Key takeaways from this article:
- The California Public Utility Commission has formally opened its NEM-3 proceeding, which will redefine the rules for the Net Energy Metering (NEM) tariff in California.
- The recently released NEM 2.0 Lookback Study concluded that NEM 2.0 customers have net benefited from the structure and ratepayers have seen increased rates as a result.
- The NEM-3 proceeding is expected to take roughly 15 months. The CPUC has said they expect to adopt the successor tariff decision no later than December 31, 2021.
- The final NEM-3 decision will have far-reaching impacts on the future of customer-sited solar and energy storage projects in California and beyond.
Officially commenced NEM-3 proceedings
The California Public Utilities Commission (CPUC) has officially commenced its “NEM-3” proceeding, which will establish the successor Net Energy Metering (NEM) tariff to the “NEM 2.0” program in California. This is a highly anticipated, high-stakes proceeding that will effectively modify the rules for the NEM tariff in California, arguably the single most important policy mechanism for customer-sited solar over the last decade.
The CPUC’s recent order instituting rulemaking (OIR) filing stated, “the major focus of this proceeding will be on the development of a successor to existing NEM 2.0 tariffs. This successor will be a mechanism for providing customer-generators with credit or compensation for electricity generated by their renewable facilities that a) balances the costs and benefits of the renewable electrical generation facility and b) allows customer-sited renewable generation to grow sustainably among different types of customers and throughout California’s diverse communities.”
This successor tariff proceeding was initiated by Assembly Bill 327, which was signed into law in October of 2013. AB 327 is best known as the legislation that directed the CPUC to create the “NEM 2.0” successor tariff, which was adopted by the CPUC in January of 2016.
The original Net Energy Metering program in California (“NEM 1.0”) effectively enabled full-retail value net metering “allowing NEM customers to be compensated for the electricity generated by an eligible customer-sited renewable resource and fed back to the utility over an entire billing period.” Under the NEM 2.0 tariff, customers were required to pay charges that aligned them more closely with non-NEM customer costs than under the original structure. The main changes adopted when the NEM 2.0 was implemented were that NEM 2.0 customer-generators must: (i) pay a one-time interconnection fee; (ii) pay non-bypassable charges on each kilowatt-hour of electricity they consume from the grid; and (iii) customers were required to transfer to a time-of-use (TOU) rate.
NEM 2.0 Lookback Study
The commencement of the NEM-3 OIR was preceded by the publishing of a 318-page Net Energy Metering 2.0 Lookback Study, which was published by Itron, Verdant Associates, and Energy and Environmental Economics. The CPUC-commissioned study had been widely anticipated and was expected to act as the starting reference point for the successor tariff proceeding. Verdant also hosted a webinar, which summarized the study’s inputs, assumptions, draft findings and results.
The study utilized several different tests to study the impact of NEM 2.0. The cost effectiveness analysis tests, which estimate costs and benefits attributed to NEM 2.0 include: (i) total resource cost test, (ii) participant cost test, (iii) ratepayer impact measure test, and (iv) program administrator test. The evaluation also included a cost of service analysis, which estimates the marginal cost borne by the utility to serve a NEM 2.0 customer.
The opening paragraph of the report’s executive summary stated that “overall, we found that NEM 2.0 participants benefit from the structure, while ratepayers see increased rates.” In every test that the author’s conducted the results generally supported this conclusion for residential customers. There were some exceptions in their findings. For example, in the cost of service analysis the report stated that “residential customers that install customer-sited renewable resources on average pay lower bills than the utility’s cost to serve them. On the other hand, nonresidential customers pay bills that are slightly higher than their cost of service after installing customer-sited renewable resources. This is largely due to nonresidential customer rates having demand charges (and other fixed fees), and the lower ratio of PV system size to customer load when compared to residential customers.”
Timeline for the NEM-3 Proceeding
The preliminary schedule that the CPUC laid out in its OIR estimates that the proceeding will take roughly 15 months in total, starting with a November 2020 prehearing conference.
The real meat of the proceeding, where parties will present their proposals for what they believe the successor tariff should be and really show their hand will not begin until the Spring of 2021. So we’re still a little ways away from seeing the proposals that the key parties to this proceeding, like the Investor Owned Utilities (PG&E, SCE, SDG&E), solar and storage advocates such as SEIA, CALSSA, Vote Solar, and ratepayer advocates like TURN) will submit.
