Shedding Light on NEM 3.0鈥檚 Impact on California Solar Market and Insurance

Feb 22, 2024

As the United States continues its transition toward sustainable energy, California has been at the forefront, leading the charge in adopting solar power. Net Energy Metering (NEM) has played a crucial role in incentivizing solar adoption, but the recent rollout of NEM 3.0 poses some tough challenges for the California solar industry and environmental insurance market.听

In this blog post, Canaan Crouch, Specialty Managing Director at 麻豆放映免费 Specialty Insurance Services and environmental expert, sheds light on what NEM 3.0 entails, what it means for the California solar industry, and how it impacts insurance agents and carriers.

What Is the Net Energy Metering (NEM) Program?

Over the last several years, California has seen exponential growth in the number of solar installations, particularly in the Sun Belt. Much of that has been driven by California鈥檚 Net Energy Metering program, which first rolled out in 1996 and incentivizes consumers to install solar panels through an energy buy-back program.听

NEM is basically a billing arrangement between the consumer and their utility company. Crouch explains, 鈥淚f you have solar panels installed on your home in California, whenever you鈥檙e producing more energy than you need, you can sell that energy back to the grid. Essentially, your energy meter 鈥榬uns backwards,鈥 and you get a credit for it.鈥

What Is NEM 3.0?

The NEM program has seen several iterations since its inception. The most recent iteration 鈥 NEM 3.0 鈥 went into effect in April 2023 and introduced significant changes to the energy buy-back compensation structure. Now, homeowners will get 75% less than they used to for the energy they sell back to the grid.

鈥淭丑别 NEM guidelines offer an incentive for homeowners in California to install solar panels on their homes,鈥 explains Crouch. 鈥淭丑别 previous subsidy was rather rich, but as NEM 3.0 came out it scaled back this subsidy and led to a reduction in demand for residential solar panels.鈥

The updated program also encourages homeowners to buy and install battery storage alongside their solar panels, which would allow them to 鈥渃ollect鈥 and store excess energy to use in their homes during peak energy rate hours (like overnight).

According to the California Public Utilities Commission, the move to NEM 3.0 is necessary to strike a balance between ensuring fair compensation for solar energy and adapting to the evolving needs of the grid. 鈥渞eflect the actual value of customer solar energy exported to the grid and to control electricity costs for all customers.鈥

The Impacts of NEM 3.0 on the California Solar Industry

Unfortunately, the impacts of NEM 3.0 extend far beyond simple payment-structure changes and more sustainable energy storage for homeowners. It represents significant job loss for the California solar market.

鈥淭丑别 intended consequence of NEM 3.0 is that California is trying to push more homeowners to have storage capacity for energy in their homes,鈥 says Crouch. 鈥淗owever, the unintended consequence is that there鈥檚 been a reduction in the revenues of existing solar contractors in California.鈥

There just isn鈥檛 as much of an incentive for homeowners to install new solar panel systems for their homes. 鈥淐onsumers are speaking with their wallets,鈥 says Crouch. 鈥淭丑别re is not as much of a rush to put panels on their roofs.鈥

When new consumer demand goes down, the entire California solar industry feels it. According to the California Solar and Storage Association, the NEM 3.0 rollout is responsible for a since 2022. They predicted this would equate to by the end of 2023.听听

What NEM 3.0 Means for Insurance Professionals

The extent of NEM 3.0鈥檚 impact goes beyond solar panel owners and those directly involved in installing and supporting solar infrastructure. The insurance professionals and carriers who support the California solar industry will be impacted as well.

Impact on Retail Agents

Retail agents with a book of solar business in California will see their profits take a hit. Here鈥檚 why:

听鈥淲ith less demand in the marketplace for residential solar panels, our insureds 鈥 the solar installation contractors 鈥 are not generating as much revenue as they have in previous years,鈥 says Crouch. 鈥滻nsurance policies are rated off of revenue, so if insureds are generating less revenue, they are also paying less for insurance. This impacts retail agents, because their commission is tied to the policy premiums. If the premiums go down, then their commission goes down as well.鈥

Impact on Carriers

The effects of decreasing premiums won鈥檛 stop at impacting retailers鈥 commission and earning potential. Lower premiums can also impact carriers鈥 abilities to pay for solar related claims.

