With the advent of Net Energy Metering (NEM) 3.0 in California, particularly in PG&E territory, the financial dynamics of solar energy have shifted. Homeowners are now faced with new considerations on how to size their solar systems for optimal savings. The reduced export rates under NEM 3.0 mean that exporting excess solar energy to the grid is less financially rewarding, making self-consumption of solar power more valuable than ever.
In this blog, we’ll discuss why sizing your solar system to cover approximately 75-80% of your energy needs is financially beneficial under NEM 3.0, especially when factoring in energy-intensive usage such as electric vehicle (EV) charging and heat pump operation at night or in winter. We’ll also highlight the importance of using hourly interval data to accurately assess your energy needs and maximize financial returns.
NEM 3.0: What’s Different?
NEM 3.0 changes how solar energy users are compensated for the excess energy they send to the grid. In the past, under NEM 2.0, homeowners could export their surplus energy at retail rates, making it appealing to install larger solar systems that produced more energy than they used. Under NEM 3.0, the compensation for excess energy is significantly lower, as export rates are now tied to wholesale electricity prices.
As a result, the financial focus has shifted toward maximizing self-consumption of solar energy and minimizing reliance on grid electricity. This makes it more practical for homeowners to size their solar systems to meet most, but not all, of their annual energy needs.
Why Sizing Your System for 75-80% Coverage Is Ideal
Sizing a system to cover around 75-80% of your energy needs is generally considered the most financially advantageous approach under NEM 3.0. Here’s why this offset works well in the PG&E territory:
- Self-Consumption Maximization: The reduced export rates mean you earn less when sending excess energy back to the grid. By sizing your system to produce enough energy for daily consumption without overproduction, you can use more of your solar energy on-site, which leads to greater savings. This offset ensures you generate enough power during the day to cover most of your consumption without producing unnecessary surplus.
- Cost-Effective Investment: Installing a system that meets roughly 75-80% of your needs optimizes system size and cost. Larger systems, designed to cover 100% of energy needs, can be more expensive and may result in overproduction during peak solar months. A well-sized system provides a better return on investment by balancing upfront costs with long-term savings.
- Grid Dependency for Nighttime and Seasonal Usage: Solar panels generate the most energy during the day, but many household demands—such as charging EVs or running heat pumps in winter—occur in the evening or during periods of low sunlight. Even with a solar system covering a majority of your needs, the grid remains necessary during these off-peak production periods, especially in winter when sunlight is less abundant.
- Time-of-Use Pricing Advantages: In PG&E territory, time-of-use (TOU) pricing makes electricity more expensive during peak hours. With a system covering most of your energy needs, you can use solar power during the day when rates are lower and store excess energy (if you have battery storage) for use during expensive peak periods, minimizing reliance on the grid when prices are highest.
The Importance of Hourly Interval Data for Solar Sizing
One of the most critical aspects of determining the right solar system size is understanding your home’s energy consumption patterns, especially in light of NEM 3.0’s emphasis on self-consumption. Using hourly interval data from your utility provides an accurate picture of how much energy you use throughout the day and across different seasons.
This granular data is key to making an informed decision on the appropriate solar system size for several reasons:
- Matching Production to Consumption: Hourly interval data shows when your home consumes the most electricity—whether it’s during the day when solar production is high or in the evening when it’s lower. This information allows you to size your solar system to match your daytime usage, reducing overproduction and maximizing self-consumption.
- Estimating Financial Benefits: With detailed interval data, you can better estimate how much money you’ll save by generating your own solar energy and avoiding high-cost grid electricity. Accurate consumption data helps model the financial returns of a solar system, taking into account time-of-use rates and potential savings from reduced reliance on the grid.
- Adapting to Energy-Intensive Appliances: EV charging and heat pumps often operate during periods of low or no solar production, such as at night or in the winter. By analyzing your hourly usage patterns, you can identify the optimal solar system size and determine whether battery storage is necessary to cover these energy demands when your solar panels aren’t producing power.
How EVs and Heat Pumps Factor Into the Equation
Electric vehicles and heat pumps are becoming increasingly common in California homes, but they also present unique challenges for solar energy management. Both EV charging and heat pump use typically occur in the evening or during colder months—times when solar production is lower or nonexistent.
EV Charging at Night:
Many homeowners charge their electric vehicles overnight, a time when solar panels aren’t producing energy. Even with a well-sized system covering most of your daytime usage, you’ll still need to rely on grid electricity or stored energy from a battery for nighttime charging. While it may be tempting to size your system to cover 100% of your energy needs, this would lead to overproduction during the day, resulting in more energy being exported to the grid at reduced rates under NEM 3.0.
Heat Pumps in Winter:
Similarly, heat pumps require more electricity during the colder months when solar energy production is at its lowest. A system designed to cover 75-80% of your annual energy needs strikes a balance by producing enough energy for daytime use while acknowledging that grid reliance will increase during winter. Sizing a system to cover all energy needs would result in overproduction in summer, with less benefit during winter when it’s needed most.
Maximizing Returns with Battery Storage:
One way to address nighttime or seasonal gaps is by adding battery storage to your solar system. A battery allows you to store excess solar energy produced during the day and use it during the evening or peak-rate periods. This strategy is particularly beneficial under NEM 3.0, as it enables you to avoid purchasing expensive grid electricity during peak hours.
By storing excess solar energy and using it when grid electricity is most costly, you can enhance your financial savings while ensuring your home’s energy needs are met efficiently.
Final Thoughts
Sizing your solar system to cover 75-80% of your energy needs is a financially smart strategy under NEM 3.0 in PG&E territory. With the lower export rates, self-consumption is key to maximizing savings, and using hourly interval data ensures your system is tailored to your unique consumption patterns. Additionally, considering energy demands from EVs and heat pumps, along with the benefits of battery storage, will help you further optimize your solar system’s performance and financial returns.
With careful planning, solar energy remains a powerful tool for reducing your carbon footprint and saving money for years to come under NEM 3.0.
Chris Mink is Sales Manager at Sun Light & Power