The proposed Net Energy Metering (NEM) 3.0 is set to be decided by the California Public Utilities Commission (CPUC) on January 27th. Many view the proposed decision as a catastrophic blow to the value of solar in California, lowering solar export payments by nearly 80% and adding steep fixed monthly charges of $8 per kW to solar customers.
For a customer with a moderate system size of 7 kW, that is an additional $56 per month for fixed charges alone.
Image: Twitter
Utility rate design and NEM expert Dr. Ahmad Faruqui, who acts as an independent agent and economist-at-large, said the plan in its current form is not a proposed decision, but a “proposed dystopia,” ballooning the solar payback period to 20 years, and setting up roadblocks for electrification and decarbonization.
His view was shared in a webinar held by Philip Shen, managing director at ROTH Capital Partners.
Before the webinar, in a series of Twitter posts, Dr. Faruqui offered ten reasons he believes the decision is damning to the California solar industry, its customers, and citizens at large:
- Rooftop solar panels provide customers with low-cost energy that is clean and, when paired with a battery, can help customers cope with power outages.
- Under current rules, the payback period is between 7-9 years, not 3-4 years. The proposed decision (PD) will increase that payback period to over 20 years and make rooftop solar panels unaffordable for just about all customers.
- This case has morphed away from a NEM case (arguing over the value of NEM exports) and turned into a case of imposing discriminatory fixed charges on customers with rooftop solar panels. Such discriminatory charges are extremely rare across the US.
- The cost shift argument, which undergirds the PD, is nothing but a red herring. The PD takes a “holier than thou” stance on cost shifts. The kind of rate design we have in California – volumetric recovery of all costs –is riven with cost shifts.
- Large scale solar costs 3 cents/kWh but it has done little to lower the price of electricity to customers which is north of 25 cents/kWh.
- The Bay Area is the digital capital of the world. CA is known for pushing the envelope on innovation, not for smothering innovation. The Golden State is the flag bearer for envisioning and creating the future. The PD, despite its talk of modernization, is a throwback in time.
- Energy efficiency alone will not make a dent in either customer bills or decarbonization unless it is accompanied by rooftop solar panels. EE is considered a benefit– not a cost shift and not penalized by fixed charges. Why do that for rooftop solar?
- CA has mandated solar panels on new homes. Since it has some of the highest electric rates in the US, customers find it unattractive to install heat pumps and drive electric cars. Once a customer has installed rooftop solar panels, these investments become affordable.
- The fixed charges in the PD are so complex that an average customer will be deterred from even assessing the economics of rooftop solar and storage. It imposes fixed charges on existing solar customers after fifteen years. That’s without precedent.
- 120,000 Californians had written to Governor Newsom to preserve a future for the current incentives for rooftop solar, even before the PD was released. Three major newspapers in California have written editorials on it. The voice of the public has to be heard.
The nation’s largest solar market at stake
About half the nation’s solar customers are in California; 1.3 million have gone forward with a solar installation. It has been critical to driving the U.S. energy transition.
Image: CA.gov
Dr. Faruqui is calling for a complete rebuild of the proposal. In a recent webinar held by Roth Capital Partners, he shared that there is little hope that the CPUC will overturn the decision and hear the petitions of Californians, and that intervention from a “higher power” (Governor Gavin Newsom) will be needed to shut it down.
One sticking point for Dr. Faruqui is the fixed charge of $8/kW for solar customers. Not only does he view it as making solar nearly cost-prohibitive, but it is also a nonsensical penalty to rooftop solar customers. He said, “Why should someone buying carrots at the grocery store have to pay more because they also grow carrots at home?”
Purchasing a solar system with a 20-year payback period offers a poor economic picture for hopeful solar customers in California. Given the expected 20–25-year life of a solar array, “Who in the right mind would buy solar?” said Dr. Faruqui. Plus, the rise in cost of electricity for homeowners will discourage electrification of heating systems and the use of electric vehicles.