鈥淲e continually see solar claims from installation contractors driving the frequency of loss,鈥 says Crouch. 鈥淭hat鈥檚 concerning because when you have a high frequency of loss, claim severity is often not far behind. The more unit count you have in claims, the greater the likelihood that you鈥檙e going to have a severe claim.鈥

This is particularly problematic for carriers when it comes to dealing with claims related to latent construction defects on solar products.

Some construction defects can go unnoticed for a while before they become an issue and trigger a claim. Once those claims hit, however, carriers need to have enough money in their coffers to cover the costs. With premiums going down, carriers could be in a position where they don鈥檛 have enough in reserve to handle issues related to construction defects that continue to trickle in from past installs.

鈥淚t鈥檚 a concern for carriers,鈥 notes Crouch, 鈥渙n how they鈥檒l manage their book of business on a go-forward basis.鈥澨

Implications for Nation-wide Solar Expansion

Because California has led the change in solar expansion in the U.S., they serve somewhat as a testing ground for solar adoption strategies. Other states are looking to them for evidence of how they can successfully encourage residents to move toward solar power.

What we are seeing now is how incentives through government subsidies play out in the marketplace.

鈥淲e鈥檙e watching California play out as the beta model for net energy metering,鈥 says Crouch. 鈥淭丑别y originally offered significant subsidies, but could not afford to sustain them 鈥 hence the rollout of NEM 3.0. As would be expected, the sharp spike for solar demand has declined, and California is still nowhere near full penetration with solar.鈥澨

The Importance of Leveraging Brokers with Environmental Expertise

NEM 3.0 represents a significant step in the evolution of California鈥檚 solar landscape 鈥 but not necessarily a positive one. Its trickle-down effect and the dramatic changes it will bring to capacity, rates, and carriers鈥 financial ratings in this ever-evolving industry underscores the importance of working with a specialized broker who knows the industry well.听

At 麻豆放映免费, our expert environmental brokers keep a close eye on emerging solar sector trends and news. We鈥檙e always ready to offer support and guidance to our retail agency partners and their clients, no matter what challenges or opportunities those trends may bring. Contact 麻豆放映免费 today for more information about our environmental capabilities and to secure a quote.

The 麻豆放映免费 Environmental Insurance Team

The 麻豆放映免费 Environmental Insurance Team

麻豆放映免费鈥檚 team of environmental underwriters have dedicated their entire careers to the environmental sector 鈥 they are environmental professionals that happen to sell insurance. Our brokers have backgrounds as environmental consultants and geologists, which gives you and your clients a significant advantage. When it comes to environmental coverage, you don鈥檛 want a generalist broker. With the 麻豆放映免费 team, you can trust our brokers have worked every angle of the environmental industry and can customize our exclusive program capabilities for any environmental coverage need.
environmental insurance | insurance premium | NEM 3.0 | solar industry | solar market | solar panels | solar power | solar sector trends



麻豆放映免费 Cannabis Insurance Insights

The 麻豆放映免费 Weather Report: How Climate Change is Shifting the Insurance Industry

From wildfires to hurricanes, weather-related disasters are tallying unprecedented losses. Here’s how climate change is impacting insurance coverage.





Whether they realize it or not, most every business has some sort of environmental exposure. It鈥檚 more important than ever for companies to evaluate their environmental risk profile and secure appropriate insurance coverage. At 麻豆放映免费, we don鈥檛 have generalist brokers; our dedicated team of environmental brokers has worked every angle of the environmental industry and knows it inside and out. By partnering with 麻豆放映免费, you鈥檒l have an industry-leading wholesaler on your side, working with you and your clients to secure the coverage 鈥 and peace of mind 鈥 your clients need.

Stay Informed

Want to receive information from 麻豆放映免费 on timely marketplace trends, hot new product and program launches, and valuable product expertise that will set you up to win? Sign up below to receive email communications from 麻豆放映免费.

This field is for validation purposes and should be left unchanged.