Energy Independence, At Your Doorstep
Net Metering (NEM 2 vs. NEM 3)
Net Metering is a policy that allows solar system owners to receive credits for the excess electricity they generate and send back to the grid.
California’s shift from NEM 2 to NEM 3 impacts how homeowners are compensated for solar energy, influencing savings potential, especially when paired with battery storage solutions.
Here’s a breakdown of both programs:
NEM 2 (Net Metering 2)
NEM 2 is the previous version of California’s net metering policy, which is still in effect for LADWP (Los Angeles Department of Water and Power) customers and those who installed solar systems before the switch to NEM 3. Under NEM 2, homeowners receive credits at near-retail rates for excess energy sent to the grid, making it a favorable option for those looking to maximize savings.
How It Works
Solar system owners generate electricity during peak sunlight hours, often producing more than they use. The surplus is sent to the grid, and they receive credits at retail or close-to-retail rates. When solar production is low (e.g., at night or during cloudy weather), they can use these credits to offset the cost of grid electricity, often achieving substantial bill reductions.
Benefits for LADWP Users:
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High Credit Value: LADWP users under NEM 2 receive credits close to retail rates, maximizing savings without needing additional storage.
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Lower Initial Cost: Without the need for battery storage, the initial cost of a solar installation is typically lower, as the utility grid essentially acts as a “virtual battery.
Drawbacks
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No Back-Up During Outages: Although beneficial, NEM 2 does not provide power during grid outages, as most systems are grid-tied without storage. This means no backup power unless a battery is added.
NEM 3 (Net Metering 3)
California utilities like PG&E (Pacific Gas and Electric), SCE (Southern California Edison), and SDG&E (San Diego Gas & Electric) have transitioned to NEM 3. Under this new policy, the credit rate for excess solar energy is significantly lower than under NEM 2, shifting the focus to energy self-consumption rather than exporting power to the grid.
How It Works
NEM 3 provides lower compensation rates for exported solar energy, aligning closely with the utility’s “avoided cost” (wholesale) rate rather than the full retail rate. This change incentivizes homeowners to use their solar power directly or store it in a battery to avoid purchasing higher-cost electricity from the grid during peak hours.
Benefits with Battery Storage:
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Increased Savings through Self-Consumption: Homeowners can store excess solar energy in batteries to use later, reducing dependency on the grid and taking advantage of California’s Time-of-Use (TOU) rates, which charge more during peak times.
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Power During Outages: With a battery system, homeowners can maintain critical power during outages, providing both financial and practical benefits.
Challenges:
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Higher Upfront Costs: NEM 3 often requires a battery to maximize benefits, which adds to the initial investment.
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Lower Export Value: Solar customers under NEM 3 earn less by exporting to the grid, so the emphasis is on using generated energy rather than sending it back.
Comparison Table: NEM 2 vs. NEM 3
Best Scenarios for Each Option
NEM 2 Ideal Scenario
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Homeowners under LADWP or existing NEM 2 users: This group benefits from high credit rates and can achieve savings without needing battery storage.
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Lower Energy Storage Needs: Homes that don’t experience frequent outages or don’t require backup power may find NEM 2 advantageous, as they can rely on the grid to act as a “virtual battery” at little cost.
NEM 3 Ideal Scenario:
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New Solar Customers with PG&E, SCE, or SDG&E: For new solar users, NEM 3 combined with a battery is the best approach to maximize financial savings and self-sufficiency.
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Homes Focused on Energy Independence: Homeowners looking for greater resilience against outages and a reduction in peak-hour grid dependency will benefit from NEM 3 with battery storage, allowing them to store and use their solar energy at optimal times.
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Time-of-Use Rate Optimization: NEM 3 users who store energy for peak usage times avoid high electricity costs, maximizing the value of their solar investment.
Conclusion
NEM 2 and NEM 3 offer unique benefits depending on your utility provider and energy goals. For LADWP customers or those with grandfathered NEM 2 status, solar remains a powerful way to save without immediate battery investments. However, new solar adopters under NEM 3 can benefit greatly from pairing solar with battery storage, reducing grid reliance and enhancing energy independence. Silverline Solar helps customers navigate these options, designing solutions tailored to California’s latest net metering policies and maximizing each system’s performance.
As of November 2024, California's utility companies have implemented various Net Energy Metering (NEM) programs to manage customer-generated solar energy. Here's an overview of the major utilities and their current NEM statuses:
1. Pacific Gas and Electric (PG&E):
NEM Status: PG&E transitioned to NEM 3.0 in April 2023. Under this program, compensation for excess solar energy exported to the grid is based on the utility's avoided cost, which is generally lower than retail rates. This change encourages solar customers to utilize more of their generated energy on-site or invest in battery storage solutions to maximize savings.
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2. Southern California Edison (SCE):
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NEM Status: SCE also adopted NEM 3.0 in April 2023. Similar to PG&E, SCE's NEM 3.0 program offers reduced compensation for exported solar energy, aligning with the utility's avoided cost rates. Customers are incentivized to increase self-consumption or incorporate battery storage to optimize their energy usage and financial returns.
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3. San Diego Gas & Electric (SDG&E):
NEM Status: SDG&E implemented NEM 3.0 alongside PG&E and SCE in April 2023. The program's structure mirrors that of the other utilities, providing lower credits for excess energy sent to the grid and promoting on-site consumption and storage solutions to enhance customer benefits.
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4. Los Angeles Department of Water and Power (LADWP):
NEM Status: LADWP continues to operate under its existing NEM 2.0 program. This program offers credits for excess solar energy at rates closer to retail prices, making it more advantageous for customers without battery storage systems. LADWP has not announced a transition to NEM 3.0 as of this date.
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5. Sacramento Municipal Utility District (SMUD):
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NEM Status: SMUD has its own net metering program, which differs from the state's NEM 3.0 structure. SMUD's program provides compensation for excess solar generation, but the rates and terms are specific to their service area and may not align with the NEM 2.0 or NEM 3.0 frameworks.
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6. Other Municipal Utilities:
NEM Status: Various municipal utilities across California have their own net metering policies. These programs can vary significantly in terms of compensation rates and structures. Customers served by municipal utilities should consult their local providers for the most accurate and up-to-date information regarding net metering options.
Key Differences Between NEM 2.0 and NEM 3.0:
Compensation Rates
NEM 2.0 offers credits at or near retail rates for excess energy, while NEM 3.0 provides credits based on the utility's avoided cost, which is typically lower.
Incentives for Self-Consumption
NEM 3.0 encourages customers to consume more of their generated energy on-site or invest in battery storage to maximize savings, due to the reduced compensation for exported energy.
Program Availability
Investor-owned utilities like PG&E, SCE, and SDG&E have adopted NEM 3.0, whereas some municipal utilities, such as LADWP, continue with NEM 2.0 or have their own distinct programs.
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