NEM 3.0 in California: What homeowners need to know about Net Billing

If you want to get solar panels on your California home today, you’ll be signing up for a new program called Net Billing. Net Billing is the new version of an older program called Net Energy Metering (or NEM). You may have heard Net Billing called NEM 3.0 because it is the third version of California’s distributed solar policy, but that name is no longer accurate.

The Net Billing program allows home and business owners to use their solar panels to power their homes and also interconnect with the electric grid to get paid for any excess electricity they don’t use right away.

Here are the main features of Net Billing for homeowners:

• When you get solar installed, you must sign up for a new electric rate plan with rates that change based on the season and the time of day. These rates range from 10 to 65 cents per kilowatt-hour, depending on your utility and the time of day.

• When your solar panels generate electricity that is used in the home, it reduces your bill by the retail value of the energy you would have purchased from the utility.

• If your solar panels generate more electricity you use, the excess is transmitted to the grid. You earn a reduced credit for this energy based on a complicated formula, but it averages around 5 to 6 cents per kilowatt hour.

• Because of the greatly reduced credit offered for excess solar energy, Californians can get similar financial benefits by adding a battery and self-consuming more of their own energy.

Although NEM 3.0 isn’t as good as NEM 2.0, you can still save money with solar on a Net Billing plan. But you have to be smart. Pick the right installer and get the right solar installation for your needs.

Below, we’ll cover how the Net Billing program works, the new incentives it includes, and whether it’s wise to get a home solar battery. We’ll also look at how to ensure your solar installer offers you the best deal. All of those things can change the amount of money you can save with solar every year.

Let’s jump in!

If you sign up for Net Billing today

Before reading this article, it will be helpful for you to understand the steps to getting solar panels installed. You should know what an interconnection application is, how a grid-tied solar installation works, and how net metering typically works.

If you’re up to speed, here’s what will likely happen if you sign up for Net Billing today (late-2023):

• Your installation probably won't be completed very quickly because most installers are backlogged with work. Installers commonly have 6 to 8 months of NEM 2.0 installations to complete.

• If your installation is completed, you won’t be switched to Net Billing immediately because the utilities need time to update their billing systems and the final tariff design. You will have to sign up for the new “highly differentiated time of use rate plans” described below, but you will receive NEM 2.0 credit on an interim basis until December 14th, 2023, at the latest.

Once you’re switched over to the Net Billing tariff, you’ll get reduced credit for excess solar energy sent to the grid. The credits are based on the utility’s average “avoided cost” of energy during each hour of the day. We cover this in more detail below.

In general, these values are low during the day when the grid doesn’t need extra power and higher in the evening when demand on the grid increases. They also differ for weekdays and weekends/holidays, and they change each month. 

Unfortunately, that means the credits are lowest when solar panels are producing the most energy. For this reason, investing in a solar battery to store excess energy may be wise, rather than sending it to the grid. If you can manage to generate and store solar energy, you can use it to reduce your reliance on the grid, which means you save the full retail cost of the electricity you avoid buying.

Additional reading: How many solar batteries do you need in California?

Here’s more about how the Net Billing program works.

Net Billing tariff design

When the Net Billing Tariff takes effect, it will establish the following rules:

• New rate plans: Homeowners who get solar panels must sign up for “highly differentiated” time of use rate plans, under which electricity is very expensive during times of peak usage, and much less expensive when usage is lower.

• Energy credits: The utilities will offer significantly reduced credits for excess energy, averaging about 5 to 6 cents per kilowatt-hour (kWh), compared to the retail rate, which averages around 30 cents/kWh. The credits are determined by the most recent Avoided Cost Calculator, or ACC (a complex tool used to calculate the cost a utility avoids for each kilowatt-hour [kWh] of electricity it doesn’t buy when rooftop solar panels provide the energy instead).

• ACC Plus incentive: PG&E and SCE residential customers who sign up for Net Billing will have access to a new incentive called the ACC Plus, which adds a little value to each kWh of exported solar energy. This means slightly better bill savings.

• Legacy period: The value of energy credits and ACC Plus incentives will be locked in for 9 years after signup and follow a schedule based on the state’s most current ACC. After the legacy period, the customer will receive energy credits based on values from the then-current ACC.

• Low-income customers: Residential customers of PG&E and SCE who qualify for the CARE and FERA low-income programs will get a larger ACC Plus incentive designed to allow them to see a simple payback of their cost to go solar in 9 years.

