NEM-3 Frequently Asked Questions
If you’re thinking about Solar in 2023, you need to understand the impact of NEM-3 in California. Outlined below is more information to help you better understand key takeaways and deadlines for new solar projects in 2023. If you have questions, contact a Solar Consultant at Got Watts.
What is NEM?
Net metering (NEM) allows customers to get credit from their utility for the electricity they “export” to the power grid. When a solar system produces more energy than the building uses, electricity flows onto the power grid and is consumed by neighboring customers. The utility gives a credit to the generating customer for that energy. At the end of the month, the credits are netted against the cost of the electricity that the customer draws from the grid.
Traditionally, net metering (NEM) provided one-for-one credit. Under NEM-1, a kWh exported to the grid was deducted from the kWh total consumed from the grid. A January 2016 decision of the California Public Utilities Commission (CPUC) created NEM-2. The value of export credits under NEM-2 was reduced by about 2.5 ¢/kWh compared with NEM-1, and NEM-2 customers were required to be on time-of-use rates.
When was NEM-3 Approved?
On December 15, 2022, The California Public Utilities Commission (CPUC) unanimously passed NEM 3.0, a new net metering policy that will ultimately reduce the monthly energy bill savings for new solar owners.
Scope of NEM-3 Decision
Does this decision impact municipal utilities?
No. It is only for the three IOUs. Many public utilities have already changed their NEM tariffs. LADWP has expressed that they do not intend to revise NEM at this time.
How are NEMA and VNEM systems affected by this decision?
NEMA and VNEM will remain eligible for NEM-2 after April 14, but if you apply after that date, you only have 9 years on NEM-2 instead of 20 years.
How long do we have to develop NEMA and VNEM projects before bigger changes happen?
The CPUC will consider changes to NEMA and VNEM in a second phase of the proceeding, probably in mid to late 2023. There will likely be another sunset period after they make a decision about changes to NEMA and VNEM.
Does this decision impact RES-BCT?
No. That tariff is not NEM and is not impacted.
Export Rates
How often will the export rates be updated?
The Avoided Cost Calculator is updated every two years. The most recent update was in September 2022. The values from that version of the calculator will be used by customers that install in 2023 and 2024. Customers that install in 2025 and 2026 will get values from the 2024 version of the ACC, etc.
When will we know the actual export rates?
They are already available, either from a sheet on CALSSA’s website or from the E3 calculator that was released with the decision. It includes rates for each year from now through 2050. The rates for the first nine years after PTO will be locked in for customers that install before April 14, 2028.
How can I take advantage of the small number of hours per year that have really high export rates when I am limited to customer load?
You are not limited to customer load if you use a certified power control system that guarantees the battery is charged exclusively from solar. If all of the electrons in the battery are green, you can export from the battery to the grid for export credit. See CALSSA’s fact sheet on NEM Paired Storage for more information.
The payback period is anticipated to increase to 9 years, but how has that been calculated?
Using the E3 NEM-3 model, with the assumption of a $3.30/W price of solar. It is simple payback, so it does not include rate escalation. If your price is higher but you include rate escalation you can still be at or below 9 years. (The E3 model is available at https://www.cpuc.ca.gov/-/media/cpuc-website/divisions/energy-division/documents/net-energy-metering-nem/nemrevisit/nbt-model--12142022.xlsb.)
Export Rate Adders
Can you clarify what adders are?
NEM-3 has very low export rates for most hours of the year. The decision includes export rate “adders” that are intended to ease the shock of how much lower the export rates are compared to retail rates. Because the adders are very low they do not really ease the shock, but it will still be an advantage to have them. See the CALSSA webinar slides or our NEM-3 Export Rates file for the specific adder values.
The ¢/kWh values will be added to the export rates in every hour for the first nine years of system operation. Customers who install in the first 12 months of NEM-3 will get the Year 1 adder on top of the export rate for nine years. Customers who install in Year 5 will get that value for the first nine years of their system.
Does a solar customer get adders by default if they meet the requirements, or is it something the installer needs to do for them or apply for?
It is by default.
Export Rate Lock-In
What exactly is locked in during the nine-year legacy period?
