If you look at the best solar markets in the US, they all have one thing in common: a strong net metering policy. Net metering–or NEM–allows you to earn credits for any excess solar electricity you send to the grid when your solar panel system generates more than you need.
Over the next year, California will be releasing the third iteration of net metering, or NEM 3.0. And as of summer 2021, there’s still a lot for the state to decide on – we don’t know exactly how credit values will change, or what they’ll change to, but we do know that whatever happens will have large implications for the country’s leading solar market. We’ll continue to keep this article updated with the most recent news on NEM 3.0, and in the meantime, discuss some of the proposed changes to the state’s current net metering policy, along with timelines.
Key takeaways
- The California Public Utility Commission has not yet finalized the new NEM 3.0 policy yet
- Proposed changes to CA’s net metering policy could cut the value of solar credits by up to ~75 percent
- Utilities are recommending two fees for solar customers that, combined, could cost new PG&E, SCE, and SDG&E solar customers more than $100 per month on average
- This is a big one: existing solar customers will be grandfathered into their original net metering policy
- Californians considering solar should go solar sooner rather than later to lock in more favorable net metering credits (click here to get started)
First, a quick history of net metering in CA
Robust solar incentives, plenty of sunshine, high electricity rates, and existing net metering policies have helped CA become the national leader for solar. And as more and more people installed panels in the state, the three biggest investor-owned utilities–Pacific Gas and Electric (PG&E), San Diego Gas and Electric (SDG&E), and Southern California Edison (SCE)–inched closer to their net metering “cap,” each respectively hitting it between 2016 and 2017. This prompted the California Public Utilities Commission (CPUC) to create their next generation net metering policy, known as NEM 2.0.
Compared to CA’s original net metering policy, NEM 2.0 provides solar credits at a slightly reduced rate: ~2 cents less per kilowatt-hour (kWh) to be specific – you have non-bypassable charges to thank for that one! But considering what was at stake, NEM 2.0 was a win for rooftop solar; the industry has continued on a strong growth trajectory since, and homeowners taking advantage of this policy today continue to see thousands of dollars in savings on their electricity bills.
We won’t deep dive into the technicalities of NEM 2.0 here, but if you’re interested, we have a whole separate article about its history and mechanisms. With respect to the upcoming changes, though, it’s important to know that this isn’t the first time that California has instituted a new net metering policy. However, some of the proposed changes for this third iteration could significantly impact the economics of rooftop solar, more so than past modifications.
Why change net metering in the first place?
When it comes to solar, there is an age-old battle of whether or not customers taking advantage of solar net metering shift additional costs onto other utility customers who don’t have solar. Detailing the case on both sides of the argument would be an article in itself, so we’ll just say this for now: properly assessing the true value of solar electricity exports to the grid is an increasingly important–and complicated–task as more and more households install solar panels.
What’s next: NEM 3.0 & how proposed changes impact solar savings
Implementing new net metering policies is no small feat; there are a lot of stakeholders involved, and the process involves many steps, including studies, proposals, testimonies, and hearings – all before the actual decision!
As we’re writing this in May 2021, major parties have submitted their proposals for the NEM 2.0 successor program, but hearings have yet to occur. We wish we had a crystal ball and could tell you exactly how all of this will pan out, but we can’t. While we wait for decisions from the CPUC, all we have to go off of are the submitted proposals. And although we consider ourselves solar-optimists here at EnergySage, we figure the best thing we can do to prepare you is to present some of the least solar-friendly recommendations on the table coming out of the joint proposal from PG&E, SCE, SDG&E.
Reduced net metering credits
First, export compensation for solar electricity sent to the grid: many states offer a credit equal to the retail value of electricity. This is known as one-to-one net metering where you are credited at the same rate for solar exports as what you’d pay to use electricity from the grid. The big three utility companies in CA are asking the CPUC to set a new credit rate that’s lower in value–and by lower, we mean…lower.
Their recommendation to the CPUC asks for export credits based on “avoided cost” rates, which–though variable depending on the season and time of day you export the energy–typically come out to about 25 percent of current rates. This means the value of net metering credits could diminish by up to 75 percent.
Importantly, this would only impact the value of the extra energy you send to the grid – if you install a solar battery and store excess solar energy on-site, you can first charge your battery for use later instead, maximizing the value of your solar energy and minimizing what you export to your utility company through self-consumption.
