As of April 15th, 2023, the landscape of the solar market in California changed dramatically. Until then homeowners were able to install large solar systems and produce an abundance of excess energy from their systems. By doing so, their system would send this excess energy back to the utility grid and the homeowner would receive credits on their electric bill equal to the amount they were paying per kilowatt hour (kWh). With California NEM 3.0 that is no longer the case.
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California NEM 3.0 actually only applies to the 3 large utility companies, San Diego Gas & Electric (SDG&E), SoCal Edison (SCE), and Pacific Gas and Electric (PGE). However, because these 3 companies control the vast majority of the market, it has significantly affected the California solar market.
The Difference with California NEM 3.0
Instead of receiving one-to-one credits for excess energy production which is truly net metering, homeowners will receive relatively small kWh credits for sending energy to the grid. The credit amount changes hourly for every day of the year, but it is estimated that the average credit will be 7.5 cents per kWh. This is a substantial reduction.
Under NEM 3.0 California is still a great solar market. The cost per kWh that homeowners are paying for electricity and the fact that the existing power grid is ill-equipped to handle the demand makes solar power a big part of the future for California. However, it no longer makes financial sense for a homeowner to install a solar system that will produce excess energy when they are being paid such a small credit compared to the additional cost of building the larger system.
Homeowner Choices UNder NEM 3.0
Instead, under California NEM 3.0, homeowners now should either go in one of two directions. They could install a smaller system that will produce only enough electricity to offset their energy usage during the day when the sun is shining. In this scenario, it may reduce their dependence on their utility company by up to 60%. This would dramatically lower the overall energy costs.
Or homeowners could install a system that produces up to 100% of the energy that they use if they also install a battery or multiple batteries. The battery would store the excess energy the system produces during the day for use at night when the solar system has stopped producing energy. This would also offset the higher cost per kWh charged by utility companies during peak hours which are typically 5 pm to 9 pm.
This solution has always been available for California homeowners. However, backup storage batteries are very expensive, usually about $13,500 for the first battery and $9,000 for each additional battery. Before California NEM 3.0 it made more sense to simply build a larger solar system and get credit at a higher rate for the excess energy produced by the system. Now it does not.
Consumption vs Backup Batteries
So, what has changed about batteries where it makes sense now? Enter the 'consumption battery'. Where more widely known backup storage batteries would store energy, send energy to the home for use, send energy to the grid for credit, and be available during a power outage, these new consumption batteries do not function during a power outage. However, they are less than half the price. Consumption batteries from LG are $6,400. Therefore a homeowner can have 2 of these batteries for less than the price of just one backup battery.
Now for far less cost a homeowner can have their solar system produce and store energy during the day and use that energy at night without sending any energy back to the electric grid. They would be offsetting the high kWh cost, especially during peak hours. And they would be lowering their installation costs because of the lower costs of the consumption battery.
Consumption batteries are the answer in many other markets around the country too. However, the manufacturing of these batteries needs to increase to meet the huge demand. For the time being it makes California NEM 3.0 only a change to contend with but certainly not a market killer.