California’s Future for Net Energy Metering: Sunny Skies or Rainy Days?

BY: FIONA BARE, Student Manager at the Roberts Environmental Center (Claremont McKenna College), and TANJA SREBOTNJAK, Hixon Professor of Sustainable Environmental Design (Harvey Mudd College)

After months of heated debate and intense lobbying by utility companies, solar industry associations and environmental groups, the California Public Utilities Commission (CPUC) voted 3-2 in favor of enacting the Net Energy Metering 2.0 (NEM 2.0) successor tariff on January 28, 2016. This highly anticipated decision has substantial influence of the future of solar in California.

A student research team at the Roberts Environmental Center at Claremont McKenna College, consisting of Fiona Bare, Shane Griffee, Apoorva Rangan, Annushka Shivnani, Sarah Sanbar, Henry DeRuff, Grace Bailey, Maddie Lee and Krista De La Torre, therefore analyzed the new NEM 2.0 policy with mentorship from Professor Tanja Srebotnjak at Harvey Mudd College. The team analyzed the proposals submitted to the CPUC by the main utility companies and environmental advocacy organization NRDC along with the CPUC’s own proposal. The team identified the differences between the proposals and the old NEM 1.0 as well as the potential effects of NEM 2.0 on the future growth of solar in California.

But let’s back up for a moment and consider what NEM is and why a review of California’s solar power compensation tariff was at all necessary.

Net Energy Metering, or NEM, is a general policy that allows solar generators to sell energy to the grid and buy energy when necessary at lowered rates. This created (intended) incentives to switch to solar power and, although programs and policies vary widely by state and utility company, has generally led to a growth in installed solar capacity in the United States. Utilities across the country began to demand changes in the NEM, arguing primarily that distributed, variable generation can destabilize the grid and shifts certain grid operation costs to non-solar customers. However, the solar industry and environmental groups countered that smart grid management and residential solar can actually reduce the grid burden and promote clean, sustainable energy, e.g., by reducing the need for so-called peaker plants and the fossil-fuel power they provide.

California’s first NEM tariff, known as NEM 1.0, was established after Governor Schwarzenegger signed Assembly Bill 920 into law in 2009.  Under NEM 1.0, solar customers sell excess electricity generation to the grid at favorable rates and conditions, which together with declining production costs of solar technology sparked a boom in the state’s solar industry. Today, the state has nearly 12MW of installed capacity representing 44% of the US total and more than 2,754 solar companies employing approximately 76,000 people. California plans to install 22,645 MW of solar electricity capacity over the next five years.

However, in response to the growing tensions between the utilities and solar associations Governor Brown signed Assembly Bill 327 in 2013 that required the CPUC to develop a new NEM2.0 tariff by the end of 2015. Southern California Edison, Pacific Gas & Electric, and San Diego Gas & Electric, along with interest groups like the Natural Resource Defense Council submitted proposals for the successor tariff. After reviewing these proposals and comments from the public, the CPUC drafted and adopted its own proposal in early 2016.

The student research team at the REC analyzed the details of these proposals for NEM reform and determined that the utilities’ proposals would have made solar installation substantially less attractive for prospective customers by adding non-bypassable monthly charges and fees for grid access and installed solar capacity, reducing compensation rates for excess generation and introducing demand and time of use charges. While the CPUC’s own proposal did not go as far as those of the utilities, it too, includes modifications in the way solar customers’ energy consumption is metered and their excess generation is compensated.

Nonetheless, based on their analysis the research team concluded that the CPUC’s adoption of its own proposal in January 2016 is a win for solar in California. NEM 2.0 continues to compensate participating solar customers with relatively minor changes in the value of the benefits that are summarized as follows:

  • The NEM net energy credit continues at current retail rates until at least 2019
  • Solar customers will pay non-bypassable charges (NBCs) on all of the energy they consume from the grid, regardless of the amount they exported to the grid. Previously, they only paid these charges if they consumed more electricity from the grid than their solar systems produced over the course of a 12-months period.
  • NEM 2.0 now also applies to installed capacity larger than 1 MW AC as long as the solar customer can pay the applicable interconnection and upgrade fees to connect their solar systems to the grid.
  • New solar customers pay a “reasonable fee” charged by their utility company to connect their system to the grid. The CPUC estimates that this cost will vary between $75-$150.
  • Residential solar customers will have to pay time-of-use (TOU) charges for power drawn from the grid. TOU charges reflect different prices during different times of the day in an effort to better match real-time costs of generating and transmitting energy across the grid and to encourage conservation during peak times.

Despite these changes, the new NEM 2.0 is far from the overhaul envisioned by utility companies. They have filed a rehearing application, but to date this has not been acted upon by the CPUC, leaving the potential for a legal battle. This and the next review of NEM 2.0 in 2019 create continued uncertainty for prospective solar customers and all but ensure that solar policy will continue to evolve in California.

The team’s full report (PDF) is available.