Is solar worth it under NEM 3?

Over the past few months, our primary goal at EnergySage was to support Californians in locking in higher solar savings before the Golden State's net metering policy changed on April 15, 2023. A foundational solar policy, net metering is when your utility company compensates you for the excess electricity your system generates and sends to the grid. California's new policy, Net Metering 3 (NEM 3) or the Net Billing Tariff (NBT), dropped the compensation rate by about 75% for new solar owners, compared to its former net metering policy, NEM 2. 

We helped thousands of homeowners find the right solar installer and submit their applications to lock in NEM 2 rates for 20 years under the grandfathering clause, but installers received a historic number of requests, and some Californians didn't meet the deadline. If you're in this camp or just starting the solar shopping process now, you might be wondering if solar is still worth it in California. Our resounding answer is yes, it's still worth it, and there are two main steps you can take to get the most out of solar under NEM 3: get a battery and go solar this year.

Under a traditional one-to-one net metering policy, your utility will credit your electricity bill for the excess electricity your system exports to the grid at the same rate at which you purchase electricity from them (the retail rate). The electricity you send to the grid on a sunny day is equal in value to the electricity you pull from the grid at night or during inclement weather, meaning your electric bills should be close to $0. 

For NEM 3, the California Public Utilities Commission (CPUC) established a new rate for crediting solar exports, which shifted the structure from net metering to net billing. In other words, the value of excess solar energy you send to your utility is no longer directly tied to the cost of electricity that you purchase from your utility, as it used to be under NEM 2. Because the wholesale value of electricity depends on supply and demand in the market, your exact compensation rate varies by the hour of the day, day of the week (i.e., weekday vs. weekend), and month you export the energy: There are 576 possible export rates in total for each utility company!

On average, your utility will reimburse you at about 25% of retail electricity rates, meaning the value of net metering credits is about 75% lower under NEM 3 than NEM 2. The new rate structure applies to all California solar owners that receive electricity through one of the Investor Owned Utilities (IOUs) – Pacific Gas & Electric (PG&E), Southern California Edison (SCE), and San Diego Gas & Electric (SDG&E) – and submit their solar interconnection applications (which provides your utility with information about your property, electricity usage, and proposed system design) after April 14, 2023.  

With much lower compensation rates, it's easy to feel discouraged about going solar in California right now, but the three IOUs made another change this year that will still help spur solar adoption: They raised electricity prices. 

If you're a customer of a California IOU, your electricity price varies based on the time of the year, the day of the week, and the time of day. Your utility company is trying to encourage you to use more energy when both the cost of generating and demand for electricity are low and to use less when cost and demand are high. These rates are called time-of-use (TOU) rates and fall within a broader category of innovative utility rate structures that adjust the rate you pay for electricity over the day. 

Even though your export compensation rate will be lower under NEM 3, you'll still significantly lower the amount of electricity you import from your utility company. Most solar owners use about 50-60% of their systems' electricity to directly avoid consuming electricity from the grid and send the other 40-50% to the grid. The more you can avoid imports during high-cost hours, the greater your savings. Here's how the three California IOUs structure their rate plans for solar customers and how they've recently changed their rates: 

PG&E electricity prices

If you have solar, PG&E puts you on their E-ELEC rate plan, which uses the following schedule:

• Summer dates: June 1 – Sept 30

• Winter dates: Oct 1 – May 31

• Peak (electricity is most expensive): 4 pm – 9 pm every day

• Partial-Peak (electricity is moderately expensive): 3 pm to 4 pm and 9 pm to 12 am every day

• Off-Peak (electricity is least expensive): All other hours

PG&E raised electricity prices the least of the three IOUs in 2023, by 3% to 8% depending on the time of day and day of the year. You'll have a $15 fixed monthly charge on this rate plan.

PG&E E-ELEC rate increases

SCE electricity prices

You'll be on SCE's TOU-D-PRIME rate plan if you have solar, which follows these dates and times:

• Summer dates: June 1 – Sept 30

• Winter dates: Oct 1 – May 31

• Peak (electricity is most expensive): 4 pm – 9 pm on weekdays in the summer

• Mid-Peak (electricity is moderately expensive): 4 pm – 9 pm on weekends in the summer and every day in the winter

• Off-Peak (electricity is less expensive): 8 am to 4 pm and 9 pm to 8 am every day in the summer and 9 pm to 8 am every day in the winter

• Super Off-Peak (electricity is least expensive): 8 am to 4 pm every day in the winter

SCE raised electricity prices by 4% to 16% in 2023, depending on the time of day and day of the year. On this rate plan, you’ll have a $14 fixed monthly charge.

