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California Solar Incentives
By Karsten Neumeister /
Net Metering 3.0: What California Residents Should Know
CA recently passed NEM 3.0: Those who apply for an interconnection before April 14, 2023 can still be grandfathered into NEM 2.0
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Net metering is one of the most important solar power programs in the country, and key to helping your solar panels pay off over time. In California, the state’s generous net metering policy has been crucial to solar’s rapid growth. This policy is now changing – for the worse. However, if you convert to solar soon, you might still be able to take advantage of the previous, more lucrative, policy.
Through net metering, commonly referred to as NEM, you can send excess power to the electricity grid when your panels produce more than your home needs, earning credits you can use to lower your bills when you ultimately need to draw power back down from the grid.
This program has played a pivotal role in the rise of solar power nationwide. This is especially evident in the state of California, which boasts some of the most wide-spread adoption of solar energy in the country. A staggering 27.3% of the total power generated in the state comes from solar, earning California a No. 1 ranking by the Solar Energy Industries Association in its solar power ranking.1
Net metering is a major part of that success. The state of California has some of the most generous policies when it comes to NEM, offering credits at the full retail price of the electricity generated and allowing these credits to roll over indefinitely.
However, these policies are changing to become less lucrative for solar panel owners. The California Public Utilities Commission (CPUC) recently voted in favor of NEM 3.0, a new framework for net metering across the state that gives utility companies leeway to reduce the value of credits they offer for solar power generated by their customers.
Thankfully, if you already have solar panels installed at your home, you are not likely to be affected. NEM 2.0 will still apply to existing solar panel owners, plus those who apply for an interconnection before April 14, 2023.
Customers of solar power systems applying for an interconnection after April 14 will fall under NEM 3.0. Considering the short time window and the huge difference in the return on investment, it is wise to go solar before the April deadline. Next, we’ll explain in detail what NEM 3.0 means for you in California.
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What to know about NEM 3.0 for the Best Solar Savings
NEM 3.0 slashes the compensation offered for solar energy supplied to the grid. This means solar panel owners will receive smaller credits for the electricity they produce, reducing their energy savings dramatically over time.
The previous policy, NEM 2.0, allowed residents with solar power to supply excess energy into the grid at a rate equal to the retail purchase rate of grid energy. In other words, the price of each kilowatt-hour (kWh) of solar energy sent into the grid was considered equal to that of each kWh used from the grid. If you sent enough power to the grid to power your home for an hour, you’d get credit for that full hour’s worth of energy when you needed to bring it back down from the grid.
The value of your credit under NEM 2.0 was roughly 30 cents per kWh. Under the new NEM 3.0, the value will come in at just 8 cents per kWh – roughly 75% lower. This change applies to the customers of three main utility companies in the state: PG&E, SCE, and SDG&E, which together serve nearly all of California’s population.
Why? The cost of each kWh, also known as the export rate, will now be calculated based on the “Avoided Cost Calculation,” and will vary based on month and hour. Essentially, this changes the “net metering” mechanism into a “net billing” mechanism.
Why is California reducing net metering incentives?
When NEM 3.0 was first proposed, independently owned utilities claimed that NEM 2.0 leads to unfair pricing, arguing that lower-income households end up paying more for electricity so that solar can be accumulated in the grid.
Although a study by the Lawrence Berkeley National Laboratory has disproved this claim, utilities in California are confident that NEM 3.0 will somehow benefit low-income households.
California’s utility companies also argued that changing net metering policies would promote energy storage technology. If you use solar batteries instead of sending power to the grid, you’ll be less severely affected by NEM 3.0.
Who approved NEM 3.0?
The California Public Utilities Commission (CPUC), which regulates privately owned public utilities such as electric power and telecommunications, passed the NEM 3.0.
When will NEM 3.0 Occur?
The state utilities commission approved NEM 3.0 on December 15, 2022, offering a 120-day window for customers wanting to grandfather their systems into NEM 2.0. This window ends on April 14, 2023, after which, all new customers will undergo net billing as per NEM 3.0.
What does this mean for Solar Buyers in California?