The export rates will be locked in for 9 years at the values that are in place in the year of interconnection. The export rates are hourly, different for each month and different for weekdays and weekends. Each year will be different. The current calculator has values for the current year as well as each individual year in the future. It is those future values that are locked in as they appear in the current version of the calculator. After nine years, you will still be paid for avoided costs, but it will be according to the version of the calculator that is in effect at the time.
Is the lock-in determined by the time of application submittal or interconnection?
Interconnection.
Are NEMA and VNEM systems under NEM-2 locked in for only 9 years?
If you submit by April 14, the customer gets 20 years on the NEM-2 version of NEMA and VNEM, just like with standard NEM. If you submit after April 14, the customer will only stay on NEM-2 for 9 years.
Change of Ownership
Unlike NEM-1 and NEM-2, in which NEM status stays with the system when a property is sold, the export rate lock-in and export rate adders in NEM-3 are limited to “the customer who originally causes the system to be installed” or “a legal partner ... of the original customer.”
In a change of ownership, can the new owner reapply for adders?
No.
In a change of ownership, adders and export rate lock-in are lost, but does it mean that the 9-years NEM agreement is void?
The system still has a NEM agreement, and the property buyer will still get compensation for exports. It’s just that the export rates will change every two years when the Avoided Cost Calculator is updated. That might not be a bad thing since updates are more likely to go upward than downward, but it won’t be locked in like it is for the first nine years for the original customer.
In a change of ownership of a NEM 1 or NEM 2 system, are the new owners switched to NEM 3?
No. The changes related to property sales in NEM-3 have no impact on NEM-1 or NEM-2 customers. For example, a person buying a house 12 years after solar was installed gets 8 more years on NEM-1.
NEM-2 Eligibility (Grandfathering)
If you submit a complete interconnection application by the end of the day on April 14, don’t make any material modifications to the application after April 14, and install the system within three years, the system will be on NEM-2 for twenty years.
If you submit an application before the deadline and the utility deems it complete after the deadline, does the customer qualify for NEM-2?
Yes. If they don’t tag you for deficiencies, you get NEM-2. If they find any deficiencies after the deadline, you will not have the chance to cure them, and you will not be eligible for NEM-2.
Do installers need to get all required documents “stamped” by the permitting approval office?
No. After installation, you will need a job card as always, but you don’t need any permit info when you submit the interconnection application.
The decision says residential applications need to include a single-line diagram. Do we need to create a site-specific SLD if it is a standard design?
No. You can continue to select a standard SLD for small residential projects rather than uploading a site-specific SLD.
If the customer needs a main panel upgrade, does it need to happen before the application can be submitted?
No. Service panel upgrades are handled by a different department from the interconnection department and are independent of the application.
PG&E requires you to upload a final building permit to submit the application for residential customers. How can I get around that?
If you check the box saying you are requesting preliminary engineering review, you do not have to upload a permit, and the portal will allow you to submit the application.
PG&E often takes a long time to do land reviews for NEMA projects, and they do not deem the interconnection application complete until the land review is finished. Will this interfere with the ability to qualify for NEM-2?
No. PG&E will deem NEMA applications complete for NEM-2 eligibility purposes before the land review is done.
If the customer needs to obtain a loan, will that interfere with or slow down the application process?
No. The interconnection application does not include information about financing.
What changes can be made to submitted applications that have NEM-2 eligibility after the sunset period without losing NEM-2 status?
It is normal to change the specific equipment in the application because the models you intended to use may no longer be available. For Fast Track review, equipment substitutions can be made as long as the system size does not increase at all and does not decrease by more than 20%. You cannot change the point of interconnection without withdrawing the application and resubmitting it. See Table F-1 in Rule 21. Systems going through Detailed Study do not have such clear lines for material modifications, but the basic measure is whether a change will cause the utility to re-study the project.
Do these rules about “Fast Track” apply to systems under 30 kW as well?
Yes. Even though the utilities don’t do much analysis for small systems, you cannot reduce system size by more than 20%.
What if a customer adds a battery but doesn’t increase the solar output?
A NEM-1 or NEM-2 customer can add a battery without altering their NEM-1 or NEM-2 status. There is a special exception for storage because the CPUC doesn’t want to discourage existing NEM customers from installing batteries. If you add a battery to a NEM-1 solar system before April, you are not moved to NEM-2. If you add a battery to a NEM-1 or NEM-2 system after April, you will not be moved to NEM-3.
