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NEM 3.0: What It Is and How It Affects California Home Solar
Why battery storage is so important
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Overview
NEM 3.0 replaced the previous net metering tariff in California, and went into effect in April 2023. Net energy metering (NEM) is a practice in which utilities credit you for the excess electricity generated by your solar panels, that is then sold back to benefit others on the electricity grid. You can draw upon these credits when your panels don’t produce enough electricity to match your use; most commonly at night when the sun is down. NEM 3.0 results in substantially lower compensation for electricity customers who don’t install battery storage along with their solar. Still, homeowners can save money on their electricity bills under the new tariff simply by knowing how it works1.
What is NEM 3.0?
On April 15, 2023, the California Public Utilities Commission enacted the new net billing tariff (NBT), more commonly known as NEM 3.0. The regulation has a new payment and compensation structure, which reduces the value of installing only solar panels across California. To create the most value, homeowners must install battery storage.
NEM 3.0 vs. NEM 2.0
California investor-owned utility customers (PG&E and SDG&E for example) pay the highest electricity rates in the United States2. There are many factors that go into this, but one of them is that California’s utility companies started catastrophic wildfires and have passed the cost of wildfire recovery onto their ratepayers. This includes financial compensation for victims as well as undergrounding of powerlines to try to prevent these tragedies from occurring again.
California’s electricity system continues to evolve, and with that came recent changes to net metering. NEM 2.0 was in place for about seven years. In this system, many people were able to see value from just installing solar, without battery storage. That has changed with NEM 3.0, and now the best way to realize the most value is to install battery storage.
How does NEM 3.0 work?
NEM 3.0 drastically changes the compensation that customers receive when they sell their excess solar energy.
The change works similarly to Time of Use (TOU) rates; customers receive less credit for selling during off-peak hours and more during peak hours. While these rates generally offer less than retail, some periods offer quite a bit more.
An example of how PG&E (one of the three major utilities in California) compensates throughout the year
2024 rates in detail, broken out by utility:
PGE
SCE
SDGE
In the PG&E example, you can see that the utility company offers its lowest rates around noon and its highest around 6:00 pm. In fact, those selling electricity during peak times in the summer can earn an average of $0.52 per kilowatt hour, which is nearly double the payout with NEM 2.0. The best way to capture this value is with battery storage.
Alongside the new avoided cost compensation, NEM 3.0 features an adjusted TOU rate with lower off-peak prices and higher peak prices. The wider gap aims to discourage power use during the most demanding times for the electricity grid, shifting electrical consumption at times when there is not a stress on the grid. This shift in off-peak and on-peak pricing encourages homeowners to invest in a battery to maximize savings.
How does NEM 3.0 affect solar costs/savings?
Under the old regulation, NEM 2.0, homeowners in California could cover around 90% of their electricity bill with a system designed to offset 100% of their energy consumption3. When you use the new NEM 3.0 billing tariff correctly, with a solar plus battery system, your power bill offset can be as much as 70-90%.
How to maximize savings from NEM 3.0
Here’s how to get the most out of NEM 3.0. People with solar and battery storage can get the most value and have more independence from utility companies. Let’s take a look at how to use home solar under NEM 3.0.
Purchase a battery
NEM 3.0, or the net billing tariff, reduces compensation for solar-only customers, which extends the payback period of the investment from what it was under NEM 2.0. On NEM 3.0, people that install a battery will save more money than those that don’t install a battery.
By collecting energy during the day, homeowners can use their own power during peak periods instead of paying for it at high rates.
Concerned about purchasing a new battery? As America’s #1 home solar & battery installer, you can trust Sunrun’s expert Solar Advisors to guide you through NEM 3.0, financial incentives, warranties, and more.
Minimize power usage during peak hours
NEM 3.0 offers very low electricity rates during off-peak hours. Therefore, if you opt to use appliances or charge electric vehicles from around 9:00am to 2:00pm, you’ll spend significantly less money on power.
Enroll sooner rather than later
One of the features of NEM 3.0 is an “adder” that homeowners can take advantage of when they install battery storage with their solar panel system in some markets. This adder, however, depreciates every year by 20%, ending in 20284. To take full advantage of this program benefit, it’s important to apply for NEM 3.0 as soon as possible. Here’s how the adder breaks down4:
*All prices per kWh
Customer Segment | PG&E | SDG&E | SCE |
Residential Non-CARE | $0.018 | $0.000 | $0.040 |
Residential CARE | $0.087 | $0.000 | $0.093 |
Maximize savings with backup batteries
Californians can still save tens of thousands of dollars with NEM 3.0, but it requires a little more planning. Purchasing a backup battery, such as the Tesla Powerwall, allows you to use energy without paying peak prices. And with a substantial 13.5kWh capacity, you’ll have electricity during blackouts, when it matters most.
FAQs (Frequently asked questions)
Is NEM 3.0 retroactive?
NEM 3.0 is not retroactive. This means that the new tariff only applies to homeowners who submit their interconnection applications after the April 14, 2023 deadline.
Can I be locked into NEM 2.0?
If you applied for interconnection before April 14, 2023, you can utilize the old rate (tariff) for up to 20 years. However, this legacy period ends if you add new equipment or opt to switch to NEM 3.0.
Is solar still worth it in California after NEM 3.0?
While NEM 3.0 results in a longer payback overall, homeowners can still see energy cost savings. In some cases, people can cover 70-90% of their utility bills under NEM 3.0.
Do I have to install a battery for NEM 3.0?
Homeowners can choose not to install a battery with their system under NEM 3.0, but overall savings drastically decrease without one. Consider purchasing a backup battery, such as Tesla’s Powerwall, or a non-backup battery, such as Sunrun’s Shift, to help regulate power usage and save money during peak hours.
Sources:
California New Net Metering Policies
2022 Electric Rates Report
An installer's guide to unlocking the full potential of California's new net billing tariff (NEM 3.0)
Decision revising net energy metering tariff and sub-tariffs
Net Energy Metering
California's New Solar Program
CALSSA Statement on CPUC’s Revised Proposed Decision on Solar Net Metering — CA Solar & Storage Association
Proposed decision revising net energy metering tariff and subtarrifs