What do California homeowners need to know about NEM 2.0?
If you're in California & interested in solar energy, you've probably heard the term NEM. It stands for “net energy metering,” and it refers to the policy that defines how power utilities buy and sell energy from solar customers.
Unfortunately, NEM 2.0 is no longer available for new solar panel installations. If you sign up to get solar panels installed today, you’ll be put on a new version of the program called Net Billing (formerly known as NEM 3.0).
That said, millions of Californians got solar under NEM 2.0. If you’re curious about how it worked (or still works for those who have it), you can learn more below.
When was NEM 2.0 introduced?
Prior to NEM 2.0, the major utilities offered solar customers a net metering tariff called NEM 1.0. It was available for each utility until they reached 5% of power demand from solar generation.
NEM 1.0 was very successful in persuading Californians to get solar systems installed in their homes. In January 2016, the 5% cap was close to being reached, so the California Public Utilities Commission announced a new net metering tariff to succeed it.
This successor tariff, which we know as NEM 2.0, was to take effect when the cap was reached or on July 1, 2017, whichever came first. San Diego Gas & Electric switched over to NEM 2.0 on June 29, 2016, and Pacific Gas & Electric on December 15, 2016. Southern California Edison didn’t reach its cap and switched over on July 1, 2017.
In short, since July 1, 2017, all major investor-owned power utilities in California operate under NEM 2.0.
The main features of NEM 2.0
NEM 2.0 keeps some of the key aspects of its predecessor tariff (NEM 1.0) and changed others. Here all the key features of NEM 2.0 that you need to know about:
California net metering retained
The most important feature of NEM 2.0 to be preserved from NEM 1.0 was the concept of net metering, which allows solar customers to sell excess energy back to the grid at the retail rate. This amount is then offset against their power bills, leaving the customer to pay the ‘net’ amount of power bills.
Time of use plans made mandatory
NEM 2.0 requires all solar customers to switch to Time of Use (TOU) electric plans. Under TOU plans, electricity is charged at different rates based on the time of day.
The highest rates are charged at times of peak demand, which is late afternoon and early evening. Meanwhile, the lowest rates are charged at ‘off-peak’ times, which is late at night and early morning - when electricity usage is lowest.
This has implications for net metering; the value of the credit for energy sold to the grid varies based on the TOU rate. This means that to get the highest net metering credits, consumers need to sell maximum energy to the grid during peak demand times.
Solar system designs in California are being adapted to take this TOU into account. Solar panels are now often positioned west or south-west to maximize energy production in the late afternoon; this helps earn higher value net metering credits.
Non-bypassable charges
Under NEM 2.0, there is a new component to total electricity rates, known as non-bypassable charges (NBC). This is a small charge, generally 2-3c/ kWh, that is added to energy charges. This component of the bill is not earned as a credit by consumers when they sell energy back to the grid; this means that consumers earn back a bit less than they pay for electricity.
The NBC has led people to say that NEM 2.0 does not offer true net metering, i.e. they don’t earn the full retail rate for energy sold back to the grid. This is technically true, but the good news is that NBC makes up a pretty small proportion of the overall bill.
How long will NEM 2.0 be available?
NEM 2.0 will be available until April 13th, 2023. If your solar installer submits a signed, completed interconnection application by that date, you can be eligible for NEM 2.0 credits for 20 years following the date your system is given permission to operate.
Again, you don’t need to have the system installed by April 13th, you just need the completed application filed with the utility company. Your installer has up to 3 years to finalize the installation, and the utility company has the discretion to allow even more time if they’re responsible for any delays that occur between now and then.
NEM 3.0 is much worse for solar owners, so try to get on NEM 2.0 before April if you’re considering solar panels now.
NEM 2.0 is not as good as NEM 1.0. Should I still go solar in 2023?
While NEM 2.0 slightly reduces the benefits of going solar, it retains the crucial incentive of net metering. This means that besides meeting your energy needs during the day, the excess energy produced by your solar panels will offset your energy consumption at night.
The benefit of net metering under NEM 2.0, combined with federal income tax credits and other incentives, means that Californians stand to make big monthly savings over the life of a solar system.
Getting a solar system installed now will lock you into NEM 2.0 for 20 years. This grandfather clause protects you from the reduced benefits announced in NEM 3.0. In other words, your return on investment in solar panels is protected from the recent policy changes.
To get a detailed breakdown of what getting solar panels looks like financially — including return of investment, payback period, and monthly costs and savings — create a personalized breakdown using the calculator below.
Key takeaways
- NEM 2.0 stands for net energy metering 2.0. It refers to the state policy that governs how power utilities can buy and sell energy from solar customers.
- Since 2017, all major investor-owned power utilities in California have operated under NEM 2.0.
- NEM 2.0 is slightly less generous than full net metering, which was previously offered in California (‘NEM 1.0’) and continues to be offered in many other states.
- NEM 2.0 is available for 20 years to new solar customers through April 13th, 2023.
- A successor tariff (NEM 3.0, or Net Billing) has been announced, and will be substantially less favorable for homeowners than NEM 2.0.
Ralph Baruth
SolarReviews Blog Author
Zeeshan is passionate about promoting renewable energy and tackling climate change. He developed these interests while studying at beautiful Middlebury College, Vermont, which has a strong focus on sustainability. He has previously worked in the humanitarian sector — for Doctors Without Borders — and in communications and journalism.