Download Our Inflation Reduction Act White Paper Today: Download Now

Reading Time: 5 minutes

The History of Net Metering

Net metering is a pricing model where any excess energy from an eligible customer-sited system is exported to the grid and compensated at the same price as imported energy from the grid. The owner of the onsite energy generator, essentially becomes an energy producer and sells any excess electricity back to the utility/power company. The financial benefit of onsite energy generation that reduces your purchased energy (kWh) from the grid is greatly enhanced by net metering. 

In strong U.S. solar markets, net metering policies allow customers to earn credits for excess electricity generated through eligible renewable energy sources (e.g. solar and wind). Solar PV is the predominant form of onsite renewable energy generation in California, but other eligible renewable energy generators like biogas, thermal, wind, and fuel cell generation can also be used in a similar way. 

Our last blog, What is Net Metering, gives more details about how Net Metering works. As a business, it’s important for you to understand not only the history of net metering and what it is but also how it’s changing. Learn how you can take advantage of these changes to help reduce operational and energy costs by checking out our other blogs!

California – Net Metering 1.0 (NEM1)

Since implementing net energy metering over 20 years ago, California has seen a rapid growth in customer-sited solar PV systems.  Passed in 1995, Senate Bill (SB) 656 established net energy metering in California; the bill directs every electric utility to develop a tariff allowing eligible customer-generators to receive financial credit for excess energy exported back to the grid. At the time, those customer-generators received full retail rate credit for their exported energy.

Installed Net Metering Systems by NEM 1.0/2.0 Tariff Over Time

For California businesses and other nonresidential customers, the customer-sited systems were limited to 1,000 kW in size.  With net metering in place, the solar market grew and matured, costs continued to drop, which in turn fueled more adoption of customer-sited systems.  

California – Net Metering 2.0 (NEM2)

In 2013, Assembly Bill (AB) 327 mandated that the CPUC adopt a successor to the existing NEM1 tariff, which is now known as Net Metering 2.0 (NEM2).   One  of NEM2’s many key objectives was to ensure the continued growth of customer-sited generation and included the removal of the 1,000 kW system size limit.  The new standard contract tariff was to take effect after each individual investor-owned electric utility (San Diego Gas and Electric (SDG&E), Pacific Gas and Electric (PG&E), and Southern California Edison (SCE)) reached their individual NEM caps.  All three caps were reached by July 2017 and NEM2 was fully affected.

NEM2 provides customer-generators full retail rate credits for energy exported to the grid. However, a participating customer is required to pay a few charges that align NEM customer costs more closely with non-NEM customer costs. These charges include:

  • Pay a one-time interconnection fee
  • Pay non-bypassable charges (similar to non-NEM-customers). These are small charges to help fund low-income customers and energy efficiency programming.
  • Transfer to a Time-Of-Use (TOU) Rate.

California – Net Metering 3.0 (NEM3)

The latest iteration of California’s net metering rule, NEM 3.0 (or NEM3), is due to be decided upon by December 15, 2022, by the CPUC. The changes between the current NEM2 net metering tariff and the NEM3 net billing tariff could take effect as early as April 2023.

As currently drafted, NEM3 is intended to modernize the financial incentive structure of customer-sited generation and emphasize paired storage, equity between participating and nonparticipating customers, and a transition period to ease market disruptions. Some of the key changes include:

  • Under NEM3, energy you export (i.e. sell) to your utility will no longer be priced the same as energy you import (i.e. buy) from your utility. Utilities will charge you more for imports than they will pay you for exports, and the price you are paid will vary based on the time of export
  • NEM3 will incentivise businesses and residents to build energy storage, by paying you more for your exports to the grid during peak times when it is most needed.
  • The new tariff requires new customers to take service under a tariff with high differential time-of-use charges between peak and off-peak prices, further incentivizing participating customers to install batteries to shift consumption of solar power to peak evening periods.
  • Includes a new Market Transition Credit designed to award customers so the pay back of a new solar plus storage system is less than 10 years.  This transition credit will phase out over the first 4 years in anticipation that onsite energy system costs continue to drop. 

For many businesses, NEM2 provides much more financial benefits than NEM3. The good news is that the proposed changes include a grandfathering provision. Any existing systems, along with new onsite energy systems which have complete interconnection applications filed before the Sunset Date, April 2023, will have the option to continue to enjoy the provisions of NEM2 for 20 years following the enactment of the new NEM3 provisions. Under the PD, the Sunset Date is no later than 120 days after adoption of the PD, or April 15, 2023 at the earliest.

That means businesses need to act fast to lock in these benefits; otherwise, they will pass you by! Our team at VECKTA is here to help you get your business ready and take rapid action (if needed) to lock in long-term benefits. 

How VECKTA Can Help You Prepare for NEM3

The first step in preparing for the NEM3 changes is to understand how they impact the business case for onsite power at your sites. On some sites, the impact on economic returns is dramatic (up to a 80% loss in value in extreme cases!), while on others the changes will have little impact. The variance is driven by factors like your electric usage profile, local solar irradiance, and your electrical tariffs – these can be challenging to assess without the aid of sophisticated assessment software.

With NEM3 changes coming, California solar installers are preparing for an incredibly busy first quarter this coming 2023. The impact on you will be one of the following:

  • If the changes mean you need to act quickly, you will need to seek quotes from qualified providers as soon as possible, to lock in grandfathering benefits of NEM2
  • If the changes have only a marginal or no impact on your site’s potential, you may be better off waiting for the peak of demand to pass, in order to benefit from a quieter market (lower prices, more attention from suppliers)

How will you know which category you fall into? You could ask a solar provider … but chances are they are going to tell you that you need to act fast! Or you could seek out independent, solution-agnostic advice that puts your best interests at heart – and provides you with bespoke advice on what the impacts of NEM3 are going to be on your business. That’s where someone like VECKTA comes in! 

VECKTA’s team can quickly, and at a low cost, assess the impact of NEM3 changes on your sites. Not only that; where your sites fall into the “move quickly” category VECKTA is the most effective resource to get your project in front of the best qualified solar installers in your region to get your system designed, your interconnection paperwork filed before the California Public Utilities Commission closes the door on NEM2 for good, and then built so that you can enjoy the benefits of onsite energy for years to come.