On December 15, 2022, the California Public Utilities Commission (CPUC) voted in to effect the much-maligned, thus delayed, NEM 3.0. The new net metering took effect on April 15, 2023, affecting residential PV demand in California.
The primary difference between NEM 3.0 and NEM 2.0 is the transition from net energy metering to net billing tariff that significantly reduces the export rate for residential PV systems. Under NEM 2.0, participating customers receive a bill credit for excess generation exported to the electric grid that can offset their electricity consumption, meaning the export rate is in some way equivalent to the buying rate. However, NEM 3.0 cuts the export rate by 75%, reducing customers' profit from residential PV systems and prolonging the estimated payback period from five to six years to nine to ten years.
The CPUC believes that the new rule can cut the exorbitant expense of subsidies as installed PV capacity increases, encourage users to adopt ESS solutions while installing PV systems to raise self-consumption ratio, maximize profits, and lessen the load on the grid during peak hours. The CPUC also expects to prompt PV users to install ESS through the Self-Generation Incentive Program (SGIP). In California, where electricity prices are higher, the economic edge of solar-plus-storage maintains under the new net metering rule. However, the still-high initial cost of ESS put off investors. Meanwhile, customers with PV systems solely see profits being reduced drastically. Therefore, despite investment tax credit (ITC) under the Inflation Reduction Act (IRA), NEM 3.0 still upsets residential PV demand in California.
In 2022, the U.S. added 20 GW of installed PV capacity, with ground-mounted projects accounting for merely 11.8 GW, a 30% year-on-year decrease. Meanwhile, residential projects set a 40% year-on-year increase to 5.9 GW due to high electricity prices, with California contributing 2 GW of the gauge. This shows that NEM 3.0 not only affects PV demand in California but deals a blow to the entire residential PV market of the U.S.
According to the CPUC, new systems with valid interconnection applications submitted prior to April 14 can be grandfathered into NEM 2.0 for the next 20 years if the installation and grid interconnection are completed within three years. The sunset clause brought an installation rush, sustaining residential PV demand in California. InfoLink estimates residential PV demand in California to grow mildly in 2023 and decline in 2024 due to NEM 3.0. Still, the handsome IRA subsidy appeals to residential system users in the rest of the states. Given that and future module price declines that benefit the development of residential PV, residential PV demand will continue increasing in the U.S. The growth will slow down as a result of sluggish demand in California in 2024 and rebound in 2025 due to the IRA subsidy.