California Net Energy Metering (“NEM”) Transition to NEM-3

California Net Energy Metering (“NEM”) Transition to NEM-3

California’s NEM program is the most important policy mechanism for locally sited solar. This 25-year-old program, which allows solar customers to bank solar energy exported to the grid in the form of Net-Energy Metering (“NEM”) credits, catapulted California to the forefront as the undisputed U.S. solar leader and is the main driver of the state’s +10 gigawatts of distributed generation/NEM installations.

Today stakeholders are finalizing the successor tariff (“NEM-3”) to further devalue NEM credits and impose fixed charges for new solar owners, purportedly to protect non-solar owning customers from grid infrastructure costs. With an expected decision by November 2021, there is a small window to grandfather into the current regime. Before we dive into those steps, first a recap on California’s NEM program.


October 7, 2013: Net Metering was codified in Assembly Bill 327 (“AB 327″) and signed into law by Governor Brown.  In its final form, AB 327 was a compromise between California’s three major investor-owned utilities (“IOUs”) PG&E, SCE, and SDG&E, and consumer/business advocacy groups.

Outcome: Owners of solar systems receive full retail for NEM credits.

January 28, 2016: A roadmap was established by the California Public Utilities Commission (“CPUC”) for how the Net Energy Metering program in California would get reduced from the existing full retail billing credit program (“NEM-1”) to a lower value credit transition program (“NEM-2”) to be set by the CPUC. The transition date was set at the earlier of July 1, 2017, or when an IOU reaches its NEM Cap of 5% of its aggregate customer peak demand and eligible customers would be grandfathered into the NEM-1 program for 20-years.

Outcome: One-time interconnection fee depending on system size and reduction of all NEM credits by non-bypassable charges ($0.02/kWh on average).

Fast forward to 2021: The IOUs filed their joint proposal with state regulators proposing a new NEM-3.0 tariff with an expected decision by November 2021. The IOUs have proposed aggressive reductions of up to 70% for NEM credits, fixed monthly fees (ranging from $1,000 to $4,000) for solar system owners and a monthly true-up (versus the current annual true-up period).

Potential Outcome: According to observers, the IOUs’ proposal is aggressive, and they anticipate a drastic change to California’s NEM program.

Although the fate of California’s solar program is to be determined, 20-year grandfathering for new customers who submit an interconnection application before the November 2021 decision is available.

For those interested in solar and locking-in the current NEM-2 regime for at least 20 years, we strongly urge beginning this process now. Cenergy’s interconnection team is actively working with customers to process the necessary applications and solar design documentation for submittals.

Please contact Nader Yarpezeshkan at (858) 775-3888/ if you have any questions about the NEM program and/or grandfathering. Make sure you continue to be updated on all solar news by following us on Twitter or subscribe our blog The Solar Report.