Grid benefits charge & customer charge
In addition to reducing the value of solar credits, utilities are asking the CPUC to implement two monthly charges for solar customers: a grid benefits charge, and a customer charge. Both are intended to help the utility recover costs associated with the upkeep of transmission and distribution infrastructure, meters, general billing costs, and non-bypassable charges, all you still use as a solar owner but which you may not explicitly pay for under one-to-one net metering.
Assuming the CPUC moves forward with the utility company’s recommendations, your grid benefits charge will be a monthly fee based on the size of your installed system, ranging anywhere from $7 to $11 per kW per month depending on your utility company. To put that into perspective, the average quoted system size in California on the EnergySage Marketplace is about 8.2 kW – for a system this large, you would need to pay an extra $57 to $90 on your utility bill each month, or $700 to $1000 per year (!!) for the right to have solar.
The second suggested monthly fee–the customer charge– would tack on an extra $12 – $24 to your bill, regardless of system size.
Solar savings: how NEM 3.0 could impact solar payback periods
Taken together, the two fees and the reduced net metering credits would have a significant impact on solar savings: under NEM 2.0, most homeowners in California have a solar payback period of roughly 6-8 years. Should the utility proposal come to fruition, that number would shift closer to 10 to 15 years, and may mean that smaller systems (i.e., those under 5 kW) would make no financial sense for homeowners. This distinction is an important one: about half of all residential solar installs in the state of California to date are 5 kW and smaller, meaning all of those solar panel systems would not have made sense under the proposed changes to NEM 3.0.
Timeline for changes to net metering
Again, we know that California will certainly be transitioning to a new net metering program, but the official policy is yet to be determined. What we discussed above were some of the proposed changes from the utility companies, but other stakeholders in the process have also submitted proposals of their own. The CPUC will now hold hearings with official testimony from interested stakeholders, as well as a vote, before making a decision around January 2022. Given this timeline, any official changes will likely not be in place until spring 2022.
Fortunately, customers who have solar under NEM 1.0 or NEM 2.0 benefit from a grandfather clause that will lock in their net metering rates for 20 years; this means if you already have a solar panel system in CA, you’re unlikely to be affected by NEM 3.0 for a long time.
A quick note about NEM grandfather clauses
When the CPUC approved both NEM 1.0 and NEM 2.0, they included grandfather clauses that lock you into your net metering credit structure for 20 years. However, it’s worth noting that some of the NEM 3.0 proposals ask for these grandfather terms to be reduced to 5-10 years. Whether this occurs or not, you’ll almost certainly save more by locking in NEM 2.0 rates for as long as you can by going solar now.
How you can take action to support solar in CA
The final decision of the CPUC won’t only impact California, but the solar industry as a whole; California is the first domino in line for all things solar, and whatever we witness here will undoubtedly influence net metering policies in states across the country.
First, if you’re considering going solar in CA, it’s in your best interest to do so sooner rather than later. While we don’t know exactly what the final decision will be, it’s safe to assume that NEM 3.0 won’t be as beneficial for solar customers as NEM 2.0. So the longer you’re locked into the existing net metering incentive, the better.
Next, whether you’ve gone solar yourself or are simply a fan of renewable energy, you can support the solar industry by advocating for strong, fair net metering policies. The Solar Rights Alliance and Vote Solar are just two groups fighting the good fight, and both provide resources for taking action, including petitions, call scripts for contacting legislators, and more.
Other resources to learn more about net metering
Solar and net metering in California
- What is net metering? (EnergySage)
- California net metering: everything you need to know about NEM 2.0 (EnergySage)
- What’s happening to net metering in California? A Q&A with CALSSA (EnergySage)
- California solar panels: local pricing and data (EnergySage)
- Net Energy Metering (NEM) (CPUC)
Net metering policies: PG&E, SDG&E, and SCE
- Understanding Net Energy Metering and Your Bill (Pacific Gas & Electric)
- Net Energy Metering Program (San Diego Gas & Electric)
- Net Energy Metering FAQ (Southern California Edison)
Exploring solar options in California
On the EnergySage Marketplace, you can receive up to seven quotes from local, pre-screened installers. These quotes will include cost information and savings estimates tailored to your property and current net metering incentives. If you’d prefer to start out with a quick ballpark estimate on solar savings, try our Solar Calculator.