California NEM 2.0 in 2018: What you need to know
Published on 27 Nov, 2018 by Zeeshan Hyder
5 minutes read
Everything you need to know about California Net Metering 2.0 in 2018
Anyone in California who is interested in solar energy has come across the term NEM 2.0. It stands for Net Metering 2.0, and it refers to the policy which governs how power utilities buy energy from and sell energy to, solar customers. It is crucial to understand what it entails because if you are a customer of one of the three big investor-owned electric utilities, PG&E, SDG&E, SCE in one of their service territories across the Golden State thinking about getting solar panels, NEM 2.0 applies to you.
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 scheme.
When was NEM 2.0 introduced?
Prior to NEM 2.0, the major utilities offered solar customers a net metering tariff (NEM 1.0) that was available until each utility 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, in anticipation of the 5% cap being reached, the California Public Utilities Commission announced a new net metering tariff.
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 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, as of 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, which is now often referred to as ‘NEM 1.0,’ and changed others. Here are the key features you need to know:
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.
Nem 1 Caps removed
NEM 2 extended the NEM 1 caps, which means that the utilities will apply NEM 2.0 to all solar customers who sign up after they filled NEM 1 caps.
Time of Use
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 during the different times of the 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 rates as well. In order to obtain the highest net metering credits, consumers need to sell maximum energy to the grid during peak demand time. Solar system designs are being adapted to take this into account; solar panels are often being positioned west or south-west to maximize energy production in the later afternoon.
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 slightly 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 comprises of a relatively 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?
California’s Public Utilities Commission set 2019 as the date for reviewing the NEM 2.0 tariff. It is already engaged in deliberations with stakeholders, including the utility companies and the solar industry.
NEM 2.0 is not as good as NEM 1.0. Should I still go solar in 2018?
While NEM 2.0 slightly reduces the benefits of going solar, it retains the crucial incentive of net metering. This means that besides directly meeting your energy needs, excess energy produced by your solar panels can also be offset against energy consumed at other times of the day.
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.
There is another compelling reason to get solar panels in 2018 as opposed to later. Most experts predict that when NEM 2.0 will be watered down when it is next reviewed in 2019. It may be replaced by a successor tariff that is less favorable to solar consumers. This is because regulators view NEM 2.0, like NEM 1.0 before it, as offering very generous support to solar customers, at the expense of non-solar customers. NEM 3.0, or whatever the new tariff will be called, will almost certainly be less lucrative for solar customers than the current regime.
By getting a solar system installed now, you can lock in the benefits of NEM 2.0 for a period of 20 years. This grandfather clause guarantees your investment in solar panels.
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 on the Solar Estimate calculator.