Image: CA.gov
Dr. Faruqui said a combination of a minimum bill amount, plus time-of-use charges, would be most beneficial to Californians at large. Rather than a solar-customer only fixed charge than can quickly be upwards of $75 a month, he advocated for a minimum bill for all customers, regardless of solar ownership, somewhere around $30 to $35 a month. He said this would provide more than enough revenue to solve the import issue utilities face as more solar is interconnected.
Dr. Faruqui said he remains convinced that the proposed NEM 3.0 will not pass in its current form. He said the rate design will be condemned by the industry, the public, and the international community, and that the reputation of the CPUC board members is at stake. Perhaps at stake, too, is the reputation of Gavin Newsom, who has the opportunity to step in and retain California’s status as the nation’s solar frontrunner, and the font of environmentalism and innovation in the United States.
This content is protected by copyright and may not be reused. If you want to cooperate with us and would like to reuse some of our content, please contact: editors@pv-magazine.com.
This is a good article on the proposed California PUC NEM-3 and its failings. Customers would be better off installing their solar system with batteries and disconnect from the grid completely or powering part of their home with their system off-grid and only buy what they need from the utility in the wintertime. Most solar installation companies offer this option as an add on. Think of that $8.00 per month per kilo watt hour add on proposed in this NEM-3 as a solar killer. A 10 KW Solar panel system would cost $80.00 per month in fees times 12 months times 25 years. That is $24,000.00 over the life of the system doubling the solar panels and inverter cost to the homeowner and lining the utility companies’ pockets. The utilities would just use that money to pay shareholders. executive bonuses or fire claims like they did after the Enron crisis in 2003 because there is no language that makes them invest in battery storage or micro grids with that money. I have an off-grid system and over the past 10 years my system saved me $12,000.00 in Tier -2 utility tariffs. The needed replacement batteries were $6,000.00 so it came to a net savings of $6,000.00 for the off grid, partial home system. The fee that NEM-3 imposes over that same 10 years would have been $9,600.00 so I would have only saved $2,400.00 rather than the $6,000.00 I did save being Off-Grid and i wot have been able to power through all the PG&E power outages. The writer of this article is correct, if everybody paid a small monthly fee, based on the electric service size, to help make the grid resilient and have a grid wide storage system, we would all be better off.
I agree Edward. The utilities, and any entrenched monopoly for that matter, will fight to keep the status quo and increase it if possible. If battery prices keep coming down and utility prices keep rising, I plan to completely disconnect from the electric grid. I have plenty of solar power even in the winter.
Whatever the outcome, it’s sure an interesting story to watch play out as the Federal government and the state of California attempt to encourage as many people as possible to install their own solar generation while, at the same time, the utilities strive to kill it.
“Whatever the outcome, it’s sure an interesting story to watch play out as the Federal government and the state of California attempt to encourage as many people as possible to install their own solar generation while, at the same time, the utilities strive to kill it.”
I have some hope it will resolve with a more balanced proposal now that Newsom has chimed in. There’s another recent blog entry on that. The case of Nevada provides stark proof of how the current CPUC proposal is designed to kill off rooftop solar rather than just introduce fairness. While it’s true that Newsom is also heavily lobbied by the utilities, I doubt he wants to see rooftop solar killed off under his watch.
Rooftop solar will not die. it will just morph into Off-Grid independent systems. The utilities pushed for de-regulation so now, we can be our own utility.
Sounds good to me.
I agree and Newsom can veto it if he decides to as well.
Unmentioned is how increasing home storage snuck into this scheme.
Solar panels on a roof are pretty much the same thing as utility solar.
Not so for home electricity storage. Home electricity storage is generally going to be bulky, minimally or non-recyclable battery systems.
Utility scale storage ultimately is going to be designed for long term use and I doubt lithium batteries are going to be big part of it. Compressed air, flow batteries are more likely at utility scale, and they do not have this downside.
