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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. 



The Energy Toolbase team analyzed the annualized weighted average inflation rate for residential and commercial export profiles1. Our team assumed a 100% solar offset system using the same residential and commercial load profile to produce our 365-day hourly solar export file and calculated the annualized weighted value of exports for every year independently from 2023 to 2031. 

The following table presents the inflation rate of the annualized weighted average over the nine years. Based on the rate class and utility, the Compound Annual Growth Rate (CAGR) ranges from 1.8% to 7.4%. Export rate CAGRs are within the same range as utility cost inflation CAGRs. 


For more information on California’s utility rates and electric bills,download our ‘Electric Bill Inflation in California’ Whitepaper and download ourComplete Guide to Net Metering 3.0. 

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