Understanding NEM 3.0 and the future of net energy metering

Net energy metering (NEM) 3.0 is California’s newest net metering policy, used to dictate the prices that utilities pay for the solar energy produced by homes and businesses.

Launched in April 2023, NEM 3.0 represents a shift from California’s traditional net energy metering structure with the introduction of a new net billing tariff (NBT).

This article explains everything you need to know about NEM 3.0 as a current or prospective solar energy system owner in California.

How net metering works

Net metering—and now net billing—compensates solar power producers for the excess solar energy they share with the electricity grid. If your solar panels produce more electricity than your home actively consumes, you earn credits on your next utility bill for the power you export to the grid. In addition to California’s solar financing, rebates, and tax credits, net energy metering has played a significant role in the growth of residential and commercial solar power in the Golden State and across the United States.

How California net metering has evolved

State by state, net metering policies have taken many different forms, and California is now on its third iteration. The California Public Utilities Commission (CPUC) first established a net energy metering policy in 1996, which was later modified in 2016. That policy became known as NEM 2.0.

Although the CPUC’s latest policy represents a shift from net energy metering to a net billing tariff, the update has been unofficially named NEM 3.0. The policy affects both residential and commercial customers of California's three largest electric utilities—Pacific Gas and Electric (PG&E), San Diego Gas and Electric (SDG&E), and Southern California Edison (SCE).

Key features of NEM 3.0

Before we jump into the details of exactly how NEM 3.0 affects new solar customers, here are three of the policy's key features:

• Switch to a net billing tariff: Excess solar energy sent to the utility grid will be credited to the system owner's electricity bills at a rate based on avoided costs, rather than on retail energy prices.

• New electrification time-of-use (TOU) rates: When importing electricity from the utility grid, NEM 3.0 customers must follow a new electrification TOU rate structure designed to encourage homeowners to shift major power consumption habits (such as EV charging) to off-peak, low-demand hours.

• Grandfathering NEM 1.0 and NEM 2.0 customers: If your solar energy system was installed in California before NEM 3.0 took effect in April 2023, you will remain enrolled in either NEM 1.0 or NEM 2.0 for the duration of your original net metering agreement.

How net metering 3.0 differs from earlier versions

In both NEM 1.0 and NEM 2.0, the prices that utilities credited for solar exports were based on retail electricity rates. Under NEM 3.0, the value of bill credits for solar exports is determined by the price that the utility would need to pay elsewhere to supply the electricity. As a result, the value of exporting excess solar power to the grid is lower in NEM 3.0 than under NEM 2.0.

With net billing, California's utilities use an adopted avoided cost calculator (ACC) to determine the value of your solar exports based on local energy demand. Using the ACC, the exact dollar amount of your credits is highly variable and based on the utilities’ avoided costs rather than retail prices. Slightly different for each utility, the ACC model takes into consideration the exact hours of your solar exports, with export credit rates varying by the time of day, day of the week, season, and more.

To help transition from NEM 2.0 to NEM 3.0 in California, residential PG&E or SCE customers may be eligible for slightly higher solar export rates through the ACC Plus program. Available for the first five years of net billing (through April 2028), the ACC Plus program will allow a small adder (less than $0.01 per kWh) to increase the value of exports, including higher adders for low-income customers.

NEM 3.0 and solar battery storage

With the new net billing tariff and electrification TOU rate structure, NEM 3.0 incentivizes the installation of home solar batteries to help manage the shifting costs of grid energy imports and exports. After installing a home battery backup, you can gain more control over your property’s energy sources and expenses outside of solar-producing hours.

• Minimize costs: A solar battery can help reduce your total electricity costs by powering your home with stored energy during periods of peak local demand and higher utility import rates. For example, by tapping into your solar battery reserve to run essential appliances throughout the early evening, you can avoid peak utility electricity import prices in most TOU rate structures. Conveniently, the seasonality of solar energy production and peak export rates align in a way that can help significantly reduce annual electricity costs. With extended daylight hours in the summer, solar producers can export their excess power during July, August, and September when energy demand is also at its highest.

