Guide to Net Metering in California & NEM 3.0 Impact

Solar installers are the primary point of contact for homeowners interested in transitioning to solar energy. As a solar installer, it is essential to stay up-to-date with the latest developments in solar technology and regulations to inform homeowners about their options.

One such development is the introduction of new net metering payback rules, NEM 3.0, which have significant implications for California solar energy users.

Learn more about net metering structures in California and the impact of NEM 3.0 that will take effect for new installations that aren’t grandfathered in starting April 13, 2023.

Is net metering available in California?

Yes, customers in California have been able to offset their electrical needs and feed California’s electrical grid with energy from their renewable energy system, primarily solar, for residents. The California Public Utilities Commission (CPUC) has created rules or “tariffs” for people who generate their own energy (“customer-generators”) and receive a financial credit on their electric bills for any surplus energy fed back to their utility company.

What utility companies in California offer solar compensation?

Several utility companies in California offer solar compensation or net metering programs. Here are some examples:

1. Pacific Gas and Electric (PG&E): PG&E offers a net energy metering program that provides credits to customers for excess solar generation.
2. Southern California Edison (SCE): SCE offers a net energy metering program that provides customers with credits for excess solar generation. They also offer a Virtual Net Metering program for customers who cannot install solar panels on their property.
3. San Diego Gas and Electric (SDG&E): SDG&E offers a net energy metering program that provides credits to customers for excess solar generation.
4. Sacramento Municipal Utility District (SMUD): SMUD offers a net metering program that allows customers to receive credits for excess solar generation.
5. Los Angeles Department of Water and Power (LADWP): LADWP offers a net metering program that credits customers for excess solar generation.

These are just a few examples of utility companies in California that offer solar compensation or net metering programs. It’s important to check with your specific utility company to learn more about the programs they offer and any requirements or restrictions that may apply.

How does California net metering work?

Net metering allows California residents with solar panels or other renewable energy systems to receive credit on their electricity bills for the excess energy they generate and feed back into the grid.

Here’s how California net metering works:

1. Install a solar panel system: First, homeowners or businesses must install a solar panel system or other eligible renewable energy systems that meet California’s net metering program requirements.
2. Interconnect with the grid: Once the solar panel system is installed, it must be interconnected with the local electric utility’s grid. This involves installing a bi-directional meter that can measure both the energy consumed from the grid and the energy generated by the solar panel system and fed back into the grid.
3. Generate excess electricity: When the solar panel system generates more electricity than the home or business is using, the excess electricity is automatically fed back into the grid.
4. Receive credit: The homeowner or business owner receives a credit on their electricity bill for the excess energy generated and fed back into the grid. The credit is typically equal to the retail rate of electricity, which is the same rate that the homeowner or business would pay for electricity if they were consuming it from the grid.
5. Use credits: The credits can be used to offset electricity charges on future bills. If the credits exceed the charges for a given billing period, the excess credits can be rolled over to the next billing period.
6. Settlement: At the end of each year, any remaining credits are typically settled at the utility’s avoided cost rate, which is the cost the utility would have paid to generate or purchase the same amount of electricity.

Overall, California’s net metering program makes it more financially feasible for homeowners and businesses to invest in solar panel systems and other renewable energy systems while helping reduce the state’s dependence on fossil fuels. Here is a little more detail on how each of the three major utilities in California operates their net metering programs.

Pacific Gas and Electric Co. (PG&E) net metering

PG&E’s net metering program allows customers to sell their excess energy from their solar system to their grid and, in return, receive credits, which customers could opt to use when power generation is low.

Southern California Edison (SCE) net metering

SCE has a net metering program. It allows customers with solar panels or other renewable energy systems to receive credit on their electricity bill for any excess energy their system generates and feeds back into the grid.

SCE net metering allows customers with solar panels or other renewable energy systems to save money on their electricity bills by developing their own electricity and receiving credit for any excess energy they generate and feed back into the grid. Here’s how it works:

1. Generating energy: When a customer’s solar panels or other renewable energy system generates electricity, it is first used to power the customer’s home or business.
2. Excess energy: If the customer’s system generates more energy than is needed to power their home or business, the extra energy is fed back into the grid.
3. Net metering: Through SCE net metering, the customer receives credit on their electricity bill for the excess energy their system generates and feeds back into the grid. This credit is equal to the retail rate for electricity, which means the customer gets credited for the total value of the electricity they generate.
4. Billing: At the end of the billing period, the customer is billed for the net amount of energy they used from the grid (i.e., the amount of energy they used minus the amount of excess energy they generated and fed back into the grid).

San Diego Gas & Electric (SDG&E) net metering

SDG&E’s net metering program allows customers with solar panels or other renewable energy systems to receive credit on their electricity bill for excess energy their system generates and feeds back into the grid.

Overall, SDG&E’s net metering program allows customers with solar panels or other renewable energy systems to offset their electricity costs and even potentially earn credits on their electricity bill by generating their own electricity and feeding excess energy back into the grid. 

What are California’s rates and prices for net metering?

PG&E’s net metering program for solar customers is known as NEM 2.0. Under this program, solar customers receive a credit for the excess energy they produce and feed back into the grid. The credit is applied to the customer’s bill at the retail rate, which includes both the cost of energy and the cost of delivery.

In PG&E’s net metering program, the amount you get credited for sending energy back to the grid is based on your property’s electricity rate structure.

The structure is simple: you get a credit on your bill for each kilowatt-hour (kWh) you feedback to the grid at the full retail value of that kWh, minus a few cents per kWh for non-bypassable charges (NBCs) that all customers pay for. These charges support environmental benefit programs.

