California NEM 3.0 FAQ — A solar adopter’s guide to going solar in 2023

The CPUC has voted to finalize the NEM 3 policy, and the 120-day sunset period to be grandfathered into NEM 2.0 has started. I’m assembling a FAQ page to answer common questions people have been wondering. If this guide looks familiar, I workshop this FAQ weekly on the r/solar subreddit.

The first and most important question is, who am I, and why should you listen to me on the topic of NEM 3?

My name is Nathan Perry, and I am a solar subject matter expert and cleantech educator. I’ve spent over half a decade working in the solar space, consulting with solar companies on improving their sales and operations.

I have followed the NEM 3 CPUC proceedings for over a year and documented everything on Reddit and Twitter. In addition, I have attended dozens of webinars regarding NEM 3, sat through countless hours of CPUC testimony, read each of the three proposed decisions multiple times, and made money consulting on my policy analysis. I have also recently been interviewed by Sam Wigness from solar.com twice regarding NEM 3 here and here.

Below is my analysis of the NEM 3 proposal and how it will impact Californians interested in going solar or who have already switched to solar. The topics covered in this guide include:

1. What is NEM and why should I care?
2. What is changing between NEM 2 and NEM 3?
3. What are the political options?
4. How to be grandfathered into NEM 2?
5. General questions about the NEM 3 policy
6. What questions should I ask my installer for the best shot at being grandfathered into NEM 2?
7. Conclusion

Some of these FAQs will contain a page number. This is a reference to the final NEM 3.0 policy document, which you can read here.

What is NEM and why should I care?

NEM or Net Energy Metering, is a policy that dictates how a customer’s excess power produced and sent to the grid is valued by their utility company. These credits can be used to offset the cost of electricity the customer draws from the grid when their own generation is insufficient to meet their needs. This allows customers to effectively “sell” excess electricity back to the utility and helps to encourage the adoption of renewable energy.

Net metering policies and rules vary by state or by the utility company. The basic principle is that customers with solar panels (or other renewable energy systems) are credited for the excess electricity they generate at the same rate they pay for electricity from the grid.

There have been two versions of this NEM policy in California: NEM 1.0 and NEM 2.0. These policies led to over 12 GW of solar installed in California, powering over 1.5 million homes and businesses. It allowed for credits to be exchanged at a 1-to-1 rate with the utility based on the current power rate. For example, if the cost for you to purchase 1 kWh of power from the utility is 30 cents at 2 pm, you could export 1 kWh of power for a 30-cent bill credit at that time.

On December 15, 2022, the California Public Utility Commission voted to ratify NEM 3.0. This will impact customers with the big 3 investor-owned utilities, PG&E, SCE, and SDG&E. Currently, solar pays for itself in an average of 1–5 years (depending on your utility company) under NEM 2. With NEM 3, the CPUC says it will take 9 years for solar and 7 years for solar plus storage to pay for itself. That estimate has not been independently verified by any third party. Most independent experts I have seen estimate that the payoff for NEM 3 systems will be longer unless batteries’ pricing decreases significantly. You can check out the E3 model that the CPUC used to calculate payback here.

Fortunately, there is still time to act if you need to go solar or expand your current solar system!

What is changing between NEM 2 and NEM 3?

NEM 2 — Export rates are 1:1 with Time of Use (TOU) rates.

• NEM 3 — Export rates change hourly with different rates on weekdays and weekends, all of which change monthly. Rates are, on average, 75% lower than NEM 2 for PG&E and SCE and 86% lower for SDG&E.

NEM 2 — Grandfathering lasts 20 years from PTO and is fully transferable through the sale of a home or transfer of the house to a spouse or heir.

• NEM 3 — Grandfathering lasts for 9 years for new solar customers. It can only be transferred to a spouse or partner. This grandfathering locks in Avoided Cost Calculator (ACC) adders but can be waived if ACC rates go up in the future. I will discuss the ACC later on.

NEM 2 — Required customers to be on any Time of Use (TOU) rate

• NEM 3 — Requires customers to be on electrification TOU rates: SDG&E EV-TOU-5, SCE TOU-D-PRIME, or PG&E E-ELEC. This is for grid consumption only. Export rates are calculated based on the Avoided Cost Calculator (see below).

