 10-20% of exported energy value, depending on the customer’s rate tariff.

The NEM 2.0 decision is an interim solution by the CPUC, allowing the commissioners more time to study the impacts of NEM systems on electricity grids and other utility customers. In addition, there is considerable action on the Net Metering front across the country, with several states moving away from accurate net metering to various forms of export compensation. 

The Concern for NEM 3.0

The main concern in California’s NEM 3.0 proceeding is whether homeowners with solar panels are receiving more value for it than they contribute to the grid as the utilities claim. 

Between the cost of service, equity issues, and the fact that electricity generation is getting cheaper, compensation for onsite, behind-the-meter energy generation is likely to decrease in real dollars over time. 

On the other hand, the cost of purchase and installation of solar-plus-storage systems is coming down faster than the decreasing value of the electricity they generate.

Expected Structure and Impacts of NEM 3.0

It is hard to ultimately tell what NEM 3.0 will look like and how it will impact the current homeowners with solar and future solar PV NEM customers. 

However, from the NEM 2.0 proceeding in 2015-16, the expectation is that the utilities and other interested parties such as environmental groups and consumer advocates will continue to fight hard on the details. 

Elements Expected to be Considered for NEM 3.0?

Importance-of solar

(Source: Medium)

Exported Energy Rate Solar System 

From recent studies of PG&E, SCE, and SDG&E on the cost of energy and the value of the solar system, and Sage’s analyses, there is a reasonable idea of the value of solar during various time-of-use (TOU) periods under the current policy. 

Combining that information with the results of previous studies on the impacts of NEM 2.0 customers on utilities and non-NEM customers, it shows that the value of solar PV energy in California is about 11 cents a kilowatt-hour (~$0.11/kWh). 

It varies significantly between utilities and customer types. The most recent version of the CPUC’s Avoided Cost Calculator shows significant reductions in this value.

The Structure of the Tariff 

There are many tariff structures possible. Given the principles put forward by CPUC and the intention to control the value of solar PV energy in California, we believe that a Feed-In Tariff (FIT), also known as Buy All, Sell All, or Net Billing will be mandated, along with a Grid Benefits Charge (GBC). 

Feed-In Tariff (FIT) 

FITs, or buy-all, sell-all arrangements, usually separate the customer’s energy usage from solar system energy generation. In this scenario, the customer’s PV system is connected in front (on the utility side) of their electric meter; the customer cannot consume the electricity produced by their PV system. 

What happens is that all energy the customer consumes is metered at their retail tariff rate. All generated electricity is exported to the grid through a separate meter and valued typically at a fixed price. 

It is not net energy metering. Therefore, this type of interconnection would not easily apply, and billing would not be easily applied to existing NEM interconnections with PV systems connected behind the customer’s utility meter on their property. It could, however, be mandated for future NEM 3.0 interconnections. 

Net Billing 

Net Billing is a possible form of NEM 3.0. Here, the solar system is connected on the customer side of the meter and offsets the customer’s electricity usage. 

Any exported energy from the PV system is valued at a fixed price. However, the fixed fee may differ across seasons and TOU billing periods, as proposed by the Joint Investor-Owned Utilities, i.e., PG&E, SCE, and SDG&E. 

Net Billing arrangements typically settle up monthly; exported energy credits are shown and accounted for on each monthly billing statement. Therefore, customers would not bank these accumulated bill credits from exported energy and true up at the end of the billing year, as is done with annual NEM. 

Net Billing is not a true Net Energy Metering like a FIT but remains a likely candidate for the NEM 3.0 policy. 

Grid Benefits Charge (GBC) 

Another component for NEM 3.0 is a GBC or a monthly charge for all solar customers that is not dependent on the rate of consumption of the customer. 

The charge is expected to scale with the installed system size of the solar PV and differ by rate tariff. These charges could amount to about $75 per month in fees for residential generators and $800-$3,400 per month for a 250-kW system for commercial generators. 

Impacts of NEM 3.0 on Solar PV Generated Energy Value

NEM 3.0 could result in a mild to a dramatic loss in solar PV energy value. That depends on the final structure of the NEM 3.0 tariff and the customer’s existing rates. The current proposal shows that commercial customers with a solar PV system sized to offset 90% of their load, a typical target system size, would see a loss in the value of solar in the range of 40%-80%.

The proposed structure attempts to incentivize solar-plus-storage systems by reducing the value of any energy exported to the grid rather than consumed onsite. However, this means that solar-only systems will have to be smaller to maximize the value of solar, which is at odds with the higher installed costs by negating cost efficiencies of scale.

There You Have It. You Now Understand All About the Transition from NEM 2.0 to NEM 3.0 and What to Expect

Net Energy Metering has been of great help in the establishment of the solar value. It is to be noted that NEM 2.0 will face some drastic changes that could reduce the export compensation and add grid benefit charges to all the new systems. It will add additional fees depending on the size of the system.

Remember that your solar provider should be able to explain in detail net metering for your understanding.

You must learn about what is NEM 3.0 and how it is expected to work. As a homeowner looking to invest in solar power in California, you are eligible for the good incentives available in the region. 

Energy storage is important as it helps to have a surplus to use at night when there is no production. It also helps you earn extra from the energy exported to the grid.

Enlightened Solar is a solar installation company in Orange County, California. We can advise you on NEM, including PG&E net metering. Net metering in solar energy is an important aspect to consider for every homeowner looking to go solar!

Contact us today for your solar energy needs.