NEM 3.0 erodes solar value, makes batteries essential, and weakens grid flexibility in California


Proposed changes to California’s net-metering program, the process by which the utility credits a customer’s bill for exporting excess solar production to the grid, is expected to harshly erode the value of rooftop residential solar without the aid of battery energy storage.

Payments to customers for their excess energy could be reduced by as much as 80%, reports the California Solar and Storage Association (CALSSA). Customers of PG&E, who normally would be paid about $0.224/kWh, would now be paid an estimated $0.049/kWh. Homeowners with solar attached to the grid could also face monthly charges as high as $75 a month. Bloomberg NEF estimates the change would extend battery-less solar system payback periods to 11 years, up from six to eight years.

Commercial customers would be charged “grid benefits charges”, monthly charges based on size of system. For example, in PG&E territory, a 750 kW system would pay $5,595 a month, and an agricultural systems sized at 500 kW would pay $4,805 a month.

Bloomberg NEF’s forecast for solar installations in the state would shrink if the currently-proposed rule passes, even if the federal solar tax credit is extended another ten years.

“We believe the solar-customer fixed fees averaging about $700 per year are in violation of the Public Utility Regulatory Policies Act of 1978 (“PURPA”). If adopted, the proposal will cost tens of thousands of jobs, especially among the thousands of solar companies unable to offer battery storage solutions due to supply shortages. The proposal is contrary both to what Californians have clearly said they want and to editorials in all major California newspapers. Finally, the proposed reduction to grandfathering for existing customers is an outrageous violation of trust and undermines the Commission’s stated interest in consumer protection.” Ed Fenster, co-executive chairman, Sunrun.

Batteries and grid flexibility

With these potential fees looming, Californians are preparing for the future and adopting battery energy storage. With a home battery, a customer does not need to rely on the net-metering to unlock the value of their solar system. There are several incentives in state for batteries, and having one helps customers avoid the monthly fixed charges in addition to avoiding value losses from net metering. But even so, on balance the payback period for residential solar is expected to be longer for NEM 3.0.

A battery does come with important benefits, like providing power in the case of a blackout. This offers increased resilience in an age of a changing climate and increased wildfires. A survey by SunPower of prospective solar customers in the U.S. indicated that about 40% of respondents said that they worry about outages on a monthly basis. One in five said that they were concerned about losing their power every week. One third of this group said they see high-profile outages, such as those in Texas this past February, as a central reason to shop for backup power sources. Of those considering solar, 70% said they plan to include a battery energy storage system.

Installation projections for the state are lessened under the proposed NEM 3.0

Image: Freedom Solar Power

However, batteries would not be used the way they should be to maximize energy efficiency, reduce carbon emissions, and unlock savings for California homeowners. Ed Fenster, co-executive chairman, Sunrun, said that California may mimic earlier stages of energy storage development in Hawaii, where homeowners would self-consume storage to avoid the monthly tariff, foregoing exporting to the grid and to their neighbors in demand-response programs.

Such power dispatch programs are studied to have benefits for grid reliability, lessening blackouts. They also use electricity more efficiently and lessen the need for energy storage capacity. A study by the University of Otago in New Zealand connected batteries over several neighborhoods, and aggregated them in a demand-response export system. The results found that the collective use of batteries had dramatic effects on both load smoothing and peak demand shaving. Aggregation of smart storage led to a reduction in per-house battery requirements by 50% for load-smoothing needs and by 90% or peak shaving. This method of electricity use represents a lower-carbon way to operate the grid.

The proposed NEM 3.0 could take effect as soon as January 27th, 2022, as the California Public Utilities Commission is set to vote.

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