If you’re in California & interested in solar energy, you’ve probably heard the term NEM 2.0. It stands for Net Metering 2.0, and it refers to the policy on how power utilities can buy and sell energy from solar customers.
Understanding how NEM 2.0 works is important: it applies to anyone who is is thinking about getting solar panels and is a customer of PG&E, SDG&E or SCE.
In this article, I will explain what NEM 2.0 is all about, how it affects California energy consumers, and whether or not it is a good idea to get a residential solar system installed under this policy.
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.
How is NEM 2.0 different from the previous net metering policy?
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 on 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 time.
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.
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.
Customers with generation systems under 1 MW – basically all residential customers – will have to pay a one-time interconnection fee to connect their system to the grid. The interconnection fee will be between $75 and $150, depending on the utility they belong to.
How long will NEM 2.0 be available?
It’s hard to say, but probably not for too long. California’s Public Utilities Commission is already engaged in deliberations with stakeholders, including the utility companies and the solar industry. It has set this year (2019) as the date for reviewing the NEM 2.0 tariff.
Most experts predict that NEM 3.0 – or whatever the next tariff is called – will see a reduction in benefits such as net metering to solar panel owners. This is because regulators think NEM 2.0 as unreasonably helping solar customers at the expense of non-solar customers.
NEM 2.0 is not as good as NEM 1.0. Should I still go solar in 2020?
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 any reduction in benefits announced in NEM 3.0. In other words, your return on investment in solar panels is protected from any future changes in policy.
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.