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What we know about the upcoming NEM 3.0

New rules are coming for SCE customers regarding the value of their solar systems. These new rules are what is known as Net Energy Metering (NEM) 3.0, and it has the potential to be the worst hit to the value of solar since NEM 2.0 was rolled out five years ago. But NEM 3.0 could well be worse, far, far worse. Here's our take...

The current state of play...

Net Energy Metering, often shortened to just Net Metering (NM), is one of the two ways that solar owners recoup their investment, by selling surplus energy produced back to the grid. (The other way, of course, is by lowering the amount of energy you need to import from the grid.) Under "true" or "full" NM, there is a one-to-one offset for every kWh exported to the grid, and that is especially so for tiered rate structures, since the time of day that the energy is produced does not affect the price. (For the most part, solar owners in cities like Pasadena, LA, Burbank or Glendale still operate under tiered rates and full NM.)

But when NEM 2.0 was introduced in 2016 for customers in the service areas of SCE, PG&E, or SDG&E, things changed in several ways. In particular:

• For the first time, the utility could charge a one-time fee for applying for interconnection. In SCE's territory, that fee is $75. (LADWP recently followed suit.)
• All solar owners were switched to a time-of-use rate, which lowered the value of energy exported during the day, and increased the cost of exported energy from 4-9 p.m. (Click here for an explanation of tiered versus time-of-use rates.)
• The imposition of Non-Bypassable Charges (NBCs) on every kWh imported from the grid, regardless of whether that energy was offset by exported energy. At roughly 2¢/kWh, these added on the order of $10-20/month to the bill, regardless of how much energy was exported.

So NEM 2.0 amounted to more of a slight trim on the value of solar, not the feared major haircut.

NEM 3.0 - Revenge of the Utilities?

A lot more solar has been installed since 2016, and the investor-owned utilities like SCE - despite the solar-friendly, happy-talk on their websites - see this new rule-making as their best chance to gut the value of solar once and for all. Among other things, they have proposed:

• Monthly fees on the order of $75 for residential systems (and much higher on commercial systems) - resulting in an eye-popping solar tax of $900 per year. That change alone would double the payback period for a residential solar project!
• But it gets worse, because they are also proposing to reduce the value of exported energy by as much as 80%! Taken together, and the average residential solar project would never pay for itself in the anticipated 20-year lifetime.

Our friends at CALSSA think that a monthly fee that high is unlikely to gain traction at the CPUC, but the prospect of significantly reduced credits for exported energy is much more likely.

This process is well underway, if largely below the radar. Hearings were held on these proposals earlier in August (with CALSSA doing its best to present testimony pushing back on all of this), and final arguments will be presented in September. The CPUC's rilling is expected next January.

We recently published mini-bios on the CPUC board members who will decide the fate of rooftop solar and you can also tweet at them @californiapuc.

Getting in under the wire...

The threat of NEM 3.0 is real and coming fast. So a key question is, who will end up under NEM 3.0? While this isn't certain, historically, original NEM customers, and NEM 2.0 customers were promised 20 years of operation under those rules. That implies that those customers will continue to enjoy their existing rule structure once NEM 3.0 is rolled out for the remaining of their 20 years. Presumably, when the 20 years expire, they will be placed under whatever rules are then in effect.

But what is the cutoff for getting into NEM 2.0? Again, that isn't entirely clear, but almost certainly the submission of a complete interconnection agreement should suffice if submitted before next January. (There is some question whether the client needs the system installed and inspected, or simply have the agreement submitted, but that hasn't been determined. If I had to bet, I would bet on the interconnection agreement submittal date.)

That most likely means that solar clients who have signed a contract and had their interconnection agreement submitted to SCE by January will take service under NEM 2.0!

Most likely there will be some time after next January before the decision goes into effect since the utilities need to modify their systems to process the new requirements. But that period is likely to be crazy crowded with folks trying to get in under the wire. Far safer to get started sooner, rather than later, so you don't miss out.

We will keep you posted as this drama plays out - watch this space!