Somehow the CPUC is doing us a favor by lowering net metering rates, supposedly to nudge us all into purchasing home lithium battery systems. That part of the system is better done at utility scale simply for the reason of reducing electronic waste. Storage is a goal, but home storage is non-goal for the system as a whole.
And of course the per kw charge based on the size of the system is the ultimate slap in the face. Don’t shift the cost of grid maintenance to solar owners. We don’t use more “grid” because we have solar. If anything, we use less. That seems more like a profit protection scheme in the face of disruptive homeowners generating their own power.
But the perverse incentive scheme will actually push us all to installing those dirty batteries and forgoing net metering altogether. And we will export zero electricity.
“minimally or non-recyclable battery systems” is a very short-term perspective on the energy storage industry which is still in its infancy. There are lithium battery recycling startups which are already recycling over 90% of the battery materials and are reporting they are currently undercutting newly mined raw material prices. This is at a minuscule scale compared to what it will be in several years. As these businesses ramp up, recycled battery materials will drop much further and the need for mining more will eventually begin to fall as all the old technology energy production, transportation, etc are saturated with the new technologies.
Of course, in addition to lithium, there are other promising battery types coming along such as sodium and potassium which are cheaper, more abundant, and pose less harm during mining. But these may require another decade before they can be mass produced.
There is no real incentive to add batteries to a home solar system with NEM-2 because the monthly kw charge of $8.00 per KW does not go away with the addition of the battery system unless you totally disconnect from the grid and have a self-islanding system installed. If the addition of batteries waved that fee, then there would be an incentive to install them. But even if they waved that fee, for how long would it be waved until NEM-4 would take that away also.
I would love to see a huge majority installing their own solar + storage solution and completely DISCONNECTING and then watch the utility’s reactions.
NEAM 3 in California is not about Roof Top Solar it is about storage. Look at how the proposal is worded at present you are allowed to install solar systems up to 125% of your power load, the new proposed limit is 150%of your power load. There is also proposed rebates for Solar customers to install batteries to off set peak power usage. What the utility companies are actually doing is shifting the cost of constructing solar power storage from themselves to their customers, saving themselves millions of dollars. What they are going to do with the money they save is anybody’s guess but I would bet it is not going towards up grading the electrical grid.
“What the utility companies are actually doing is shifting the cost of constructing solar power storage from themselves to their customers, saving themselves millions of dollars. ”
Yes, and it is counter to the public good. We don’t need millions of depreciating, hard to recycle lithium batteries on the grid when we could have more renewable, recyclable storage at grid scale.
I appreciate Dr. Faruqui’s analysis, but I think even $35/month to connect to the grid is too high. It will be a disincentive to residential solar panel adoption on existing construction. People do not want to be penalized for installing solar. We have solar panels that produce excess energy that supports the grid, but we also pay for grid energy when it is foggy or rainy. We pay market prices when we need to use grid energy, we shouldn’t have to pay additional fees for that purpose. Also, we have been asked to “share” or make available our stored battery energy when the grid is stressed during high energy use times in the summer. If the state of California wants access to stored battery energy then they should incentivize residential solar panels and storage.
1. Rooftop solar costs several times more than utility wind and solar. The addition of a battery could help during power outages but there’s no reason to force other ratepayers to help you pay for your battery. Batteries, as many have already pointed out, have the potential to lead to the same sorts of cost shifts as NEM has.
2. Residential PV systems in Germany have 20 year paybacks. In 2021 the German rooftop solar market had a great year installing several GW. Oh, and the feed back rate for excess generation is around 6 cent/kWh and the solarity in southern Germany is about 1000 kWh/kWp-year.
3. The fixed charges aren’t discriminatory. Each kW of solar produces around 100 kWh a month and around 50% of these kWh are self-consumed onsite. This means you’re escaping fixed charges on those 50 kWh. A fixed charge component of 16 cent per kWh adds up to a $8 per kW.
4. If the cost shift argument is holier than thou why do we have TURN and the Office of Ratepayer Advocates making the argument? And again, by all means, lets get rid of volumetric pricing and eliminate some other cost shifts.