If you meet the deadline for the submittal of the interconnection application, how long do you have to start construction or complete the project without losing the grandfathered position?
The system must have final electrical clearance from the local jurisdiction by three years from the date of application submittal. The start of construction does not help. It has to be the final building permit.
The decision says an application submitted before the transition has to be “free of major deficiencies.” What is a major deficiency?
This is not a term that has been used previously. It is not defined. The utilities have informally assured us that small clerical errors like spelling a name wrong can be corrected after the deadline, but this is not guaranteed.
If a project with a valid application submitted by April 14 goes into Supplemental Review or Detailed Study, will it get kicked out of NEM-2?
No. Engineering review is part of the process. Application submittal is what matters.
What is grandfathered if a customer submits a complete application before the transition date?
The system will be on NEM-2 for 20 years. That means NEM credits will be valued at rates minus non-bypassable charges, and electrification rates will not be mandatory for residential customers. We should be careful to understand that the rates for the electricity you buy from the utility are not grandfathered. They are subject to change as always. An EV rate could go away, or peak to off-peak differences can change, for example.
Are customers who expand their system by more than 1kW or 10% capacity switched to NEM 3 entirely, or only the expansion part?
The whole system.
Does that include customers who expand before the April deadline?
No. Expanding a system before April 14 will not move you to NEM-3 but it also will not extend your NEM-2 term. The expanded system will stay on NEM-2 until 20 years after the installation date of the original system.
What about customers who expand by less than 10% after April? Do they stay under their current plan?
Yes. Just like the policy for NEM-1, customers on NEM-2 after the transition will be able to increase system size for maintenance purposes by 10% or 1 kW, whichever is greater, without getting switched to NEM-3.
Can I add more than 10% to capacity before April 15 and stay on the existing NEM agreement?
Yes. Customers can modify the existing system – or propose to modify it with an interconnection application – before the NEM-2 sunset, and stay on the current NEM agreement. In that case they would keep the original PTO date for NEM purposes, switching off NEM-2 twenty years from the original installation. If they are currently on NEM-1 and increase capacity by more than 10%, they will be moved to NEM-2 and stay there until twenty years after the original installation date. It would be risky to submit an expansion application close to the deadline because the utility is likely to want additional information.
In NEMA or VNEM, can we add or remove meters from the arrangement without bumping into NEM 3.0?
Yes. If you do not change the generator, you do not get a new interconnection agreement and can retain the existing NEM status.
There is an April 1 deadline to use inverters that are certified to UL 1741-SB. If we submit an application before then for a system with inverters certified to 1741-SA and install after April 1, will we need to switch to -SB inverters?
No. The application grandfathers the -SA equipment.
New Construction
You can submit a solar application for a property under construction without a permanent meter. Each of the IOUs handles that differently.
PGE requires you to submit an interconnection application within the service application. This means you need to figure out who at the construction company submitted the application for service and get them to link you to that application. If you don’t know who submitted the application from your contacts at the builder, you can use a lookup tool that is described at https://yourprojects-pge.com/s3-static/webassets/SolarContractorGuide.pdf. If that doesn’t work, email Rule21gen@pge.com.
Replacing Old Solar Systems
On older systems that went over the 20 years and are still working, did they get switched to NEM-2 and will they stay on NEM-2?
They got switched to NEM-2, but they will get switched again to NEM-3 when it is up and running.
Can we add to a current system and apply for a new PTO?
No. If you add capacity to a NEM-1 system right now it will be switched to NEM-2, but grandfathering will still end 20 years after the original PTO date.
If it is an old system that is ready to be replaced, you need to completely remove it to get a new PTO date for NEM purposes. You would submit an application like any other, saying there is no existing equipment. This will not match the utility’s records so make a note somewhere that the old system was removed and make sure to have photos in case they ask. You need to remove the old system before submitting an application for a new one. Some people are calling in to cancel the interconnection agreement before submitting a new application just to be sure, but that shouldn’t be necessary.
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References:
CALSSA Statement on CPUC’s Vote to Slash Solar Net Metering
Modernizing California’s Net Energy Metering Program (CPUC)
California Cuts Rooftop Solar Net Metering: An Industry Reacts