• System oversizing: A Net Billing customer can install a system that will produce up to 150% of their previous 12-months’ energy usage as long as they attest they will increase their usage up to that amount in the next 12 months; for example, by converting natural gas appliances to electric or purchasing an EV they will charge at home.

• Monthly bill payment: A Net Billing customer will be responsible for paying all monthly charges on their utility bill, with any additional credit earned from exported solar energy carried over to the next month. 

• Annual true-up: Once per year, on the customer’s “true up” date, any carryover credits that remain will be credited at the “Net Surplus Compensation Rate” (which is published monthly by PG&E, SCE, and SDG&E). 

• Current NEM customers: Customers who currently receive credits under the NEM 1.0 and 2.0 programs will continue to receive those credits for 20 years after their original interconnection date. When these customers reach the end of that period (some already have or will soon), they will not receive the ACC Plus or be covered under the legacy period. Instead, they will be subject to the current ACC values for exported solar energy.

New rate plans

Under Net Billing, people who want to install solar on their California home would be required to sign up for a “highly differentiated” Time of Use (TOU) rate, a special rate plan under which electricity is very expensive during the times of the highest grid usage, and much less expensive at other times.

The Net Billing decision lists one TOU rate from each of the three main utilities that currently meet the criteria. In the future, the CPUC will allow utilities to come up with new rates that meet its requirements.

Compared to other rate plans, the ones listed below include slightly increased monthly minimum charges and highly differentiated rates. Importantly, people with lower incomes who qualify for the California Alternate Rates for Energy (CARE) and Family Electric Rate Assistance Program (FERA) programs must also switch to these highly differentiated rates if they install solar panels, but they will retain those programs’ energy price discounts.

Here are the plans currently approved for Net Billing:

Utility company	Rate name	Monthly fixed charge	Lowest off-peak rate	Highest on-peak rate
PG&E	E-ELEC	$15	$0.258/kWh	$0.529/kWh
SCE	TOU-D-PRIME	$12	$0.214/kWh	$0.539/kWh
SDG&E	EV-TOU-5	$16	$0.102/kWh	$0.653/kWh

Credit for excess energy

When a rooftop solar panel system operates, the electricity it makes is first used to run appliances and devices at the location where it’s installed. Often, the output of a solar system exceeds its owner’s needs at any given time, and the excess electricity is exported to the grid and measured in kilowatt-hours (kWh).

Under the Net Billing Tariff, any electricity used by the owner reduces their bill by the full retail cost of energy during the TOU period in which it’s used. But the value of excess solar energy sent to the grid is designed to match the value it provides to the grid. 

So, how much you earn for solar energy sent to the grid will be different for every hour during a given month and will also vary depending on your utility. The utility uses a complicated set of calculations called the Avoided Cost Calculator (ACC) to determine exactly what those values will be.

Trying to keep track of those rates can get pretty complicated. Luckily, our friends at the California Solar and Storage Association have calculated the average value of exported energy over the course of a year for each of the three utilities. Here’s what they came up with:

	PG&E	SCE	SDG&E
Average ACC Value	$0.047	$0.047	$0.062

As you can see, those values are much lower than the TOU retail prices shown above. Remember, the values above are averaged across a whole year for a typical home solar system.

It would be too difficult to list out the ACC values for every combination of utility, month, and day, but here are some general rules:

• Exported energy is worth more during weekday evening hours (between 5 and 9 PM) than during the day.

• Exported energy is worth more during the summer and early fall than in the winter.

ACC Plus incentive

The final goal of the Net Billing tariff is to encourage new solar owners to add a battery alongside their solar panels to avoid getting paid very little for exporting energy to the grid.

But batteries aren’t quite cheap (or available) enough for them to make financial sense yet, and the switch from NEM to Net Billing would mean a solar installation in California would be a far worse investment after April 14th, 2023 than before.

That’s why the CPUC came up with the ACC Plus, which adds a small amount to the value of every exported kWh from a solar system for residential solar owners in PG&E and SCE territory. The ACC Plus is designed to keep a solar installation relatively economical during the first years of the Net Billing Tariff, so the solar industry doesn’t lose jobs. It will likely not be successful in achieving that goal.

The adder will be paid to the system owner in a separate line item on their monthly utility bill for 9 years following the date of interconnection. 