5. This argument is obviously false. If you’re blending in utility solar electricity that costs 3 cent/kWh into a pool with average prices that are higher than 3 cent/kWh you’re going to blend down the average wholesale prices. Volumetric pricing is indeed regressive so let’s get rid of it. Faruqui is making a disingenuous argument here because he must know that moving away from volumetric pricing would squeeze the economics of rooftop solar in the same way NEM 3.0 is set to do.
6. The most mature solar rooftop markets are in Germany, Italy and Australia. This PD gets CA a lot closer to the payment structures in these places.
7. This argument is demonstrably false. Californian homes use around 6,000 kWh per year compared to a national average of 11,000 kWh. This 5,000 kWh gap in electricity consumption and the underlying savings is largely due to energy efficiency.
8. This is actually yet another argument for moving away from volumetric electricity rates. We don’t want to make heat pumps attractive just for solar homes – we want to make them attractive for all homes. The obvious way to do this is to raise fixed charges to something like 30 to 60 $/month and lower the volumetric rates down such that they track wholesale prices more closely. This would give you the price signal you need to encourage heating with electricity.
9. Spain and many other countries have made retro-active changes to solar support policies. In all cases that I can think of this was due to solar incentive costs ballooning out of control and causing unanticipated budgetary concerns.
10. I believe the voice of the people is simply a loud minority complaining about losing their sweetheart deal.
We should have started down this path 5 years ago. The market is set to shrink like it has everywhere else that solar incentives have been slashed. Thankfully, rooftop solar has returned in nearly all the markets where incentives have been slashed. Maybe it’s not as lucrative as it was is the glory days but it’s a lot more sustainable.
Your arguments are sound if California had more than 4% rooftop solar but, just by adding a $3.00 to all monthly electrical bills to compensate for everything you mentioned, everybody would pay for the legacy costs and the infrastructure upgrades needed for micro grids and the incentive to install solar would still be there. IE: 4(%) X $64 = 256… 100% X $3.00 = 300. Forcing the 4% to pay for everything is just plain wrong and will kill the roof top solar business and all future grid tied solar roof top systems. The Solar industry would fight back and take everybody. who could afford it, to go 100% Off-Grid and then there would be no solar going to the grid from rooftop solar and would make the remaining customers pay even more for the infrastructure that is left plus all the legacy costs like pensions and retirees health benefits? Totally self-contained motor homes, with solar, to this already with backup generators that use LP gas. The only difference between a self-contained RV and a fixed home is the wheels. How can El Paso Electric company, in New Mexico, charge a monthly fixed fee of just $8.00 and only 12 cents per kilo watt hour for electricity while PG&E charges a monthly fixed fee of $10.00 and up to 41 cents per kilowatt hour averaging over 26 cents per kilo watt hour? Both are utilities, but, PG&E has legacy costs, lawsuits, 2 bankruptcies and is a private company with over compensated executives and shareholders what want profits. Remember, Pacific Gas company plumbed gas lights into San Francisco before it became pacific Gas and Electric and natural Gas is its main business and California has mandated natural gas will be eliminated from all homes in 30 years. The money they make buying Natural Gas futures, then selling the natural gas to both customers and its own power plants for a profit is the parent company’s main source of income and Solar is going to eliminate that profit. This whole NEM-3 pricing is a distraction from its being a mass killer in both Gas pipe explosions and forest fire ignitions. Saying the rich people, with solar, are passing the costs onto the poor when they have programs to give the poor big 20% discounts by raising rates on the rich and middle class is also bogus. NEM-3 to too much too soon and the Governor needs to step in and veto anything that does not share additional utility costs among all existing customers.
464
Not sure what you’re doing with the math there Edward. 1.3 million roofs adds up to a lot of chimichangas.
Solar is now on 1 out of 10 of the 13 million households in California. This is undoubtedly a wonderful accomplishment but it’s come at a great cost.