SCE TOU-D-PRIME rate increases

SDG&E electricity prices

As an SDG&E customer with solar, you'll be on their EV-TOU-5 rate plan, which uses the following schedule:

• Summer dates: June 1 – Oct 31

• Winter dates: Nov 1 – May 31

• On-Peak (electricity is most expensive): 4 pm – 9 pm every day

• Super Off-Peak (electricity is least expensive): 12 am – 6 am (weekdays), 10 am – 2 pm in March & April (weekdays), & 12 am – 2 pm (weekends & holidays)

• Off-Peak (electricity is moderately expensive): All other hours

Of the three IOUs, SDG&E raised electricity prices the most in 2023, ranging from 22% to 51%, depending on the time of day and day of the year. You'll have a $16 fixed monthly charge on this rate plan.

SDG&E EV-TOU-5 rate increases

One of the primary goals of NEM 3 is to increase battery adoption across the state to lower grid strain when electricity demand is high. As part of that goal, and in tandem with the NEM 3 decision, the CPUC also added another $900 million in funding for their Self-Generation Incentive Program (SGIP), which will be available on July 1, 2023. Of the $900 million, the CPUC will allocate $630 million to low-income residential customers with new batteries and direct $270 million to all other residential customers with new batteries. 

The SGIP program provides a rebate when you install a battery wired to function during a power outage. The value of your rebate varies depending on your utility company, the size of your battery (in kilowatt-hours, kWh), and whether you're a low-income customer or live in a high-fire-risk area. To calculate your rebate amount, simply multiply your battery size by the number that applies to you in the table below:

SGIP rebate values for residential electricity customers

To understand if you qualify for the Residential Storage Equity or Equity Resiliency rebates, check out this brochure from the CPUC. 

The rebate values will decrease in the future as more homeowners get batteries because SGIP has a tiered rate structure. This means if you're thinking about adding a solar-plus-battery system, you should do so sooner rather than later. 

Batteries currently add about $10K to $20K to the cost of your solar energy system. Even with those added costs, your savings will be significantly higher, and you'll break even sooner on your investment with a battery under NEM 3. Batteries enable you to avoid paying for electricity during peak times when your solar energy production is low, and electricity costs are high (typically between 4 pm and 9 pm). 

Additionally, because of the way that NEM 3 compensates you for exported electricity, there are a couple of hours in the early evening in August and September when the avoided cost rate is much higher than what you pay for electricity – sometimes as high as $3.00/kWh. Solar is not usually producing any electricity during the late summer and early fall from 5 to 7 pm, so by pairing solar with a battery, you can send stored solar to the grid during these high export rate periods and further increase your savings. 

With such high electricity prices in California, you'll still save thousands on electric bills if you go solar without a battery, but your savings will be about half of what they would be with a battery. You can expect to save $21,600 to $43,900 more in avoided electricity costs with a solar-plus-battery system compared to a solar-only system. Especially when you factor in your SGIP rebate, adding a battery to your solar system is a no-brainer. 

Using electricity cost data from the three IOUs, we created a model to help you understand how much you'll save with a solar-plus-battery system or a solar-only system under NEM 3. Assuming you go solar in 2023, let's explore your potential 20-year savings and payback period (how long it takes to you break even on your investment) based on your utility company and the following parameters:

• Solar system size: 8 kilowatts (kW)

• Solar cost per watt: $3.30/W

• Electricity need met: 100%

• Battery size: 10 kWh

• Battery power: 5 kW

• Battery cost per kWh: $1,300/kWh

• Federal investment tax credit (ITC) percentage: 30%

• SGIP rebate: $150/kWh

Keep in mind that our model only includes the cost of one battery and doesn't account for any battery degradation; typically, manufacturers only provide a 10- or 15-year warranty for batteries, so you may need to replace it within the 20-year timeframe. You should expect your battery to degrade up to 30-40% after the first 10-15 years, which could slightly alter our solar-plus-battery savings estimates. 

Savings with PG&E

You'll save about $21,600 more over 20 years with a solar-plus-battery system compared to a solar-only system, and you'll break even on your investment one year quicker. 

Savings with SCE

You'll save about $33,300 more over 20 years with a solar-plus-battery system compared to a solar-only system and you'll break even on your investment two years sooner.

Savings with SDG&E

You'll really want to consider a solar-plus-battery system if you're an SDG&E customer: You'll save about $43,900 more over 20 years with a solar-plus-battery system compared to a solar-only system and you'll break even on your investment two years earlier.

Even if you missed the NEM 2 grandfathering date, you can still lock in higher export rates and potentially export adders (a yearly flat rate increase of your export rates – more on these below) for 9 years if you connect your solar system to the grid in 2023. Keep in mind that, unlike NEM 2 grandfathering, simply submitting an interconnection application is insufficient to lock in these rates. 

