The Impact of NEM 3.0 on Utility Rate Inflation

It’s been almost a year since California’s California’s Net Billing Tariff (NEM 3.0) went into effect, which profoundly impacted utility rate inflation, completely decoupling the value of imported energy from exported energy. Previously, per NEM 1.0 and NEM 2.0, exported solar production was valued at or near total retail value. Decoupling the value of imported energy from exported energy was a landmark change with significant implications for how utility rate inflation should be assessed. 

According to theNEM 3.0 tariff, energy exported to the grid is now valued based on hourly values pulled from the CPUC’s Avoided Cost Calculator (ACC). These hourly values are based on marginal costs a utility would avoid per hour. On average, solar exports under NEM 3.0 are valued at approximately 75% less when compared to NEM 2.0. Per the final NEM 3.0 rules, the CPUC specified that new customers transitioning to solar will secure their ACC export rates for the first nine years to provide price certainty. Following the nine years, NEM 3.0 customers will receive compensation for exports based on ACC rates at that time. Every two years, the ACC calculator gets a substantial update, publishing the comprehensive nine-year schedule of export values.