How to communicate homeowner solar benefits under NEM 3.0

Potential customers need to know solar continues to benefit Californians

Last year, one of the biggest events in the solar industry was the implementation of California’s new net billing policy. Despite the initial shock to California’s solar industry, consumers continue to benefit from solar a year later.

Following a new policy by the California Public Utilities Commission, a new net billing policy — commonly referred to as NEM 3.0 — replaced the Net Metering policy (NEM 2.0) across the Golden State in April 2023.

The new policy affects customers for the three major California utility companies: Pacific Gas and Electric (PG&E), Southern California Edison (SCE) and San Diego Gas and Electric (SDG&E).

The change was received with a high level of concern by the California solar industry, as the financial benefits of going solar appeared to have weakened. Consumers could accrue market-rate credits under net metering for extra energy exported to the grid. Many solar energy systems produce more electricity than can be used, which was exported to the grid for credit — an incentive that many homeowners enjoyed.

With net billing, this benefit is greatly reduced. Energy exported is compensated at much lower rates — consumers now receive about 75% less.

However, when we take a closer look at the current economics of NEM 3.0 in Q1 2024 — comparing it to Q2 2023 and adjusting for the recent PG&E rate hikes, the decline in solar and storage prices, and considering how efficiently solar energy can now be generated and stored — we can paint a much brighter picture.

Solar is still a great investment for Californian consumers in 2024. Enact’s leading solar and storage proposal design now shows that NEM 3.0 paybacks for solar and solar-plus-storage for most scenarios are now better than NEM 2.0 paybacks.

NEM 3.0 incentives solar-plus-storage systems

We first published the NEM 3.0 savings and payback study in February 2023 when the NEM 3.0 rates were first implemented. The numbers have changed significantly since then, driven by utility rate increases and system price declines.

In the example above, we compared an 8 kW solar-only system and a 10 kWh solar-plus-storage system. The example assumed an approximately 100% offset scenario for PG&E households and pricing of around $2.90/W installed. We found the NEM 3.0 payback is now back to under 5 years for Solar-only and under 6 years for solar-plus-storage.

Solar and storage energy systems continue to benefit homeowners and businesses in California, despite the transition to net billing under NEM 3.0 — while NEM 3.0 incentivizes solar systems with battery storage.

Solar-plus-storage systems typically offer homeowners additional savings when compared to solar-only systems. While Californians pay some of the highest utility prices in the country, solar can offset the high costs of home power.

What is NEM 3.0?

Net Energy Metering 3.0 (NEM 3.0) — California’s updated policy on solar energy — has altered payback credits for solar households. The policy emphasizes the increased value of solar energy storage. While it is called a net metering policy, NEM 3.0 marks a move from the CPUC to move toward net billing tariffs.

Implemented in April 2023, NEM 3.0 introduced changes affecting the credit consumers receive for excess energy supplied to the grid. While the policy reduces these credits by approximately 75%, depending on the time of day and season, the payback period for solar panel installation has extended to 9-10 years. Despite this shift, solar in California remains a cost-effective alternative compared to traditional grid electricity.

A critical aspect of NEM 3.0 is the integration of solar energy with storage through home batteries. Battery storage enables energy usage for nighttime use, blackout resilience, enhanced grid resiliency and increased cost savings. The fluctuating energy prices in California, with higher costs during peak evening hours, make solar energy, particularly when combined with storage, a valuable resource.

By storing energy generated during daylight hours, consumers can strategically use or export it during peak demand periods, contributing to both cost savings and grid efficiency. Despite the initial cost, solar and battery storage provide a practical and increasingly valuable solution under NEM 3.0, offering consumers the opportunity to save money and contribute to a cleaner, more sustainable energy future.

Four reasons why consumers benefit from solar under NEM 3.0

1. Higher utility rates make solar more competitive

As the utility costs for households remain high, solar continues to offer consumers reduced dependence on the grid and substantial monthly savings. Regardless of government policy, California’s sunshine will never run out and can be converted into low-cost energy. Residential solar is still worth the investment for consumers in California and can offset significant amounts of utility costs.

Consumers need to hear that under NEM 3.0, solar can still offset a significant portion of their utility bills. Adding storage to solar improves the savings further under the diminished export benefits.

The average Californian uses less electricity per capita than their counterparts in all but two states. Despite using less electricity, Californian households paid the third-highest price of electricity on average in 2022.

