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NEM 2.0 vs NEM 3.0 – What has changed?

California’s Net Energy Metering (NEM) policies are changing from NEM 2.0 to NEM 3.0, affecting solar energy users. NEM 2.0 had Time-of-Use (TOU) rates and a 20-year rule for existing solar customers. It established rules for crediting solar power.

NEM 3.0, effect on April 15, 2023, has new rules. It lowers the rates for solar power sent back to the grid. This aims to solve grid problems and address concerns from utilities about costs. Energy storage becomes important under NEM 3.0.

California has always been a leader in renewable energy, thanks to its sunny weather and forward-thinking energy policies. At the heart of this green energy movement is the Net Energy Metering (NEM) program.

It encourages businesses and homeowners to use solar power. As energy policies change, so do the details of these programs. In this article, we explore California’s NEM 2.0 and NEM 3.0 programs.

We’ll dive into the basics of NEM, uncover the main features, and discuss the changes in each version. We aim to clarify the significance of these programs for solar users, the energy market, and California’s dedication to sustainable energy.

We gathered information from experts to make an article about California’s solar industry. This article is helpful for both newbies and experienced energy enthusiasts. It will keep you informed about the latest developments in the industry.

What is Net Energy Metering (NEM)?


Net Energy Metering (NEM) is a billing system where homeowners and businesses with solar panels (or other renewable energy systems) get net metering credit for the extra electricity they produce and send back to the grid.

Here’s a closer look at how it works:

Generation vs. Consumption: When a solar PV system produces more electricity than needed, it sends the extra power back to the grid. Other homes or businesses in the area can use this excess electricity. The process of sending excess power back to the grid is known as net metering. Net metering allows solar PV system owners to receive credits for the electricity they contribute to the grid.

Extra Generation Credit: The electricity meter monitors the amount of electricity used from the grid and the amount sent back. If you send more electricity back than you use, the meter counts backward and gives you credit.

Billing: You will only pay for the net energy you used at the end of the billing period. This is the difference between what you used from the grid and what you sent back. If you generate more electricity than you use, you might get a credit or payment for the extra energy. These rules are based on the rules in your area.

Benefits: NEM encourages people to install solar panels or other renewable energy systems. You can earn credit for extra electricity produced. This can help reduce your bills. It can also potentially earn you money from your investment in clean energy.

While 42 states have NEM policies, California is a leader in clean energy. Even though details can vary, the main goal is the same: to promote renewable energy by giving incentives for making more energy than you use.

What is the Difference Between Key Differences Between California’s NEM 2.0 & NEM 3.0?

NEM 2.0: Net Energy Metering (NEM) 2.0 follows California’s original NEM program. The California Public Utilities Commission (CPUC) introduced it in 2016. NEM 2.0 made several changes to how solar billing and compensation work in the state. Here’s a summary of NEM 2.0 and its main features:

Under NEM 2.0, California made several changes to its solar program. Here’s a breakdown of the key features:

Grandfathering of NEM 1.0 Customers: Customers who installed solar panels under the first NEM 1.0 program could keep their rate plan for 20 years. This protection would start from when they first connected. This would protect them from the changes in the new NEM 2.0 program.

Non-Bypass able Charges (NBCs): NEM 2.0 introduced NBCs, requiring solar customers to pay charges for all grid electricity used, regardless of solar generation. This was different from NEM 1.0, where solar production could offset these charges.

Time-of-Use (TOU) Rates: NEM 2.0 made TOU rates mandatory for solar customers, varying electricity value based on time. Peak demand periods have higher rates, while off-peak times have lower rates, reflecting actual generation costs.

Interconnection Fees: Under NEM 2.0, some customers may need to pay a one-time fee to connect their solar system to the grid. This fee helps cover utility costs. System Size Limitations: NEM 2.0 maintained the 1 MW system size limit for participating in the NEM program.

Net Metering in Virtual Mode: Virtual net metering was facilitated by NEM 2.0, allowing properties with multiple tenants such as apartments to share solar credits among the occupants.

Shift to NEM 3.0: NEM 2.0 served as a transitional stage. The CPUC will evaluate how well it worked and suggest more changes. This will lead to discussions about NEM 3.0.