For decades, California has been one of the best places in the country to go solar – with ample sunlight, favorable policies and attractive pricing. NEM 3.0 is certainly a setback.
The good news for homeowners currently contemplating going solar is that they still have some time left to be grandfathered into NEM 2.0. Residents of the state who apply after April 14 will still save with solar, but not nearly as much.
The pricing structure of NEM 3.0 also means you can benefit from an energy storage system. Using a battery bank with your solar panels will allow you to avoid peak-hour energy from the grid. To some extent, this negates the effects of NEM 3.0 and boosts your savings from solar power once again. Moreover, going solar with batteries can bring additional benefits – it will offer some immunity against the effects of NEM 3.0, and make their homes more resilient to outages.
With rising power costs and utilities allegedly trying to slow down solar, the faster you opt for solar, the more rewarding it is. Even with its drawbacks, going solar in California generally still makes tremendous sense.
How to Grandfather Your Solar System into NEM 2.0
If you already have solar panels in California or plan to install them soon, you want to make sure your installation is grandfathered into the older, more generous net metering policy. Here’s how to do it.
Plan to Apply Before April 14, 2023
NEM 3.0 was launched with a 120-day grandfathering window. This window ends on April 14, 2023. Customers who apply for an interconnection before the end of the day on April 13 will be eligible for NEM 2.0 for the next 20 years, the average lifetime of a solar power system. A valid solar interconnection application will include the following:
- Complete application
- Signed contract
- Single-line diagram
- CSLB Disclosure Document
- Signed consumer protection guide
- Oversizing attestations (if applicable)
Replace your older panels that may be covered under NEM 1.0
If you’ve had solar panels in place for a long time, now may be the time to replace them. Like any technology, solar panels have a shelf life – they don’t last forever.
Newer panels will be treated as a new system, and people upgrading their systems after April 14 will be enrolled into NEM 3.0 even if they had solar power before then. If you plan to replace your older panels in the next few years, it makes more sense to replace them now and grandfather yourself into NEM 2.0.
If You Recently Installed Solar, Sit Back and Do Nothing
Customers who have recently installed solar are automatically enrolled into NEM 2.0, and do not need to take any additional steps to avoid going into NEM 3.0. However, if you want to expand your system significantly, it would be a good idea to do it now. One piece of good news: You can add battery banks at any time without penalty. If you want to add a battery to your system, you can add it at any point in time without disrupting your NEM 2.0 status.
Net Metering Timeline in California
Net metering was first introduced in California in 1996. Over the years, thanks to NEM’s money-saving potential, a large number of residents installed solar on their properties. By 2016, there was enough solar power in the state to fill the 5% grid cap set by utilities, meaning the space on the state’s grid that was allotted to solar was full.
This led to the launch of NEM 2.0 in California. NEM 2.0 eliminated that 5% cap, allowing more homeowners to convert to solar. The new policy had some other minor differences compared to the original NEM, but it was still highly lucrative for solar panel buyers. At the launch of NEM 2.0, the CPUC had decided to revisit it in 2019 for any necessary changes.
A few years ago, CPUC proposed the NEM 3.0, which was touted by many experts as “a step backward”. After multiple years of hearings and iterations, the current NEM 3.0 was finalized in December 2022.
NEM 3.0 FAQs
NEM 3.0 will notably increase electricity bills of solar owners by pricing energy credits much lower than they were before. This will extend the payback periods of solar power systems by a few years. In other words, customers will now need a longer time to break even on the cost of their solar panels in California.
Residents in California can still enjoy the benefits of NEM 2.0 if they act quickly. New solar panels applied for before the end of day April 13, 2023, will be grandfathered into the old policy.
You don’t need to actually have them installed by then. Homeowners simply need to apply for a new interconnection before the end of the day on April 13. The actual installation in California of solar panels can be done up to three years after the application is submitted.
Despite the reduced net metering benefits, going solar in California is still generally worth it. Customers can also increase their savings by adding a battery system under the new NEM 3.0 policy. But if you’re interested in going solar, we recommend that you do it now to get grandfathered into the current and more beneficial NEM 2.0. Here’s our guide to going solar in California to help you do this.
