What Businesses Need to Know About California’s NEM 3 Program

California's Net Energy Metering policy, also known as NEM, has been a significant driver of solar adoption in the state. The policy enables homeowners and businesses to receive credits for excess solar energy they generate and feed back into the grid. However, with the introduction of NEM 3.0—which takes effect in 2023—commercial businesses and homeowners alike will need to pay closer attention to their solar systems and energy usage. Here''s why. 

How Does Net Energy Metering Work?

In 1996, California established the Net Energy Metering (NEM) program to encourage utility customers to generate their own clean energy by offering financial credit on their electric bills for excess energy fed back to the utility grid. 

NEM 1.0 was very successful in persuading homeowners and commercial businesses to adopt solar power. However, by 2016, the designated 5% cap on how much produced power could be sold back to utility companies was nearing its limit. Therefore, the California Public Utility Commission (CPUC) initiated a successor program, which was enacted on July 1, 2017.

Under NEM 2.0, the most notable change implemented was the requirement for all solar energy customers to switch to Time of Use (TOU) rates. This altered the price the utility company had to pay for surplus electricity based on the time of day it was generated. Renewable energy produced during off-peak times was reimbursed at lower rates, while higher ones could be charged during times of peak demand. Nevertheless, under NEM 2.0, customers could still receive almost as much as the retail rate, with a small deduction to help pay for the power grid. 

What''s New With California''s NEM 3.0 Program?

NEM 3.0—the latest net metering plan approved in December 2022—brings a few changes that will affect solar power customers. Here''s a few:

Solar Credit Changes

Unlike what some may think, there will be no punitive "solar tax" imposed on NEM customers. While there will be no fixed charges or other fees specifically for them, the new plan changes the way the credits for net exports will be valued. 

The credits for any solar electricity that is exported back onto the grid will be tied to the Avoided Cost Calculator (ACC) set of formulas that estimate the value of solar generation for the entire electrical grid by modeling the utility''s avoided cost for not having to generate or procure a megawatt-hour of energy. This will result in an average net export rate of approximately 7.5 cents/kWh across all three utilities statewide by 2023.

NEM 3.0 also introduces a gradual reduction in the revised rate structure for the first five years, including a small added value in the form of an export credit adder for PG&E and SCE customers. This adder will be on top of the ACC value, so customers who participate in the program sooner rather than later will experience higher export rates and savings. 

It''s important to note commercial customers don't get an adder, but they do get their export compensation locked in for nine years. All NEM 3.0 customers who go solar in the first five years of the program will have higher export credits locked in for nine years.

Netting Period Changes

The other significant change with NEM 3.0 is the netting period, which measures the clean energy being imported or exported. It will measure energy using instantaneous netting, which means interval netting approximately every 15 minutes. This will lead to more electricity registering as exports, now valued at the new, lower ACC value. Nevertheless, NEM 3.0 also offers different provisions and considerations for low-income homeowners and multifamily dwellings.

Low-income homeowners who are on CARE/FERA rates, homeowners in single-family homes that live in disadvantaged communities, and residential customers in California Indian Country are eligible for higher export rate credits. All in all, the changes provide new opportunities to save more and get more value from their solar power systems.

Under NEM 3.0, the way commercial businesses are compensated for excess energy generated by their solar systems will also alter. Businesses will no longer receive the same credit for excess energy as they do for what they consume. Instead, they will receive a lower credit rate for the excess energy, which will make it more challenging to offset their costs.

The new credit rate will be based on the time-of-use (TOU) rate structure, which means businesses will receive a lower credit rate during peak energy usage hours and a higher credit rate during off-peak hours. This change will incentivize businesses to generate excess energy during off-peak hours and consume during peak hours.

What Impact Will California's Solar Net Metering Adjustments Have on NEM 1.0 and NEM 2.0 Customers?

If you've already installed a solar system under NEM 1.0 or NEM 2.0, you can rest easy knowing that your service agreements won't be affected by the introduction of NEM 3.0. As an existing customer, you'll continue to enjoy all the benefits of the previous policies, which have been grandfathered in for the full 20-year period starting from the date you received Permission to Operate from your utility after your solar installation. This protects your investment from any revisions to NEM 3.0.  

Moreover, if you're considering adding more panels to your California home or business, you can make adjustments of up to 10% to your current solar system without any changes to your current plan through your utility company. Additionally, it's easy to incorporate battery storage, with no changes required to your current plan.

Lock-In Your Solar Savings Today

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