You have until 2025 to lock in current export rates

Export rates refer to the amount of money your utility pays you per kWh of electricity your solar system sends to the grid. The higher the rate, the more you'll save with solar. To determine export rates, the CPUC created the Avoided Cost Calculator (ACC) based on wholesale electricity cost predictions. As we explained above, there are 576 possible export rates in total for each utility company every year. 

The CPUC updates the ACC every two years with predictions spanning nine years. If you go solar during those two years, you lock in export rates for the full nine years. Your export rates will still change annually depending on the wholesale electricity cost predictions, but from the time you connect your system to the grid, you'll know exactly how they'll change for each of those nine years. After 9 years, your export rates will still depend on avoided costs, but they'll vary based on the version of the ACC available at that time. 

As long as you interconnect your solar panel system before January 1, 2025, you'll lock in current ACC export rates. If you miss this window, you'll have between January 1, 2025 and December 31, 2027 to lock in the next ACC rates for nine years, and between January 1, 2028 and April 13, 2018 to lock in the third set of ACC rates for nine years. After April 14, 2028, you'll no longer be able to lock in rates for nine years; rather, your export rates will adjust every two years with the ACC updates. If in the future, the ACC rates become more favorable than the rates you've locked in (industry experts currently predict this to happen), you can decide to forgo your grandfathering status and shift to the higher rates. 

You have until 2024 to lock in current adders

If you're a utility customer of PG&E or SCE, you're also eligible for additional export rate adders that increase your export compensation. Similar to the ACC export rates, you'll lock in these adders for nine years. Your adder rate depends on the year you interconnect your system and stays the same throughout the nine years. If you're a customer of SDG&E, a non-residential customer, or your system is part of new construction, you won't be eligible for adders. 

Each year you wait to go solar, the adder rate drops, lowering your savings; starting in 2028, adders will no longer be available. If you're a low-income customer or live in a disadvantaged community (DAC), your adders will be considerably higher. Here are the adder rates, depending on your utility company, your income status, and the year you connect your system to the grid:

Annual adder rates by utility company

If you've locked in California's former NEM 2 policy, as a solar owner, you don't have to pay your electric bill every month; rather, you pay it annually on your "true-up" date, which is the date of your interconnection. Your annual bill depends on how much electricity you've imported and exported to the grid. Instead of owing money to your utility company on your true-up date, you could see a credit balance that reflects you've exported more than you imported that year. 

The value of export credits is significantly lower under NEM 3, so to avoid a large true-up bill, you have to pay your electric bill every month. On your bill, you'll have a fixed monthly charge that you can't offset with solar export credits and either a balance for the electricity you consumed and didn't offset with solar or a rollover of extra export credits. 

If you have leftover credits on your true-up date, your utility company will compensate you based on the Net Surplus Compensation Rate they've set for that month and year. This rate will always be significantly lower than the value of your export credits, so it's important to minimize your leftover credits. 

Ideally, you'll want to interconnect your system in late winter/early spring (likely sometime in March) so you can build up your credits throughout the summer and use them throughout the winter. To disincentivize all Californians from going solar at the same time, the CPUC allows you to change your true-up date once so you can make it align with that March timeline. 

When does NEM 3 start?

Technically, NEM 3 has already started, meaning you can no longer lock in NEM 2 export rates. However, because NEM 3 rates are so complicated, utility companies don't yet have billing capabilities to reflect them. They expect to have these in place by December 2023 at the earliest. Until then, you'll still see NEM 2 compensation rates reflected on your electric bills: That's another reason to go solar as soon as possible! 

What's the difference between net metering and net billing?

Under one-to-one net metering, the bill credits you receive for exporting solar electricity to the grid are equal to the retail electricity rate value (what you pay for electricity). With net billing, these bill credits are equal to the wholesale electricity rate value (what your utility company pays for electricity, which is significantly lower than what you pay). Your solar savings will be much lower with a net billing policy than with a net metering policy. 

If I sell my home, are my locked-in export rates and adders available to the new homeowners?

No–unfortunately, if you sell your home, the new homeowners will lose both the locked-in export rates and adders. The amount of money they receive for sending excess electricity to the grid will solely depend on the ACC, which updates every 2 years. If you're grandfathered into NEM 1 or NEM 2 and sell your home, you'll pass your grandfathering status to the new homeowners. 

How much do home batteries cost in California?

According to our Solar & Storage Marketplace Report based on our Marketplace data from the second half of 2022, the median battery price is $1,290/kWh in California. This means that a 10 kWh battery costs about $12,900.  

You can no longer become grandfathered into NEM 2, but you can still lock in higher export rates by going solar now. On the EnergySage Marketplace, you can compare multiple quotes for solar-plus-battery systems from only vetted installers. If you have any questions throughout the process, we'll provide you with tools and resources, including access to a free Energy Advisor, so you can go solar with confidence.