California’s Net Energy Metering (NEM) program has been a driving force behind the growth of the state’s rooftop solar market for over two decades. However, with California now boasting nearly 25 gigawatts of solar on the grid, there is a need to update NEM to address grid reliability shortfalls during “net peak” hours in the early evening when the sun is down. This has led to the proposal of NEM 3.0 by the California Public Utilities Commission (CPUC).
The proposed NEM 3.0 policy includes significant changes to the existing NEM program, with a focus on incentivizing distributed storage and promoting electrification to provide more value to the electric grid and help California meet its ambitious climate goals even faster. The new Net Billing Tariff, a key component of NEM 3.0, has four main components, including paying customers for exported electricity based on its value, charging customers for received electricity based on high differential time-of-use tariffs, creating a Grid Participation Charge, and providing a Market Transition Credit.
The Main Aim of NEM 3.0
One of the main aims of NEM 3.0 is to incentivize storage adoption to reduce load and/or export energy during net peak. The proposal includes sending accurate price signals based on avoided costs, requiring service on rates with high differentials between peak and off-peak prices, and transitioning residential NEM 1.0 and NEM 2.0 customers to the new Net Billing Tariff after 15 years. It also provides storage rebates to NEM 2.0 customers if they switch to the Net Billing Tariff over a four-year period.
Past NEM policies have enabled 1.3 million customers to install roughly 10,000 megawatts of customer-sited renewable generation, almost all of which is rooftop solar. NEM systems have reduced the demand on the electric grid by as much as 25 percent during midday when the sun is shining. However, with the shift towards net peak reliability needs, policymakers began to believe it is necessary to update NEM to incentivize distributed storage to provide more value to the electric grid.
The new Net Billing Tariff is designed to send more accurate price signals based on avoided costs that will incent storage and provide value to the grid when it is most needed. The proposal requires Net Billing customers to take service on rates with high differentials between peak and off-peak prices, with higher on-peak prices incenting storage usage, while lower off-peak prices make using electric vehicles and appliances more affordable. These changes are expected to increase the adoption of storage, thereby reducing the burden on the electric grid during net peak hours.
The NEM 3.0 proposal also addresses the issue of cost burden on ratepayers. All ratepayers pay as much as 10 times more for exported NEM energy than for other sources of renewable energy. An independent third-party evaluation of NEM 2.0 found that its costs substantially exceed its benefits as residential NEM 2.0 participants only pay 9 to 18 percent of what it costs their utilities to serve them, even considering the value of the energy produced by their NEM systems. The proposed Grid Participation Charge is designed to ensure that Net Billing customers are paying the same fixed costs of the electric grid as non-Net Billing customers. This is expected to reduce the cost burden on ratepayers and make the system more equitable.
The NEM 3.0 proposal also has equity components, including the establishment of an Equity Fund to support clean energy and storage programs for low-income Californians and the exemption of low-income customers, customers living in disadvantaged communities, and tribal households from paying the Grid Participation Charge. These changes are expected to reduce costs paid by other ratepayers by billions of dollars.
The proposed changes in NEM 3.0 have significant implications for the future of rooftop solar in California. The policy is expected to drive the adoption of storage, promote electrification, and make the system more equitable. However, the proposal is not without its critics. Some have expressed concerns that the changes could make rooftop solar less affordable and accessible for low-income households. Others have argued that the proposed changes do not go far enough to address the issue of cost burden on ratepayers.
Overall, NEM 3.0 is a significant update to California’s NEM program that aims to address grid reliability shortfalls during net peak hours and support the state’s clean energy goals. The proposal is expected to drive the adoption of storage, promote electrification, and make the system more equitable. However, the proposal will likely continue to face debate and scrutiny from stakeholders as it moves through the remainder of the proceedings.