• Receive more credits: Under NEM 3.0, when local energy demand is at its peak, you can choose to export your excess solar power to the grid to receive the highest possible bill credits. To obtain the most value for your solar exports, you can store the excess power produced by your panels in a battery during periods of low energy demand before strategically sending it to the grid when export rates are more valuable.

• Increase energy resilience: In addition to helping reduce electricity bills, solar storage batteries can increase your property's energy resilience. By adding battery storage with backup capability, you can use your solar system independently of the energy grid. This provides sustained access to the power produced by your panels throughout local grid outages.

For those currently exporting solar to the grid with NEM 1.0 or NEM 2.0, adding battery storage will not affect your enrollment. Although NEM 3.0 may have reduced the value of residential power exports in California compared to previous net metering policies, going solar can still be a highly beneficial choice—financially, environmentally, and for at-home access to renewable power.

Find a solar installer near you to learn about your savings potential with NEM 3.0.

Frequently asked questions

Has NEM 3.0 been approved?

Yes. The California Public Utilities Commission (CPUC) approved NEM 3.0 on December 15, 2022. The policy replaced NEM 2.0 with a net billing tariff (NBT), which went into effect on April 15, 2023.

Who is affected by NEM 3.0?

NEM 3.0 is the new policy for residential and commercial electric customers of California’s three largest investor-owned utilities (IOUs): Pacific Gas and Electric (PG&E), San Diego Gas and Electric (SDG&E), and Southern California Edison (SCE).

Is NEM 3.0 retroactive?

No, NEM 3.0 is not retroactive. Solar customers enrolled in NEM 1.0 or NEM 2.0 are grandfathered in and will not be affected by the change in policy throughout the duration of their original net metering agreement.

How much is the NEM 3.0 monthly fee?

During the developmental stages of the NEM 3.0 structure, a monthly fee for solar customers was proposed, but it was not included in the policy’s final form. As a result, there is no monthly fee under NEM 3.0 for homeowners to connect solar panels to the grid.

How much is the NEM 3.0 interconnection fee?

Unchanged from the previous NEM 2.0 policy, there is a one-time flat interconnection fee for solar customers in NEM 3.0 at a cost of $75 to $145, depending on your utility.

What is the effect of NEM 3.0?

The most significant effect of NEM 3.0 is the lower value of solar exports to the grid. While export values have traditionally been based on retail electricity rates, NEM 3.0 introduces a net billing tariff structure in which export credit values are based on the price that the utility would pay for electricity elsewhere. While actual export credit values are highly variable throughout the day, week, and year, NEM 3.0 credits may be anywhere from 60% to 80% less valuable than NEM 2.0 credits.

Is net metering worth it with NEM 3.0?

Yes. Enrolling in NEM 3.0 can still allow homeowners to save money on their monthly electricity costs with solar energy. Under the new net billing tariff (NBT) structure, homeowners also have more incentive to consider solar battery storage, as it improves their control over the times and values of their grid exports and imports.

Can I install a battery and keep NEM 2.0?

If you are currently enrolled in NEM 2.0 and are considering a solar battery backup, your net metering agreement will remain unaffected should you decide to add storage to your home energy system.

Can I install more solar panels and remain a NEM 2.0 customer?

Yes and no. If you would like to add solar panels to an existing system, any added capacity beyond 1 kW (or > 10% of the original system size) must enroll in NEM 3.0. Therefore, you may be able to add a few extra panels to your system and remain an NEM 2.0 customer, but a large system expansion will require that you enroll in NEM 3.0.

Do NEM 3.0 bill credits roll over?

Yes, credits will roll over from month to month for savings on your utility bill throughout the year. Under NEM 3.0, accumulated excess credits are paid out every 12 months at the wholesale rate of electricity.