There is no getting around the fact that these households are typically affluent households which have much higher electricity consumption than an average household. You can use the average size of PV systems in California (6 to 8 kW) to get an idea for how much electricity these homes consume. It works out to roughly 9 to 12 MWh per year. This is 1.5 to 2 times more electricity than a typical home. The higher consumption of these homes means their electricity was previously priced in the higher tiers prior to getting the PV system. When you start to add the numbers up you end up with solar homes previously accounting for upwards of 20% of retail sales. These bills haven’t gone away… They’ve simply been transferred over to the 11.7 million households that don’t have solar. Very roughly it adds up to something like $170 per household per year. Again… That’s a lotta chimichangas.
The Utility Reform Network and the CPUC’s Office of Rate Payer Advocates believe there’s a cost shift on the order of 2 to 3 billion dollars. I can’t repeat this enough… You guys keep pointing at PG&E or SCE as the bad guy. If this were true why are the ratepayer advocate’s office is pointing at the rooftop solar homes as being responsible for the cost shift? I think you’re on the wrong side of the argument.
You can install a battery and a generator and go off grid if you like. You should probably talk to some people who live off-grid before you do. I manages power plants for a living I can tell you a lot can go wrong. You may also want to talk to your neighbors about the diesel smell and the noise. There’s a great deal of historical evidence suggesting the off-grid movement is all huff and puff.
I suggest you look more carefully at the monthly electricity bill in New Mexico. While the fixed fee and volumetric rate is lower you’ll notice that the total monthly bill is approximately the same as the bill in PG&E’s territory. Electricity rates are surprisingly consistent across the US. There are some exceptions like South Carolina but for the most part average monthly electricity bills fall within a tight range of $100 to $120 despite monthly consumption ranging over a band of 500 to 1200 kWh. The reason for this is simple… 60 to 75% of the cost of electricity relates back to fixed costs. This pricing dynamic is consistent across most of the developed world – i.e. you will find that an average household in Germany that consumes 3500 kWh per year at extremely high unit costs of 40 cents per kWh still pays around 100 to 120 dollars per month for electricity. You don’t need to surf into the dark web to find this information – it’s readily available.
The solution to the problem at hand is to transition away from our traditional volumetric pricing model. I believe we need all households, not just solar households, to move over to a bill structure which consists of a fixed grid access fee of something like $30 to $75 (depending on the size of home) coupled with far lower kWh prices. We need to make it some our unit costs for electricity are much closer to wholesale. To be clear, I’m not saying wholesale prices is the goal… Just something a lot closer to wholesale prices. This type of billing arrangement would democratize solar and wind far more than rooftop solar has been able to do. This type of billing arrangement would also lubricate the transition to electrifying heating and transportation.
The great irony here is that Faruqui should already know all this. He’s singing a populist argument from an Ivory Tower. We call that tone deaf where I come from.
My daughter lives in New Mexico and has El Paso Power for her Electric utility and she does pay half the price for the same kilo watt hours as I do in California. Things cost more here in California, and I do agree with you that on grid solar systems, without batteries, are getting a better deal than they deserve, if climate change was not factored in. Solar power system owners also have outstanding debt for the solar panel system that was installed. My monthly payment on my Tesla Solar Glass Roof is $470.00 per month and the debt will be retired in 48 months. The save the planet incentive of installing solar, rather than using fossil fuels was the reason we got NEM-1 and NEM-2 in the first place. Utilities were not interested in installing their own solar panel systems because they have a significant investment in legacy power plants. Even if you say that 10% of the residential roofs have solar panels, most are under sized for the future electric cars and elimination of natural gas for cooking, heating and hot water. That 10% of 30% is nothing compared to the industrial, commercial and agricultural power distribution of the state. Only 30% of all the power consumed in the state is by homes and apartments. The other 70 % is for everything else. Water treatment plants, drinking water pumping and filtering, traffic lights, schools and other public building plus all the California manufacturing, grocery stores and retailers share the burden of the then left 3% if the total electricity not put on the grid by solar roof top system owners. Figures put out by the US government show that solar power, including those big utility systems, only accounts for 2% nationwide. PG&E has notified us that we will be getting 4 cents per kilo Watt Hour this year at true up because their blended power, including their natural Gas power Plants cost more because Natural Gas prices have gone up this past year. They have also asked us to conserve more natural gas because they buy the extra natural Gas off the market rather than the Natural Gas Futures already in the mix. Rooftop Solar Customers are supplying utilities with the cleanest, safest power on earth. They should not be penalized for doing so. NEM-3 is a penalty.