NEMA and vNEM rates will be available on NEM 2 with 9 years of grandfathering after the sunset window is over. The CPUC will hold a workshop on these rates’ future sometime in 2023. But they needed more data to determine these rate structures’ future.

What are the political options if I don’t like this CPUC decision?

• Go solar now. Help others go solar. If you have solar, check to see if your usage has increased or if you are planning on electrification upgrades soon that will increase your energy usage. Now is the time to get an add-on system if you need one.
• Politically the options are limited. The CPUC vote is not subject to a signature or veto by the governor. The state legislature has not been a reliable solar ally (likely due to a lack of solar campaign contributions vs. the millions that the utilities donate). And doing a ballot initiative would cost about $20M and take 2–3 years which is too late to undo the damage the first-year drop in NEM credits under NEM 3 will cause.
• In response, the California Solar and Storage Association (CALSSA) is starting a Political Action Committee called SUNPAC. The goal is to exert influence in Sacramento using the only thing politicians understand, money.

NEM 2 Grandfathering Questions:

What is required to be grandfathered into NEM 2? (p. 196)

• A signed solar purchase contract (not needed for DIYers)
• An interconnection application “that is free of deficiencies but may not yet have the post-inspection notification from the local building department”
• A single-line diagram
• An oversizing explanation (if oversizing based on your previous 12 months of usage)

Do I need to be installed to be grandfathered?

• No, it is based on when your solar company SUBMITS those forms to the utility, free of deficiencies.

What does “free of deficiencies” mean?

• There is no exact definition here. Hopefully, more information will come out in the end of January update.
• The biggest one is to make sure that your name and home address are spelled and formatted EXACTLY like they show up on your utility bill. If your bill says 5th St, don’t spell it fifth street on your contract. Keep it the same if they add a space rather than a hyphen in your last name. Everything else is up to your solar company, so the sooner you are submitted, the more time there is to fix any errors before the April 14 deadline.
• The equipment model numbers and system size can be amended after installation without impacting your grandfathering.

Can I change the size of my system after grandfathering?

• Yes you can. You cannot increase the size of your system but can decrease it by up to 20% fewer panels. If you run into a sizing issue before the deadline, you can have your solar company submit another grandfathering application.

How long do I have to complete the installation after submitting the application?

• Technically up to 3 years. But in practice, no more than your solar installation company is willing to guarantee their pricing on your contract, which is usually 4–6 months, in my experience. Resigning a contract after the deadline could mess up the original interconnection application.

Can I add a battery and not lose my grandfathering?

• Yes! You can add batteries to your grandfathered system now or anytime after the 120-day sunset period ends. (p. 166)

When is the actual deadline to be submitted on April 14?

• We are unsure if the deadline is the end of business on the 14th, midnight, or something else. There will be additional clarification and some final housekeeping rules not outlined in the NEM 3 policy at the end of January.

General NEM 3 Questions:

I am served by a municipal utility. Will NEM 3 impact me?

• No, NEM 3 only impacts the big 3 investor-owned utilities: PG&E, SCE, and SDG&E.

I am part of a Community Choice Aggregator (CCA) and have a split utility bill. How will I be impacted by NEM 3?

• A CCA within the utility territory of one of the big 3 utilities will be impacted by NEM 2 grandfathering and NEM 3. The CCAs can offer better NEM 3 export rates than the utilities. Check your CCA website for more information. Most have a page on NEM 3 and how it will impact you.

Will adding solar after April 14 cause me to lose grandfathering?

• Not if your solar company filed the contract, interconnection application, single-line diagram, and oversizing explanation documents. You have three years from document submission to get your system installed.
• If you did not get documents filed in time, you would lose grandfathering if you added a system after the sunset window ends.
• To keep NEM 1 or 2 grandfathering, you cannot add more than 1 kw or 10% to your system (whichever is larger). The idea is to make it so that a warranty replacement wouldn’t end your grandfathering. I don’t know of any companies installing only 1–4 panels.

What about getting an add-on system if I am grandfathered into NEM 1 or 2?

• You can get an add-on system grandfathered in during the 120 days sunset window. Just make sure the documents are filed in time! Otherwise, you lose grandfathering entirely. If you install a non-grandfathered add-on after the sunset period, both systems will be on NEM 3.
• Adding a system does not reset your grandfathering period. It is still 20 years from the PTO for the original system.