However, starting April 15, 2023, PG&E will switch to a new program called NEM 3.0 or the Net Billing tariff (NBT). Instead of getting credits based on the total retail rate, you will receive credits based on the “avoided cost rate,” which reflects how valuable it is not to use electricity during a specific time. This means the price PG&E will pay you for the solar energy you send to the grid will drop by around 75%.

SCE rates and prices for net metering

Southern California Edison (SCE) determines rates and pricing for net metering based on your property’s electricity rate structure.

For every kilowatt-hour (kWh) of energy you give back to the grid, you’ll receive a credit on your bill for the same value as a utility-generated kWh, minus a few cents for non-bypassable charges (NBCs).

These charges are mandatory and support environmental benefit programs that all SCE customers pay for, regardless of solar usage.

There have been changes to the SCE net metering program, including the current NEM 2.0 that began in 2016 and the upcoming NEM 3.0 (also known as the Net Billing tariff, or NBT) that will start on April 15, 2023.

With NEM 3.0, credits will be based on the “avoided cost rate,” meaning that the credits’ value will depend on how valuable it is not to use electricity during a specific hour.

As a result, the price that SCE pays for solar energy fed back to the grid is expected to decrease by around 75%.

San Diego Gas & Electric (SDG&E) rates and prices for net metering

SDG&E’s rates and prices for net metering depend on your property’s electricity rate structure. For each kilowatt-hour (kWh) you send back to the grid, you will receive a credit on your bill for the total retail value of that kWh minus a few cents per kWh for non-bypassable charges.

However, SDG&E’s net metering program is changing to NEM 3.0 on April 15, 2023, which will credit you based on the value of not using electricity during a particular hour, resulting in a significant decrease in the price SDG&E pays for solar energy sent to the grid.

What is the net metering cap in California?

A net metering cap refers to the maximum amount of electricity that can be generated by renewable energy systems and fed back into the grid while still being eligible for net metering credits. In other words, it’s the maximum amount of electricity that a utility company is required to credit a customer for.

PG&E net metering cap

In the past, PG&E limited the amount of excess solar energy that customers could sell back to the grid to 5% of the total electricity demand during peak hours in their area. However, since June 2016, there has been no limit to the amount of solar energy customers can sell back to PG&E.

SCE net metering cap

Southern California Edison used to have a limit on how much electricity its customers could generate through net metering, which was set at 5% of the total amount of electricity used during peak hours in the utility’s area. However, since June 2016, there has been no limit on net metering in the area served by Southern California Edison.

SDG&E net metering cap

In the past, California had a rule that limited the amount of net metering that SDG&E could use to 5% of the highest amount of electricity they needed at any given time. But starting from June 2016, there is no longer any limit to the amount of net metering that SDG&E can use in their area.

What will happen to my PG&E NEM credits?

If you have a solar panel system that produces more electricity than you need, PG&E will give you bill credits. These credits can be used in future months when your panels produce less energy.

You will be credited for the extra energy at the Net Surplus Compensation Rate (NSCR) in a year. The NSCR is based on electricity market prices and is calculated every month. After one year, you’ll get a credit for extra electricity at the average rate for that month. 

What will happen to my SCE NEM credits?

If you have a solar panel system that produces more electricity than you need, you will receive bill credits on your SCE bill. These credits can be used to pay for electricity in future months.

Again, when your panels produce more electricity than you use over 12 months, you’ll be credited at the Net Surplus Compensation Rate (NSCR). The NSCR is calculated based on the market price of electricity each month. After 12 months, any extra electricity you produce will be credited at the average rate for that month.

What will happen to my San Diego Gas & Electric (SDG&E) NEM credits?

If you have a solar panel system and produce more energy than you need for a month, you’ll receive bill credits on your SDG&E bill that can be used in future months.

If you produce more electricity than you use over the course of a year, you’ll receive credits for the extra electricity at the wholesale compensation price.

The wholesale compensation price is based on electricity market prices and is calculated by SDG&E on a per-kilowatt-hour basis for each month. At the end of 12 months, any extra electricity will be credited to your account at the average rate for that month.

California NEM 3.0 Implications

For solar and battery storage installers in California, it has been estimated that under NEM 2.0, a monthly electric bill went from $250 down to $18 with solar. New NEM 3.0 rates, effective April 13, will go from $250 down to $95, which is still a considerable saving but less attractive than NEM 2.0 rates.

Pairing battery storage with solar installation will be more beneficial under NEM 3.0. Homeowners that are grandfathered in NEM 2.0 will still be able to add battery storage later on and remain under NEM 2.0. 

Important date to remember. The current NEM tariff, NEM 2.0, is available for new customers until April 14, 2023. Even if the installation is set within 3 years, you can be grandfathered into NEM 2.0 if you submit all applications for construction before the April 14 deadline. 

What is included in a complete interconnection application?

• Signed contract
• Single Line Diagram (SLD)
• Contractors State License Board disclosure (CSLB)
• Consumer protection guide
• Oversizing attestation (if applicable)

NEM 2.0 grandfathered program is good for 20 years; at that point, systems will transfer over to the NEM 3.0 program rates. 

California residents aiming to go solar who want the best experience possible are recommended to go through one of Solar Insure’s Certified Installers.

We thoroughly vet the contractors in our network so you can have peace of mind that you will receive a quality install, your installation is immaculate, and any covered parts or labor you may need to keep your system running are protected with Solar Insure products. Call or text our team at 714-625-8204 to get the support you need.

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