Overall, NEM 2.0 preserved many solar incentives while reflecting the evolving solar market and energy landscape in California.

NEM 3.0: The Next Evolution

California has entered a new phase for solar energy with the launch of Net Energy Metering (NEM) 3.0. The state’s three investor-owned utilities will update their billing system on April 15, 2023. This update will bring significant changes for users of solar power.

Key Features of NEM 3.0:

Reduced Export Rates: The main difference between NEM 2.0 and NEM 3.0 is how much you get paid for the extra energy your solar panels produce. Under NEM 2.0, customers are paid the retail rate, which changes based on when energy is used (time-of-use). NEM 3.0 uses an “Avoided Cost Calculator” to set export rates closer to wholesale prices. Additionally, NEM 3.0 requires customers to follow a specific time-of-use schedule decided by their energy provider, limiting customer choice.

NEM 3.0 has decreased export rates by 75%. This affects the compensation that solar systems get for sending extra electricity to the grid. Solar systems will receive less money for surplus electricity under NEM 3.0. This change impacts the overall financial benefits of solar, resulting in longer payback periods for solar investments.

Encouragement for Battery Storage: NEM 3.0 encourages the incorporation of battery storage alongside solar installations, catering to both commercial and residential users. By focusing on battery storage, we can boost energy independence and strengthen the electricity grid.

This helps us rely less on the main power grid during busy times or outages, making the system stronger. This reduces our dependence on the main power grid during peak times or outages. It makes the system more resilient and less vulnerable to power outages.

Continued Savings: Despite the reduced incentives compared to previous versions, NEM 3.0 still offers significant energy cost savings for Californians. Especially when paired with battery storage, solar installations can provide substantial savings on electricity bills.

Having energy storage allows you to sell excess energy to the utility company at a higher price, increasing your profits. This means you can make more money by selling the extra energy you have stored. This makes solar-plus-storage systems a better financial option.

Understanding NEM 3.0:

Solar Billing: The Solar Billing Plan, also called NEM 3.0, began on April 15, 2023. This is applicable to patrons of Pacific Gas & Electric (PG&E), Southern California Edison (SCE), and San Diego Gas & Electric (SDG&E).

This is applicable in the future and does not impact current solar systems set up under NEM 1.0 or NEM 2.0, which keep their policies for 20 years from the date they received Permission to Operate (PTO). If solar hosts do not submit their Interconnection Application by April 14, 2023, they will be subject to NEM 3.0 policies.

Financial Implications: NEM 3.0 impacts the payback period and savings for solar owners. For example, a 7.6 kW system that covers all energy usage would take 6.5 years to pay back with NEM 3.0. With NEM 2.0, it would only take 4.6 years. Despite these changes, solar investment in California remains highly favorable compared to other states in the US.

Viewpoint of Utility Companies: Utility firms express worry over the possible expense transfer from solar to non-solar clients. NEM 3.0 is seen as an opportunity for customers to incorporate storage into their solar systems. This can help stabilize the grid and promote fairness in cost sharing.

Key Takeaway from the Shift Between NEM 2.0 vs. NEM 3.0

California is changing from NEM 2.0 to NEM 3.0. This change is a significant shift in solar energy policy. Reducing compensation for extra solar energy sent back to the grid will occur.

This modification greatly enhances the relevance of battery energy storage systems. Encouraging owners of solar systems to store excess energy for later use instead of selling it at lower prices.

The shift to Time-of-Use rates with NEM 3.0 makes energy storage even more financially beneficial. This allows consumers to save money by avoiding high electricity costs during peak periods.

This change is expected to increase the use of solar panels with batteries. This will help improve energy independence and strengthen the power grid.

More people are likely to adopt this technology as a result. However, this could initially hinder the use of solar systems. This is because there will be fewer financial benefits for producing solar power on its own.

What does NEM 3.0 mean for solar?

The transition from California’s NEM 2.0 to NEM 3.0 carries significant implications for both current and potential solar customers. Let’s delve deeper into the potential impacts:

Financial Impact:

Extended Return on Investment: Solar investments will generate returns at a slower pace under NEM 3.0. This is because there will be less compensation for excess energy that is sent back to the grid. Solar systems will take longer to pay off due to reduced credits for extra energy.