The value of homeowners’ investment in solar energy is increasing steadily as utilities keep hiking their rates, a trend that has become more prominent in recent years.

Pacific Gas and Electric Company raised rates by 13% on residential customers in January 2024. The increase amounts to an extra $32-$34 per month, on average. This is only the last increase implemented by PG&E: in 2023, their residential rates increased by about 14%.

Similarly, SCE customers have seen their electricity rates go up by 2% in January 2024, after they saw increases in 2023 totaling about 12.5%.

Despite rates going up in January for PG&E customers, the utility has already filed with the CPUC for another rate increase. The CPUC has yet to decide on the additional request.

All rate increases need to be approved by the California Public Utilities Commission, which also keeps track of all rate changes on their Rates Change Advisories page.

One thing is certain: more rate increases will occur in the coming months and years. The only way households can protect themselves from their bills getting higher is to produce their own electricity through rooftop solar.

After the payback period, systems essentially produce free electricity from abundant sunlight. NEM 3.0 has decreased home export rates, but homeowners can still see monthly savings.

2. Battery storage is a great ally for consumers

Solar-generated electricity has to be used or sent somewhere. Storage batteries allow consumers to store unused solar electricity for later usage, rather than sending it to the grid. Before NEM 3.0, sending electricity to the grid was rewarded and left homeowners with lower utility bills. The current net billing tariff is less generous than the previous policy.

Homes and businesses with solar-plus-storage systems will continue to benefit from solar under NEM 3.0. These systems include solar panels, inverters and storage batteries. Currently, systems with storage can see additional savings when compared to solar-only systems.

This is because…Rather than exporting to the grid at times with lower rates, homeowners can choose to discharge battery energy during times of day with higher costs. Typically, California utilities charge more for electricity during the late afternoons and evenings — known as Time of Use (TOU) rates.

Battery storage offers California households with low-cost energy on demand, energy independence and more convenient electric vehicle (EV) charging capability. Storage lets customers use more of their solar-generated electricity during times of high usage or low sunlight.

The larger the battery capacity, the more low-cost energy can be used and less energy is drawn from the grid. This allows residential and commercial customers to reduce their dependence on the power grid and earn more savings.

Enact is helping dozens of California families to go solar. Thanks to Enact’s proprietary software platform, we can design the perfectly sized solar-plus-storage system and show clearly how families can benefit financially from it.

Here are a couple of examples of systems we recently designed and how they will perform once they are connected to the grid under ‘NEM 3.0’:

Using two real-world projects from Northern California and Southern California, Enact’s software can show homeowners the difference between solar-only systems and systems with solar.

Before we show how solar-plus-storage is better for Californians, here are a few key terms:

• Energy Offset: The annual amount of electricity generated by a solar system divided by the annual amount of total electricity consumed. Energy offset shows how much electricity a home will consume from solar.
• Self-Consumption: The amount of energy produced by a solar system that goes directly into a home. Solar-generated electricity needs to be used, stored or sent to the grid — self-consumption shows how much solar energy a homeowner can realistically expect to use.
• Bill Savings: The bill savings is the reduction, in dollars or percentage terms, on a homeowner’s electric utility bill
• Payback Period: The payback period shows the amount of time it will take for a system to pay for itself through utility savings. A payback period is calculated by dividing the cost of installing a system by the amount of money the customer will save each year.

It’s important to note two items in Enact’s estimation. The Enact platform is conservative in its savings estimation, forecasting an annual utility rate increase of 5% — a common calculation in the solar industry. While the future is uncertain, homeowner savings may likely be higher due to California’s large rate increases. Many homeowners see shorter payback periods and higher savings.

Secondly, solar panels are typically warrantied for 15-25 years — and can last longer. For the sake of this article, our calculations are based on the 10-15 year warranties typical for storage batteries.

Lithium reigns supreme

Lithium-ion batteries are a popular option for solar owners — and homeowners wanting storage-only systems. Following their development in the 2010s, lithium-ion batteries have become popular due to their benefits over traditional lead-acid. This battery technology is similar to those used to power electric vehicles, like Teslas.

Compared to lead-acid batteries, lithium-ion batteries last longer, are more efficient and safer for household and commercial applications. There are multiple advantages to lithium-ion, such as higher usable capacity, longer lifespans and improved efficiency. Lithium batteries typically require no maintenance and are much safer when installed properly by a professional.

