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What is Net Energy Metering (NEM)?
Net Energy Metering (NEM) is a system that allows solar homeowners to earn credits for the extra electricity their solar panels generate and send back to the grid. When your solar panels produce more electricity than your home needs, that excess power goes to the utility grid, and you receive credits. These credits help reduce the cost of electricity you use from the grid during times when your panels aren’t producing enough, like at night.
Traditionally, net metering has followed a one-to-one system, meaning you get the same rate for the electricity you send to the grid as you pay for what you use from it. This makes it possible for solar owners to significantly lower or even eliminate their utility bills by designing systems that generate as much electricity as they consume.
Over the 25-year life of a solar system, this setup can save homeowners tens of thousands of dollars, replacing hefty utility bills with manageable solar equipment payments.
What is NEM 3.0 Solar Billing?
NEM 3.0, also called the Solar Billing Plan, is California’s updated net energy metering policy that took effect on April 15, 2023. It applies to customers of the state’s three major investor-owned utilities: Pacific Gas & Electric (PG&E), Southern California Edison (SCE), and San Diego Gas & Electric (SDG&E).
A key point is that NEM 3.0 isn’t retroactive. If you installed your solar system under NEM 1.0 or NEM 2.0, you’ll stay on that plan for 20 years from when your system was approved to operate. NEM 3.0 mainly affects new solar customers moving forward.
NEM 3.0 and Its Impact on Solar Savings
Implementing new net metering policies involves extensive steps, including studies, proposals, and hearings. After years of deliberation, the California Public Utilities Commission (CPUC) finalized NEM 3.0 on December 15, 2022.
What Does NEM 3.0 Mean for Solar?
NEM 3.0 brings big changes for solar customers in California’s major utility areas, and here are five key takeaways:
Lower Solar Export Rates
The biggest shift under NEM 3.0 is the significant reduction in how much solar owners earn for the extra electricity they send to the grid. The export rate has dropped from an average of $0.30 per kilowatt-hour (kWh) to around $0.08 per kWh — a 75% cut in value. This change directly impacts how much you can save with solar alone.
No New Solar Fees
Good news! Proposed “solar taxes” that could have added about $60 a month to solar owners’ bills didn’t make it into the final version of NEM 3.0. So, you won’t face any new charges under the updated policy.
Pairing Solar with Battery Storage is Key
NEM 3.0 encourages combining solar with battery storage. Why? The highest energy demand occurs when solar panels produce less power, like in the evening. With a battery, you can store daytime solar energy and use it when rates are highest, maximizing your savings.
NEM 2.0 Customers Can Add Batteries
If you’re on NEM 2.0, you can add battery storage later and keep your NEM 2.0 benefits. Whether you’re already a solar owner or installed a new system before April 14, 2023, adding a battery won’t force you into NEM 3.0.
Solar Still Pays Off
Even with the export rate reductions, solar is still worth it in California. Pairing solar with batteries can reduce electricity bills by 70-90%, and payback periods for solar and storage systems are among the best in the country, ranging from 5 to 7 years. Plus, solar still boosts your home’s value, cuts carbon emissions, and can provide backup power during outages.
Ultimately, NEM 3.0 shifts the focus to smart energy management, especially for those who pair solar with batteries. Home solar remains a strong investment, just with a different approach to maximizing savings.
A Brief History of Net Metering in California
California’s strong solar market is supported by generous incentives, abundant sunshine, high electricity rates, and established net metering policies. As solar panel installations surged, the state’s three investor-owned utilities—Pacific Gas and Electric (PG&E), San Diego Gas and Electric (SDG&E), and Southern California Edison (SCE)—approached their net metering capacity limits, reaching them between 2016 and 2017. This led the California Public Utilities Commission (CPUC) to introduce NEM 2.0, the next-generation net metering policy.
NEM 2.0 offered solar rebates at a slightly lower rate than the original net metering policy—about two cents less per kilowatt-hour (kWh)—due to non-bypassable charges that fund public-benefit programs. Despite this reduction, NEM 2.0 was seen as a positive development for rooftop solar. The industry continued to grow robustly, and homeowners benefiting from this policy have enjoyed substantial savings on their electricity bills.
It’s important to note that California has previously updated its net metering policies, and the changes introduced by NEM 3.0 are set to have a more pronounced impact on the economics of rooftop solar than earlier modifications.
