Net Energy Metering NEM 3.0
/Read Time: 5 minutes:
Highlights:
Net metering policy NEM 3.0 buys solar-generated electricity 75% cheaper than previous net metering policies.
Net metering under NEM 2.0 policy will remain applicable for customers who sign up before 13rd April 2023.
The return on investment period for new solar energy systems under NEM 3.0 policy will be around 8-10 years, which will double that of NEM 2.0.
Keywords: Net energy metering, NEM, NEM 1.0, NEM 2.0, NEM 3.0, Solar net metering
What is solar net metering?
Solar-generated electricity is indispensable to achieve global decarbonization, but it mitigates the ever-increasing electricity tariffs. Solar energy offsets customers' electricity bills through net energy metering (NEM), which is a process of selling excess electricity back to the grid. Net metering allows users to earn credits when their solar electricity production exceeds their consumption. Except for the few peak hours, the solar owners will always have excess electricity during the sunshine hours, which can be sold to the grid, thus earning substantial savings.
Does it worth investing in solar net metering?
The investment in solar energy for your home or business is steered by the return on investment (ROI) period, solar generating system cost, market conditions, and the governing electricity tariff policies. Net metering gains and flexible tariff policies are the prime motivations to invest in rooftop solar generation. Ideally, there should be a uniform one-to-one price ratio between importing and exporting electricity to the grid. Under uniform tariffs, a single kWh bought from a utility company should be equivalent to the price it buys solar-generated electricity through net metering. This incentive can save hundreds to thousands of electricity bills annually and motivates customers to invest in clean and renewable energy. However, regular amendments and updates in the NEM tariff policies have affected the customers saving incentive.
NEM 3.0 will be enforced after 13 April 2023.
The California Public Utilities Commission (CPUC) designs and regulates net metering policies. Once the customer opts for net metering, the tariff policy remains enforced for the average life of the solar energy system, i.e., 20 years. So, the tariffs for solar energy systems already installed either with NEM 1.0 or NEM 2.0 will remain intact for their entire life cycle. Undesirably, net metering is becoming less and less lucrative with every new update in the NEM policy. NEM 3.0 is the latest update approved by CPUC, and it will be enforced on new net-metering customers from 13th April 2023(CPUC). NEM 3.0 still has plenty of incentives for investing in solar generation, but the monthly savings will be significantly lower than those who signed up for NEM 1.0 or NEM 2.0. However, the good news is the customers still have a chance to benefit from net metering with tariff rates under NEM 2.0 if their solar energy installer company places a net metering application by 13-04-2023. After submitting the application, the installer company still has three years to install the solar generating system at the customer's premises.
Why previous net metering NEM 1.0 and NEM 2.0 are better?
After net metering inception in California in 1996 (ScottMadden) , the CPUC has already rolled out three updates; the latest one is NEM 3.0 (CPUC). The first tariff policy NEM 1.0, was the most beneficial for Californians and boomed the solar industry. The success of NEM 1.0 was applying the same retail rate for importing or exporting electricity to the grid. The idea of the same retail rate motivates the customers to install solar panels on all the available space at their premises. CPUC has committed a NEM update to public utilities if the solar energy systems can reach a 5% of their total power demand. Most of the electric utility companies achieved the target of 5% from solar energy systems in 2016-2017, thus, entitled to switch the tariff to NEM 2.0 (Solarviews).
The NEM 2.0 retained the core policy of selling solar-generated electricity to the grid at the same retail rate. Thus, allowing the customers to offset the exported solar electricity against their total electricity consumption. The main difference between NEM 1.0 and NEM 2.0 is the “Time of Use (ToU)” tariff plans, where the cost of electricity is defined by the time of the day(CPUC). For example, at peak demand hours (afternoon to late evening), the utility company sells at higher rates, while low tariffs are charged during off-peak hours (late night and early morning). Since most of the excess solar energy is available during off-peak hours, the net metering savings are considerably reduced compared to solar systems installed under NEM 1.0. However, NEM 2.0 has boosted the installation of solar energy systems with battery storage to optimize the ROI and long-term savings.
Additionally, in California, solar panels are now installed facing southwest or west to enhance solar irradiation, amplifying electricity production during peak hours. Another significant change in the NEM 2.0 is the implementation of non-by-passable charges, aka (NBC). It is a minor levy in the range of 2-3 cents/kWh being added for importing electricity from the grid. But the minor levy does not apply when exporting solar-generated electricity to the grid. Both ToU and NBC reduces the saving compared to NEM 1.0 users; however, the savings are still significant enough to attract customers to install solar energy systems.
What is bad in NEM 3.0? and Should I still invest in solar energy generation at my premises?
CPUC approved NEM 3.0 on 15 December 2022 (CPUC). The crux of NEM 3.0 is reduced tariffs for exporting electricity to the grid with strict ToU and enhanced NBC. For an average residential solar net metering up to 7kW, the average solar-generated electricity price is reduced to 07-08c/kWh, which is almost 75% less than that of NEM 1.0 and NEM (2.0 450c/kWh). The locked-in period is also curtailed from 20 years to 09 years in NEM 3.0(CPUC). Moreover, the customers who sign up for net metering against NEM 3.0 will bear a total NBC amounting to more than $15/month, which is $5/month more under previous NEM policies. All these factors alleviate customer apprehension and also raise the ROI period to 8-10 years, which previously was 4-5 years. But the good news is the customers can still sign up for NEM 2.0 until 13 April 2023. So, ensure your solar installer submits the paperwork before the due date.