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Net Energy Metering (NEM) is a program that has been in place in California since 1995, with the goal of promoting the adoption of renewable energy sources and reducing the state’s dependence on fossil fuels. This program has played a crucial role in California’s leadership in the renewable energy sector and has been instrumental in making the state a leader in solar power production in the United States.

The History of NEM in California

Net Energy Metering (NEM) was first introduced in California in 1995 as part of the California Energy Commission’s Emerging Renewables Program. At that time, the program was designed to encourage the adoption of small-scale renewable energy systems, such as solar panels, wind turbines, and fuel cells, by residential and small commercial customers.

Under the initial program, customers were allowed to generate up to 10 kilowatts (kW) of electricity and receive a credit on their utility bill for any excess electricity sent back to the grid. The credit was equal to the retail rate of electricity, which meant that customers received the same price for the electricity they generated as they would pay for the electricity they consumed from the grid.

In 2002, the California Public Utilities Commission (CPUC) expanded the program to include larger commercial and industrial customers, as well as customers who generate electricity from biomass, geothermal, and hydroelectric sources.

In 2006, the California legislature passed Assembly Bill 32, also known as the Global Warming Solutions Act of 2006, which established a statewide goal of reducing greenhouse gas emissions to 1990 levels by 2020. The law also required utilities to generate 33% of their electricity from renewable sources by 2020.

In response to this mandate, the CPUC expanded the NEM program in 2009 to include a “virtual net metering” option for multi-tenant buildings and other properties with shared electricity meters. This option allowed customers to share the credits generated by their renewable energy systems with other tenants or customers on the same property.

In 2012, the CPUC made further changes to the program, including raising the maximum system size to 1 MW and requiring utilities to offer a “true-up” period at the end of each 12-month billing cycle. The true-up period allows customers to settle any remaining balance on their account at the end of the billing cycle, ensuring that they are credited for all the excess electricity they generated during the year.

In 2016, the CPUC adopted a new NEM program, known as NEM 2.0, which made several changes to the original program. Under NEM 2.0, new solar customers were required to pay a one-time interconnection fee and transitioned to a time-of-use rate structure, which charges different rates for electricity depending on the time of day. The program also included a new non-bypassable charge, which is a fee that all customers pay to support certain programs, regardless of how much energy they consume or generate.

In 2019, the CPUC approved NEM 3.0, which will take effect in 2023. Under NEM 3.0, new solar customers will be required to install “smart” inverters, which will allow utilities to monitor and control the output of solar panels during periods of high demand. The program also includes new rules for community solar projects and expands the eligibility of multi-family properties and low-income customers to participate in the program.

Conclusion

Net Energy Metering (NEM) has been a critical component of California’s efforts to promote the adoption of renewable energy sources and reduce greenhouse gas emissions. The program has evolved over the years to reflect changes in technology and the energy market, and has helped make California a leader in the renewable energy sector. NEM

On December 15, 2022, California’s Public Utilities Commission unanimously approved California’s third iteration of net metering, or NEM 3.0. The new tariff reduces net metering compensation rates for new California solar customers by approximately 75%, but existing solar customers, and those who go solar before NEM 3.0 goes into effect (through April 14), will be grandfathered into their original net metering policy. Solar shoppers who submit interconnection applications after April 14, 2023, will be under NEM 3.0 and could miss out on 60% of solar savings, unless battery storage is added to the solar installation. Under NEM 3.0, the California solar industry will shift from one-to-one net metering to net billing, which is much lower in value, as the CPUC establishes a new rate for crediting solar exports based on “avoided cost” rates. Avoided cost rates come out to about 25% of retail electricity rates during specific hours, meaning the value of net metering credits will decrease by around 75% under NEM 3.0.

The reduced net metering credits will significantly impact solar savings, as under NEM 2.0, most homeowners in Los Angeles have a solar payback period of approximately 5-6 years, and under NEM 3.0, that number will shift closer to 9-10 years. Solar-plus-storage installations could offset the decrease in savings, and the payback period for a solar-plus-storage installation will be faster than for a solar-only install. Los Angeles residents considering solar should go solar as soon as possible and lock in more favorable net metering credits.

In conclusion, NEM 3.0 reduces compensation for excess power sent to the electric grid, significantly impacting solar savings and extending the payback period for solar panel systems. However, those who go solar before April 14, 2023, can still lock in the more favorable net metering credits of NEM 2.0 for the next 20 years. Los Angeles residents considering solar installations should take action as soon as possible to ensure they can benefit from the current net metering policy.