Recent developments in battery technology include the advent of lithium iron phosphate (LFP) which has helped make batteries safer, cheaper and last longer. LFP batteries are environmentally friendlier because iron can be easily found and the chemistry is recyclable.

Energy storage is a mature technology

While solar storage is relatively new for homes, the technology has come a long way. The technology has been used for many years in business and industrial settings. There are now multiple manufacturers with established brands and reputations, such as Tesla or Franklin.

Many of these manufacturers offer battery warranties with lifespans of 10-15 years and stand behind their products. Some manufacturers — such as Tesla, Enphase and Franklin — even offer all-in-one products that include a battery inverter inside the equipment.

As more suppliers produce home batteries, the industry has adopted safety standards. Batteries sold in the U.S. need certifications, such as UL 1642 and UL 1973, with strict standards for conductor rating and overcurrent protection devices. These devices ensure a safe connection between the battery and the home.

Additionally, battery manufacturers utilize reliable supply chains that help lower consumer prices. Batteries are being installed across California and continue to offer households around-the-clock clean energy usage. Enact has already designed hundreds of custom systems with energy storage for homeowners.

3. The cost of solar equipment is dropping

The cost of solar equipment has decreased since the COVID-19 pandemic. The price drop is expected to continue following market imbalances in China. PV Magazine reported solar panel prices have recently hit pre-pandemic lows.

Low costs of solar equipment can help shorten payback periods, offering households better long-term savings. Global solar panel prices have dropped by 30-40% in 2023, according to a Wood Mackenzie report. China accounts for 80% of the global solar panel manufacturing capacity. American prices dropped by 15% in 2023.

The cost of solar equipment is expected to decrease or stay low. Lower prices, high utility costs and government incentives help make solar an affordable option for families.

4. Government incentives alleviate solar costs

While the costs of solar equipment are decreasing, government incentives encourage clean energy adoption. Both the federal government and the state of California offer incentives to homeowners for solar and storage equipment.

The largest incentive is the solar Investment Tax Credit — or ITC — offered by the federal government. The Solar Investment Tax Credit is a tax credit that reduces the federal income tax amount owed by 30% of the cost of a solar energy system installed during the tax year.

Thanks to the Inflation Reduction Act of 2022, American homeowners can essentially write off 30% of the cost of their system with legitimate documentation from the Internal Revenue Service. The 30% tax credit is available to all Americans with a qualifying system until 2032, when it will be reduced each year until 2035.

Eligible homeowners can take 30% of the sum of the following costs for a qualifying system:

• The cost of solar panels and related equipment — such as inverters, wiring and mounting hardware
• Labor costs for installation
• The cost of permitting fees, required inspections and developer fees
• Energy storage systems rated three kilowatt-hours or more
• Sales taxes paid on all eligible expenses

In California, we also have Self-Generation Incentive Program (SGIP) offers rebates for battery storage installation — including battery systems for power outage resilience and Medical Baseline customers. This initiative supports emergency preparedness, particularly in wildfire-prone regions. For the latest information on SGIP’s budget and application status, customers can visit the program’s homepage for statewide and utility-specific updates.

The bottom line

In the wake of California’s shift to net billing under NEM 3.0, solar energy continues to remain as a very viable residential and commercial investment. Despite initial industry concerns, on the rapid shift in policy, and the lack of a glidepath for such a major transition impacting solar installation and sales teams severely last year, there are several factors emerging that keep solar winning in the marketplace.

Enact enables solar installers across California to design custom systems that account for net billing tariffs and energy storage. Installers using the Enact platform can size energy storage to create setups that satisfy customers.

Research using the Enact platform has found that Californian consumers can continue to benefit under NEM 3.0. Despite the decline in demand, the solar industry needs to communicate these benefits. Energy prices continue to rise for Californians and solar-plus-storage helps homeowners see monthly savings and return on investment.

California’s consistently rising utility prices make solar an attractive option for households seeking significant monthly savings, even with the reduction in export rates.

The combination of monthly savings, energy independence and environmental benefits underscores solar’s pivotal role in California’s sustainable energy future. If you want to see how the Enact platform can help you size and design solar-plus-storage systems, schedule a free demo today.

Written by Technical Services manager Marco Casalegno and content marketing associate David Bartle

Edited by CEO & Co-Founder Deep Chakraborty