What’s ETB’s take on how NEM-3 will turn out
While the outcome for the new successor NEM tariff is anyone’s guess at this point, some industry policy folks are starting to speculate. We think it is safe to assume that the value of exported energy will get reduced. How much and the mechanism for how exports get valued remains to be seen. Based on the findings from the lookback study, it seems like the reduction in export value will be more severe than what happened when NEM 2.0 got implemented. In NEM 2.0, non-bypassable charges, which are volumetric charges that must be paid on all imported energy and cannot be netted-out by exports, only equated to roughly $0.02 to $0.03/kWh.
Given that the value of exports will almost certainly get reduced, we expect that to be bullish for energy storage. Energy storage attachment rates with solar are already steadily rising in California. By the time NEM-3 starts getting implemented, likely in 2022, we think storage attachment rates will likely escalate further. We would not be surprised to see future storage attachment rates in California look like the Hawaiian market today, which are upwards of 80% for certain types of customers and applications. Two big questions on our mind are: (i) will the NEM 3.0 rules be different for different customer class: residential, CARE (e.g., low-income or disadvantaged communities), and commercial & industrial; (ii) will the CPUC introduce some sort of glidepath or phased in implementation approach?
The outcome of this proceeding will have far reaching implications on the future of customer-sited solar and energy storage in California. The NEM-3 outcome in California may likely serve as precedent for other states and utility territories that are expected to redesign their Net Energy Metering tariffs in the coming years.
Adam Gerza is VP of business development at Energy Toolbase.
The views and opinions expressed in this article are the author’s own, and do not necessarily reflect those held by pv magazine.
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The California IOUs will try to gut net metering like they did in Hawaii but they need to be careful because it will create a big opening for storage to make stronger economic sense which would accelerate the wave of customer defections.
If consumers who install storage are compensated for and provide grid stabilization distributed service, there may be a reasonable outcome. Users who just have solar are not going to be as valuable, and TOU rates will reflect that. The people who will be shafted are those who don’t own their panels, and who have difficulty adding storage based on the consumption-based contracts.
The avoidance of having to run transmission lines through fire country has to be part of the calculation of the value of distributed generation and storage. While small-scale generation and storage is more expensive than utility scale, the small scale providers generally do not use as much inter-region transmission.
PG&E has effectively created a battery market for us locally due to their poor policy’s, repeated shut downs and rate increases. If NEM 3.0 goes even further to benefit the utilities we will see a bunch of communities “opt out” of utility power as the economics of battery storage becomes more viable. Utilities may go the way of the rotary phone if they don’t start acting responsibly and chasing greed vs sustainability.
Reduced value on exports is pretty much guaranteed. But the worst thing for solar and storage would be fixed fees which utilities will probably push for.
Can you please link to a non-sharepoint, non-login-only location for the Net Energy Metering 2.0 Lookback Study? The current link in the article requires a Sharepoint account, etc.
Pulling the plug, on utilities, will be more common as more people opt for off grid battery based solar systems with pure sine wave inverters as utility tariffs push 30 cents per KWHr and up and a battery based off grid system over 25 years works out to be 16 cents per KWHr with prices dropping even lower as less expensive, longer lasting batteries become available.
I’m having a hard time justifying solar, as much as I would like it to work for me. I understand the Texas market is quite different than California. My pricing for the month of September so far is 8.2 cents per kWh. Of this, the wholesale price of electricity is the smallest part, at 2.2 cents per kWh. I’m on a extreme TOU plan, the price changes every 5 minutes, although the meter only measures 15 minute intervals. Wholesale pricing can top at $9.00 per kWh, and that would have been an extreme pricing signal to conserve than rolling blackouts. I’ve only experienced a price spike of about $1.70 per kWh, and at that price, I turned off the pool pump and set the HVAC to 84, and deferred making dinner on the electric cooktop. But, even with that spike, the electricity cost for that day averaged 7.6 cents per kWh. I’ve had to implement IFTTT on my major electricity consuming appliances to defer use, currently just my HVAC.
The big thing that Texas did was to decouple transmission/distribution (TDU), generation, and electricity sales. Transmission is highly regulated, and there was a big commitment to connect the windy areas in West Texas and the big population centers in East Texas. Distribution includes connecting transmission all the way to the meter. Transmission/distribution in my region of Texas for residential is $3.42 per month, plus 3.922 cents per kWh. The transmission/distribution charges far exceeds the electricity costs. A generator can connect to transmission anywhere there is spare transmission capacity, and Texas overbuilt transmission. In California, it would be difficult to build transmission at the same costs, as it’s all pretty flat in Texas, and there is more mountainous regions, along with fire conditions. Generators have to compete, there is no longer a return on investment, and this tends to close inefficient plants fairly quickly. It also incentives new plants which can generate for a lower rate than the market is currently supporting. There is a delicate dance to ensure not too many inefficient plants leave before replacements come.
