If you followed solar news these past few months or had a chance to read our previous blogs, you are probably aware of the new solar billing structure, NEM 3.0, that was voted by the California Public Utilities Commission (CPUC) last December and took effect on April 14, 2023.
We wrote a detailed article on what this change meant for solar customers, which you can read here. But here is a little rundown to refresh your memory:
Net Energy Metering (NEM) is the name of the agreement signed between a solar customer and the utility company and governs the value of the excess solar energy exported to the grid (“export rate”). Under NEM, solar customers are able to send back excess solar energy generated during sunny hours to the grid, collect credits in exchange for that energy, and use these credits to offset consumption from the grid at night. NEM 2.0 was the agreement in place since 2017, which is now replaced by NEM 3.0. The most notable change is a significant cut in the value of export rates, which directly affects the average payback period of a solar system.
What a solar system looked like under NEM 2.0
Under NEM 2.0., solar customers were enrolled in a Time-Of-Use (TOU) billing plan, in which electricity rates are lower on nights and weekends, but go up during peak hours when energy resources are in high demand. For a majority of solar customers, most of the energy produced by their solar system during the day was sent back to the grid as excess energy, and purchased as credits, at the average rate of 30c/kWH. In the evening, customers were able to use the credits they had accumulated to offset their energy needs from the grid after sundown. The payback period of a NEM 2.0. solar system was 6 years on average. NEM 2.0. systems also had a 20-year term.
Although NEM 2.0 was a preferred billing plan, solar remains a profitable investment under NEM 3.0. We know this topic contains a lot of information to take in so we detailed below the various options available to solar customers under NEM 3.0.
1. Solar only
Designing a NEM 3.0. solar system will look a little different and will require some adjustments. The goal is to design a solar system that will allow customers to consume most of their solar energy when it is generated by the system instead of sending the excess energy back to the grid during the day. For example, this might mean running your dishwasher, doing your laundry, or running your pool pump during the day. Doing so will maximize savings and the benefits of the solar system during the day, and less energy from the grid will be required in the evening. Although the payback period will increase from the NEM 3.0. cut in export rates, credits from any excess energy during the day will still be available to use in the evening.
Consuming energy as it is generated will enable customers to have a majority of their energy needs supplied directly and instantly by the renewable energy source on their roof. NEM 3.0. solar systems will be precisely sized according to customers’ past year consumption, in order to have the right supply of energy to cover the household’s needs during the day and minimize the additional amount of energy needed from the grid. Such a strategy will help customers protect themselves from utility rate increases.
2. Solar & battery (without backup)
Another option to consider when choosing a solar system is adding a battery storage system without a backup function (called “grid-tied batteries”). Traditionally, a full backup battery system contains multiple pieces of equipment. It includes the battery itself to store the energy, a backup subpanel where essential loads are isolated to be powered during a power outage, a smart switch to recognize a power outage and disconnect the solar and battery system from the grid, and a combiner box to consolidate interconnection equipment into a single enclosure and provide remote production and consumption monitoring.
However, a battery without a backup function will only require the battery itself and the combiner box, decreasing the overall cost of the system. Such a system would allow customers to store the energy not consumed right away during the day in the battery, and use this stored energy when needed. This will reduce the demand on the grid in the evening and help customers get the most value from their solar electricity. It will give customers more flexibility, by not needing to adjust their consumption as much and not having to consume all of the energy as it is generated. Most importantly, it will give customers a more affordable storage solution for their homes.
It is important to note that a battery system without a backup function will not provide resilience against power outages. In case of a power outage, the solar system will not be functional, the battery will not charge, and the home will not be powered. However, additional equipment to create a backup function can be added to the system at any time.
3. Solar & battery backup system
A solar system paired with a full backup system will require all of the equipment necessary (the battery itself to store the energy, a backup subpanel where essential loads are isolated to be powered during a power outage, a smart switch to recognize a power outage and disconnect the solar and battery system from the grid, and a combiner box to consolidate interconnection equipment into a single enclosure and provide remote production and consumption monitoring). This means a more expensive storage solution, but it also means greater independence from the grid and complete resilience in case of power outages.
During a power outage, the battery backup equipment work together to disconnect the home’s essential appliances from the grid and form an internal “micro-grid” that will allow the solar panels to continue recharging the battery, which will discharge energy to the home as programmed. This solution gives solar customers both independence and resilience from the grid during its ever-more-frequent outages, by having access to uninterrupted power.
Important to keep in mind
> Purchasing a solar system is a financial investment, and like many other financial investments, it comes with long-term benefits, a return on investment, and a payback period. However, unlike other types of investments, investing in the sun is a safe bet. Not only will the sun never stop shining, but the more the utility increases its rates, the more solar customers will save in avoided costs.
> Home electrification is happening, and more customers are making the switch to heat pumps, electric cooktops, and other electric appliances. In this case, pairing your all-electric home with a solar system makes the most sense. Your home will mostly run on renewable energy, saving you money on both your gas and electric bills!
> Utility bills have significantly increased over the years. Not only have the utilities consistently been increasing their energy rates (i.e. the price of the kWh), but they have even more dramatically increased all the other fixed costs included in your bill (such as operation and maintenance, transmission, and infrastructure costs), as a way for the utility to meet its revenue requirements and provide payouts to shareholders. As utility costs are likely to keep increasing in the future, consuming your solar energy as it is generated will help you reduce and control your electric bills.
> Lastly, going solar has great environmental benefits. As a renewable energy source, solar energy does not release greenhouse gasses, which directly contributes to mitigating climate change. Besides, solar energy does not contribute to air pollution as it does not produce any harmful particulates in the air when converting sunlight into energy. Solar energy also plays a role in decreasing our reliance on fossil fuels. The extraction of fossil fuels is a major contributor to human-induced climate change, and as a clean energy source, solar helps reduce our need for fossil fuels. Making the switch to solar energy is a step in the right direction to protect our planet.
Although the transition from NEM 2.0 to NEM 3.0 has been challenging to process, it is time to move on and look ahead. After reviewing the new proposed rates and billing structure of NEM 3.0, our team is confident that solar remains a sound investment and should be considered by homeowners willing to reduce and better control their electricity costs. To capture most of NEM 3.0 benefits, new solar customers will need to adjust their consumption habits to consume as much as their solar energy as it is being produced. Grid-tied and backup batteries will also provide new benefits: when batteries’ main purpose used to be to provide protection against outages, self-consumption is now the way to go.
We are here to support you and provide all the tools you need to make an informed decision. Reach out to us to further discuss your solar and battery options, and to review a detailed financial analysis.