“You can install a battery and a generator and go off grid if you like. You should probably talk to some people who live off-grid before you do.”
Leaving the grid is not really the alternative. That would be foolish.
The alternative is to put in a battery and leave net metering. Then you use your own generate power at all times, export nothing.
Grid connected, you buy your power like everyone else, don’t get taxed for your rooftop solar, just pay for the power you need to buy at times your battery goes dead.
The only real negative here is the big, depreciating with each charge/discharge cycle lithium battery.
We’d be better off as a society with grid scale storage that produces less waste than per-home lithium batteries.
But somehow getting everyone to install home storage batteries has become a goal/justification for CPUC’s NEM 3.0.
Edward F Dijeau, you’ve hit on several important points. First of all, in response to Lee Kasten, I think that many rooftop supporters, including myself, agree that as rooftop solar penetration increases, there needs to be some adapting of the incentives. This needs to happen, however, on a time scale scale that takes into account the the actual penetration of rooftop solar year by year, and accurate calculations of the value of rooftop solar to the grid (not the biased calculations from ‘consultants’ which have been hired by the utilities), and fair calculations of avoided costs that take into account not just the cost that utility-scale arrays can generate raw electricity for, but also the cost to build, operate, and maintain the infrastructure needed to move that electricity hundreds of miles from where it’s generated. What the utilities and CPUC want to do, however, is to simply ramp it all the way down in a few years in order to cut the legs off it so the entire thing collapses. The ‘middle ground’ of a reasonable ramp-down period tied to actual penetration and fair cost calculation is sorely missing in the debate.
Breaking this down, the utilities’ motives in the process of cutting the legs off becomes more clear. Basically, the utilities don’t want distributed generation that they don’t own — that’s the real threat to their business model There are two things at play here. A gradual adjustment of the feed-in tariff is not unreasonable, but it should be ramped over time as described above. A gradual reduction of the feed-in credit would incentivize storage at a time when storage is beginning to become practical for rooftop systems. More storage in rooftop systems would then allow excess electricity to be exported to the grid during peak hours when it will benefit the grid more. I’m currently under NEM 2.0, and NEM 2.0 incentives essentially allow me to use the grid as a battery, and even many solar advocates will admit that the grid is not a battery, and if solar penetration increases to much beyond 10% or so, this will become unsustainable. The main problem with NEM 3 is not that it provides for adapting of the feed-in rates, but that it reduces them all the way to the final end value in a few years without any relationship to actual solar penetration.
In addition to the reduced rates, in NEM3.0 as it stands, we have the excessively large fixed solar penalties. These are not there to incentivize storage. In conjunction with the fully-ramped-down feed-in credits, they are there to *disincentivize* grid-connecting solar power systems. If I can’t offset those penalties by selling energy back to the grid, then I will instead be incentivized to not grid-tie my solar power system, and simply draw energy from the grid as a normal ratepayer whenever my batteries are exhausted. This what the utilities actually want to see. They can’t prevent ratepayers from installing solar, but they can try to disincentivize them from grid-tying those systems and providing distributed generation, something they don’t like and have never liked.
As costs continue to drop, the practicality of non-grid-tied systems, or even fully off-grid houses, will increase. As a result, if NEM 3.0 is implemented as-is, it may not completely kill the rooftop solar market, but it will kill grid-tied rooftop solar, and all of the associated distributed generation that could occur and help make the grid more resilient. I believe this is the actual goal of the utilities. Distributed generation, which reduces the need for large infrastructure for which they are guaranteed fixed profits, is the biggest threat to their current business model.