With grid-tied solar, the retail electrical provider (REP) has to pay the TDU charges for any delivered power, but gets no TDU credit for exported power. They can bury that charge in any way they want, such as a fixed-cost for electricity at any time of day/night, but at a significantly higher cost than a normal electrical plan. The REO resells the exported power at the current wholesale spot price. With my current plan, I get the wholesale price for exports, and pay wholesale+TDU+taxes+ credit card charges for imported power., and some fixed costs. A battery would only avoid wholesale arbitrage, and the TDU/taxes on reuse.
REP have many strange plans, as they all need a gimmick to prevent consumers from directly comparing prices. There may be free nights and weekends, but with priced electricity during the day. They may also provide free stuff, like a Google Nest Hub, and charge more for electricity to pay for it. Most of them have associated contracts, and those contracts allow the REP to contract with generators for future electrical generation. Once you go out of contract, the rates go way up, so it’s worthwhile to change providers every time the contract ends, but many people miss their contract expiration until they get a sticker shock. It’s not a perfect system, but has yielded good pricing.
If California did a similar division, I think it would help with prices. Yes, there will still be California specific issues, such as costs for new generation, including overcoming local resistance and permitting delays, as well as earthquake and fire hardening. There could also be penalties for certain types of generation, based on carbon production. but incentives are dangerous. Utility scale solar will always be cheaper than sending people onto a roof, as long as TDU charges are kept reasonable. There will also be the possibility to send stronger ToU signals to consumers. Money is the only way to encourage consumers to change behaviors, such as when to run dishwashers and acquiring internet connected appliances with demand control (thermostats, refrigerators, washing machines, etc).
Thank you for your reply. My daughter is getting her PHD in Las Cruses at New Mexico State University and her appartment there has El Paso Power with rate similar to yours. If solar and Batteries costs 16 cents per kilowat hour and you can buy power at under 10 cents, then you realy have to be a believer in global climate change to add solar because it will cost more.
In California, however, where PG&E charges 26 cents for your fist 10 kio watt hours each day then 30 cents for everything above that, it pays to lower your usage through solar even if half your house is OFF GRID. If you consistantly produce more electricity than you use, at the end of your “True up Year” they only pay you 2 cents per Kilo watt hour for what remains that you banked with them. I tell everyone to switch to electrical heat to burn the reserve up rather than use and pay for Natural Gas that they also sell you at high prices.
Off grid systems just power your home when the weather is consistantly sunny and when the rains come, just switch over to the utility untill the sun comes back out. PG&E has a time of day rate that is like the tiered rate, other customer pay, but, it is based on the time of day power is used rather than quantity of electricity used For solar panel owning customers, since the solar production falls off after 3:00 PM, that is when they raise the rates until 9:00 PM when they adjust back. No sun, and you need to fix dinner, turn on the lights and watch TV or your children need to turn on their computers to do homework, that is where your off grid batteries kick in and you do not buy electricity from the utility. For Electric Cars, they have even higher rates until after 1:00 AM in the morning, then they drop to 22 cents per kilo watt hour. Still higher than most of the rest of the country. That is why Tesla power Walls are used durring the day and top off your electric car any time and then recharge with the Sun or ofter 1:00 AM from the grid depending on how you program them. Every time customers lean the new trick, to get more out of their solar system, the utilites wise up and change the rules so that they benefit more.
It’s interesting to see the utilities newfound concern over cost shifting from the rich to the poor. I wonder if they are at all concerned about the billions of dollars IOU in profits for large capital profits that are shifted onto the bills of low income customers when they are rolled into rates? How about the billions in EV charging station installation cost that are being rolled into low income customer rates to subsidize wealthy Tesla drivers? Those cost shifts massively outweigh any cost shifts related to subsidies to rooftop solar customers. The only difference that the IOUs profit from the first two, and don’t make any profits on rooftop solar incentives. Maybe that explains why they’re again asking their lapdog PUC to change the rules.
AB 1139 California, that would change the rate structure for home solar, is going down. It seems that too many of the legislature members, mostly Democrats and believers in global climate change, own solar themselves. This AB1139 was one of the reasons Tesla announced it would only sell its “Solar Glass Roofs” with “Power Wall” batteries in the future raising the cost of their great solar roofing system by 35% to 70%. Now maybe, they will re-consider the need for the batteries and make the Solar Roof more affordable again. My Tesla Solar Glass Roof, without batteries, is working great here in California.
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