Here are the ACC Plus values for customers who apply and interconnect in the first year of Net Billing:

	PG&E	SCE	SDG&E
Residential	$0.022	$0.04	$0.00
Residential Low-Income	$0.090	$0.093	$0.00

The CPUC designed the ACC Plus to allow for a simple payback period of 9 years or less for a Net Billing customer. Their calculations show that an SDG&E customer would already see payback in less than 9 years without an ACC Plus adder, so they didn’t set one in that area. The CPUC also declined to set an ACC Plus incentive for commercial solar owners.

Incentives for low-income and disadvantaged communities

As shown in the above table, the ACC Plus is increased for certain low-income homeowners. The CPUC identified three groups of people who would be eligible for the expanded ACC Plus:

• Residential customers who are eligible for the CARE and FERA low-income programs 

• Resident owners of single-family homes in Disadvantaged Communities

• Residential customers living in California Indian Country

People in these groups receive the increased ACC Plus adder, which may help them pay back the cost of a solar installation more quickly. In addition, new funding for low-income solar+storage incentives is likely to come in July of 2023 (subject to legislative appropriations happening later this year). Those incentives would improve the financial return of a solar and battery system for qualifying households, meaning a payback period shorter than 9 years. That's good, because California offers few other true solar incentives these days.

Important to know

When a customer signs up for a Net Billing rate, they will receive the ACC Plus adder for 9 years following their date of interconnection, unless they sell or transfer their home to a new owner who is not their current or former spouse.

The value of the ACC Plus adders will decrease by 20% of the initial amount at the beginning of each calendar year for the first 5 years of the program. For example, a new Net Billing customer in PG&E territory who signs up in 2024 would receive a $0.0176/kWh ACC Plus payment for their first 9 years of participation.

Billing, true up, and legacy period

Under NEM, solar owners can see an ongoing tally of their usage, bill credits, and exports, but they are not required to pay their bill every month. Instead, once per year, all the usage and solar credits are added up, and the customer receives an annual “true-up” bill that shows either how much they owe for the whole year or a credit balance for the difference. That system will change slightly with Net Billing.

Under Net Billing, a customer’s bill will be due every month. It will include a minimum monthly charge that solar credits cannot offset and either a charge or rollover of extra Net Billing credits.

Every year there will still be a true-up statement, and the value of any leftover kWh credits will be calculated at the Net Surplus Compensation Rate, which is maintained by each utility. The true-up date is 12 months after interconnection by default, but a customer can request a one-time change to their true-up date (it’s best to choose a late-winter month when the likelihood of having leftover energy credits is very low).

How the changes will affect solar savings

Under NEM 2.0, solar owners save close to the retail rate for every kWh of solar energy their system generates, no matter how it is used or exported. This arrangement has allowed for solar payback times of 4 to 7 years for most people, making investing in solar a no-brainer for California homeowners. The rate of return on a solar investment in California was 20% or higher in most cases, making it much better than other kinds of investments.

Under Net Billing, a solar owner can actually save the full retail rate for electricity they use themselves. They will need to add a battery if they want to use more of their solar electricity, they will need to add a battery. Net Billing makes the payback time period for solar plus batteries similar to the time period for standalone solar.

The problem is the payback time for standalone will be worse under Net Billing. The average payback time for solar+batteries and standalone solar will both end up around 9 years, with a rate of return of around 10%. Basically, if you have to get Net Billing, find an installer who will add a battery to your system and enjoy the peace of mind of having some backup storage, even though you’ll have a worse return on investment.

That’s still a respectable level of savings from solar—some people in other states would really love to see a 10% return on a solar investment! But it’s not nearly as good as NEM 2.0 was.

Bottom line: Net Billing isn’t perfect, but you can still save with solar

If you haven’t yet submitted an interconnection application for solar in California, you have missed the boat on the best solar savings. But that doesn’t mean that going solar now is a lost cause!

If you’re interested in going solar under Net Billing, you have to find an installer who is willing to work with you to build a system that fits into your lifestyle. 

If you work from home and already use most of your electricity during the day, you can make solar work pretty well for you without batteries. 

On the other hand, if you are out of the house most of the day and need a lot of power in the evenings, it is absolutely worth it to get a battery and solar. You’ll be able to store all the excess energy your panels make when you’re not home and use it to run your appliances in the evening.

Again, the payback period for a solar installation under Net Billing should be around 9 years, while the solar panels will keep working for at least 25 years. And if the CPUC decides that avoided costs should be higher (which is pretty likely), the savings picture will improve.

A final thought: it is more important than ever to find the right solar installer. Make sure they listen to you to understand your needs and can set you up with a system that maximizes your savings.