I have an old system. How can I reset the 20-year clock on my grandfathering?

• To reset the clock to get another 20 years of grandfathering under NEM 2, you must completely remove the old system solar system. Submit a new application as if there is no existing equipment, and make a note that the old system was removed. It is important to have photos as a backup if the utility requests them. Make sure to remove the old system before submitting a new application. Some call to cancel the interconnection agreement before submitting a new application, but it is unnecessary.

Can you explain how the Avoided Cost Calculator works?

• The Avoided Cost Calculator is how export rates will be calculated under NEM 3. There are 24 hourly rates that change between weekday and weekend rates. And all those rates change monthly. This means there are 576 (24 x 2 x 12) rates calculated based on your utility and whether you qualify for additional adders on top of the ACC rates. For example, during midday in the spring, the rates are zero (plus adders) and peak at around $3 per kWh during September evenings. These differences in rates are what incentivize installing batteries with solar. As we get closer to the April deadline, I will put spreadsheets together and do a video exploring the ACC rates in more depth.

If I need additional work done before going solar, will I lose NEM 2 grandfathering?

• No, you won’t. Make sure your solar company submits the documents in time. As long as your solar system is installed within 3 years of your submitted documents, you can take as long as you need (within the bounds of your installation contract) to complete any needed upgrades before going solar.

What if I remove my solar system to replace or repair my roof? Or I’m adding a second story where the panels are, and I need to remove and reinstall them on the second-story roof?

• This also will only impact grandfathering if you alter the system size. If the system is installed on a new roof plane, you may need a new solar permit with your city or county.

Can I add solar to new construction and be grandfathered?

• If you’re looking to submit a solar application for a property currently under construction, you may be able to do so even if there is no permanent meter installed yet. However, the specific requirements for doing so can vary depending on which utility company provides service to the property.
• For Southern California Edison (SCE), you can apply based on the property’s street address without needing an account or meter number.
• San Diego Gas & Electric (SDGE) requires you to use the service account number on the solar application. If you cannot obtain that from the construction company, you can email netmetering@sdge.com for assistance.
• Pacific Gas & Electric (PGE) requires an interconnection application to be submitted within the service application. You will need to find out who at the construction company submitted the service application and get them to link you to that application. If you don’t know who submitted the application, you can use a lookup tool found at https://yourprojects-pge.com/s3-static/webassets/SolarContractorGuide.pdf. If that doesn’t work, you can email Rule21gen@pge.com for help.

What questions should I ask my installer for the best shot at being grandfathered into NEM 2?

I would get started immediately by gathering quotes from well-reviewed companies. Then, I’d write down any questions about the process of going solar, their company, and the quote. But the first question I would start with would be, “Is your company prepared to submit the documents needed for NEM 2 grandfathering early in the process? Or do they not submit interconnection documents until after installation?”

Based on that, you know whether it is worth moving forward with them. Other factors to consider in your decision include financing options, warranties, company track record, and if the system makes good financial sense for you.

After you make your decision and sign the contract to begin the process, your installer should be able to submit for grandfathering, at least after the site survey. Once the required documents are submitted for grandfathering under NEM 2, the utility will send your solar company an email saying one of the following:

• Sent for review (PG&E)
• Deemed valid (SCE)
• Pending AHJ (SDG&E)

I would ask for a copy of that email to be forwarded to you for your records, especially if your installation happens after the April 14 deadline. This step is less important if your system is installed in January or February as long as you receive Permission to Operate (PTO) by April 14.

Conclusion

There is still time to go solar and lock in the more favorable savings under NEM 2. Still, it is critical that you do not delay.

Due to the massive rush to be grandfathered into NEM 2 before the deadline, I have renewed my California Home Improvement Specialist license to sell solar. In addition, I have partnered with several solar companies that I have verified can properly grandfather solar adopters early in the process.

Time is running out to take advantage of California’s current net metering rates before the NEM 2 deadline on April 14th. So check out my website at www.nathan.solar now to schedule an appointment with me and ensure that you secure the benefits of solar before it’s too late.

And if you are a solar company worried about navigating NEM 2 grandfathering and reducing the time from a contract signed to grandfathering from weeks to just a day or two, schedule a consultation here.