Elevated Non-Bypass able Charges (NBCs): The rise in NBCs with NEM 3.0 will reduce solar savings further. The grid applies these fees to all energy used, regardless of exported energy. These changes may affect adoption rates.

Possible Decrease in Solar Installations: NEM 2.0 played a significant role in driving solar adoption in California. The rate of new solar installations may decrease because of reduced incentives under NEM 3.0. This could make the immediate financial benefits less clear.

Industry Reaction: The solar industry could react to these changes by enhancing innovation. This could lead to more affordable solutions and cutting-edge technologies being offered. These advancements may help lessen the financial burden on consumers.

Legal and Regulatory Framework:

Continuing Dialogues: The introduction of NEM 3.0 may not end the discussion. Legal disputes and policy arguments are anticipated to persist as stakeholders assess the long-term effects on California’s renewable energy scenario.

Observation and Modifications: Regulatory bodies might have to closely track the results of NEM 3.0 and be ready to make modifications to ensure the policy remains in line with the state’s green energy objectives without placing excessive burdens on particular customer segments.

Encouragement for Battery Storage:

Transition to Energy Storage: The framework of NEM 3.0 promotes the use of battery energy storage systems. By keeping surplus energy instead of sending it out, companies can maximize their solar power utilization and lessen their dependence on the grid, possibly becoming more economically beneficial with the updated billing structure.

Stability and Autonomy: Combining solar panels with battery storage boosts energy self-sufficiency for homeowners and strengthens resistance to power interruptions and grid fluctuations. In summary, NEM 3.0 seeks to tackle the sustainability of solar energy incentives and the fair distribution of grid maintenance costs. However, it brings forth a range of challenges and factors for solar customers to navigate.

These include extended payback periods, possible equity concerns, and potential shifts in adoption rates. The new policy could encourage innovation in the solar industry and increase interest in battery storage, changing California’s energy landscape.

Adapting to NEM 3.0 with Energy Storage

Maximizing Self-Consumption: With NEM 3.0, it’s financially beneficial to use as much solar-generated electricity on-site as possible. This implies incorporating energy storage systems into solar initiatives to reduce remuneration rates for energy exported during periods of high demand. Energy storage allows for strategies like load shifting and peak shaving by storing excess solar power generated during peak sunlight hours for use during low-production periods, maximizing self-consumption and reducing grid reliance.

Addressing Lowered Export Rates: Considering the substantial decrease in rates for surplus solar energy exported to the grid, it becomes financially beneficial to store energy rather than exporting it. This stored energy can be utilized during peak demand times when grid electricity is costlier due to time-of-use rates.

Boosting Energy Autonomy: Energy storage serves as a safeguard against power interruptions and price volatility. By keeping a backup of stored energy, companies can guarantee an uninterrupted power flow even during grid failures, thereby increasing their energy self-reliance.


Is NEM 2.0 still in effect?

As of April 15, 2023, the Net Energy Metering (NEM) 2.0 program is closed to new applicants, with exceptions for Virtual NEM and NEM Aggregation projects.

Will NEM2 be grandfathered?

The NEM 1 and NEM 2 lock-in period, also known as grandfathering, extends for 20 years after the utility activates your solar system. For instance, if your system was turned on in 2019, you’ll transition to the new rules (NEM 3) in 2039.

Has NEM 3.0 been approved?

On December 15, 2022, the California Public Utilities Commission (CPUC) approved NEM 3.0, marking its adoption from April 13, 2023. This policy redefines the billing relationship between utility providers and customers generating solar or wind power.

Final Thoughts

NEM 3.0 brings significant changes to the compensation structure and customer choices compared to NEM 2.0. Existing customers are generally unaffected, but new customers should carefully consider the implications of these alterations on their solar investments. Solar Earth INC committed to supporting NEM customers, offering a reliable path to sustainability in the evolving energy landscape.

If you want to learn more about Net Metering, call (805)691-8000 or contact Solar Earth Inc today for a free consultation.