For more than 20 years, California has aggressively supported the rooftop solar market through its Net Energy Metering (NEM) program in Pacific Gas and Electric Company (PG&E), Southern California Edison (SCE), and San Diego Gas & Electric Company (SDG&E) territories. NEM allows customers who generate their own energy (customer-generators) to serve their energy needs directly onsite and to receive a financial credit on their electric bills for any surplus energy fed back to their utility.
NEM has enabled 1.3 million customers to install roughly 10,000 megawatts of customer-sited renewable generation, almost all of which is rooftop solar. Now that California has nearly 25 gigawatts (GW) of solar on its grid, needs have shifted, according to the California Public Utilities Commission (CPUC). It is now essential to address grid reliability shortfalls during “net peak” hours in the early evening when the sun is down and the grid has to rely on fossil fuels to meet demand.
One solution to the problem is distributed storage, but the current NEM program lacks the price signals necessary to incent storage adoption, the CPUC said. Thus, less than 10% of existing NEM customers have paired storage with their solar systems.
On top of that, the CPUC said, the current NEM rules are disproportionately beneficial to solar customers:
All ratepayers pay as much as 10 times more for exported NEM energy than for other sources of renewable energy. Californians today spend more than $3 billion a year to support NEM programs.
An independent third-party evaluation of NEM 2.0 found that its costs substantially exceed its benefits as residential NEM 2.0 participants only pay 9 to 18 percent of what it costs their utilities to serve them, even considering the value of the energy produced by their NEM systems.
Under current NEM rules, the typical solar customer pays for the solar energy system through energy bill savings in 3-5.5 years depending on utility, and then receives substantial bill savings for the remainder of the current 20-year tariff.
Ratepayers without NEM systems, who are disproportionately low-income, pay significantly higher electricity rates due to NEM. The Public Advocates Office at the CPUC estimates that households without NEM systems pay $67 to $128 more per year, depending on the utility, due to the costs of the NEM 1.0 and NEM 2.0 programs. Without NEM reform, these amounts will increase substantially by 2030.
The CPUC has now issued a proposal that would revise current NEM rules and create a Net Billing Tariff. The proposal will be on the CPUC’s 27 January 2022 Voting Meeting agenda.
The new proposal, formally called a Proposed Decision, determines that NEM must be modernized to incentivize customers to install storage paired with rooftop solar to help California meet its net peak shortfall and ensure grid reliability.
The proposed new Net Billing Tariff has four key components:
Pays Net Billing customers for the electricity they export to the grid based on its value, determined by the avoided cost to the utility of buying clean energy elsewhere.
Charges Net Billing customers for the electricity they receive from the grid based on high differential time-of-use tariffs, creating more benefit for customers who install storage and incentivizing them to store solar energy and shift exports later in the day.
Creates a Grid Participation Charge based on the size of the solar system to ensure that Net Billing customers are paying the same fixed costs of the electric grid as non-Net Billing customers.
Provides a Market Transition Credit so that customers can pay back the cost of a new solar plus storage energy system in less than 10 years, ensuring that the solar industry in California continues to grow and rooftop solar remains economic. The credit will phase out for new customers over four years.
The proposal also creates an Equity Fund with up to $600 million to improve low-income customer access to distributed clean energy programs.
The proposal for a new Net Billing Tariff also provides additional measures to incentivize distributed solar plus storage for low-income and tribal households, including an exemption from the Grid Participation Charge. It also allows Net Billing customers to “oversize” their systems by up to 150% of the customer’s historical load to allow for future vehicle and appliance electrification.
The proposal also:
Adopts a monthly residential Grid Participation Charge of $8 per kilowatt (kW) of installed solar to pass some of the costs to maintain the grid and fund public purpose programs to residential adopters.
Creates a four-year glide path for the industry through a monthly Market Transition Credit of up to $5.25 per kW for residential solar plus storage and solar-only systems. Customers will lock this amount in for 10 years. During the four-year glide path, the credit will step down 25% a year for prospective customers, who will also lock in their amount for 10 years.
Establishes a Storage Evolution Fund to provide storage rebates to existing NEM 2.0 customers who transition to the Net Billing Tariff within the next four years.
Transitions residential NEM 1.0 and 2.0 customers (except for low-income customers) to the Net Billing Tariff after 15 years of being interconnected to the electric grid, which will incent storage adoption and reduce costs paid by other ratepayers by billions of dollars.
Assembly Bill 327 (Perea, 2013) required the CPUC to reform the NEM program, as well as conduct rate reform and distribution planning activities. The CPUC made initial revisions to the NEM program in 2016, resulting in what is called NEM 2.0.
The Solar Energy Industries Association (SEIA) slammed the proposal, saying that it will create the highest solar tax in the country and tarnish the state’s clean energy legacy.
Only the wealthiest Californians will be able to afford rooftop solar, shutting out schools, small businesses, and the average family from our clean energy future. The only winners today are the utilities, which will make more profits at the expense of their ratepayers. We urge Governor Newsom to act quickly to change this decision — at risk are 65,000 solar jobs, the security of our electricity grid, and the health of California residents and our planet.
About 40% of all rooftop solar installations in California were going to low- or middle-income homes in California, according to SEIA. The new costs and fixed fees will take away the value proposition for virtually all Californians, the association said.