Lastly, the large solar penalties being considered are an over-adjustment, and in fact result in a reverse situation where solar users are not not just paying their fair share, but actually subsidizing other users. As others have mentioned, the solution that is the most fair to everyone is to move from an almost entirely volumetric price structure, to a fixed-plus-volumetric one where everyone pays an equal share of grid costs and then pays for their volumetric usage at rates which reflect the actual marginal cost of the electricity itself. Doing this, plus a more reasonable ramp-down of feed-in tariffs that is based on actual solar penetration and fair and unbiased calculations of grid benefit and avoided costs would be a more acceptable proposal
You are correct. Alameda County Water, 12 years ago, had a fixed meter fee of $10.00 bimonthly and a volumetric charge of $3.80 per 720 cubic feet of water. The mandatory residential water cutbacks started happening. year after year of drought they asked for 15% less usage year after year. That all added up to lawns drying up and being replaced by gravel, trees dying, and the utility today sells only half the water it sold in 2010. This fixed and legacy costs have continued to go up, so they decided on a per month fee of $27.00 or $54.00 bimonthly rather than doubling the water rate charge but it has also gone up to $4.12 per 720 cubic feet. The advent of LED lighting, Energy Star appliances has also made the usage go down in homes but the costs to supply those homes with power have gone up. They already have a $10.00 per month meter fee just like Alameda County Water did 12 years ago so they should increase the monthly connection fee to enough to cover their infrastructure upkeep costs, not just attack the Solar Roof people because they have paid the cost of installing solar to save the planet. If the Solar panel homes all chose to go off grid, then the costs will skyrocket for the remaining few who are on the grid. The fixed fees need to be distributed by Service Size; not solar powered home size as proposed in NEM-3.0
How can you be off-grid with batteries and still be on NEM? You’ve been talking about needing a few years to pay off your system but this doesn’t make sense if you’re off grid? Also, if you have a Tesla roof what do you really care about economics? You bought a status symbol.
Again… These overly generous incentives are the epitome of a special interest subsidy. We’re subsidizing something only a small portion of society can afford and/or accommodate. You guys don’t realize how greedy and patty on the back you all sound. These arguments come off completely flat to people living on fixed incomes.
Most of the IBEW members I know (like me and most of the people I’ve worked with at the last two jobs) make well over 100 k per year. Wealthy people shouldn’t be getting special compensation rates for back feed. Wealthy people shouldn’t be using solar to escape paying fixed fees. In general, wealthy people should be paying much higher fixed fees because they tend to have high draw loads. Whatever happened to noblesse oblige? With abundant wealth comes abundant responsibility.
Greening the grid may be a societal good but there are far more cost effective ways to green the grid. We shouldn’t be paying 30 cents per kWh when 3 cent/kWh solar is readily available? This is exactly why utility scale solar and wind interests are party to this PD. You guys guys are ignoring the fact that the utility solar and wind industries don’t want this.
Over-paying for rooftop solar is clearly harming society – specifically the poor. This is exactly why the rate payer advocacy groups are so upset.
A couple things here:
“We shouldn’t be paying 30 cents per kWh when 3 cent/kWh solar is readily available?”
First of all, we need to clear this up. Not every rooftop solar advocate is saying we should continue paying 30 cents forever. Most, including CALSSA, know that NEM 2.0 is not long-term sustainable. Let’s get past this. The problem is that the utilities and other private companies want to swing the pendulum completely the other way and not just ramp in more realistic feed-in tariffs, but completely kill rooftop solar for as long as they possibly can (reasons below). Ramping toward reasonable feed-in tariffs is one thing, but adding $20,000 in punitive solar penalties to the cost of a typical 8kW system over its 25 year lifetime is an outright attempt to simply kill it off.
“This is exactly why utility scale solar and wind interests are party to this PD. You guys guys are ignoring the fact that the utility solar and wind industries don’t want this. ”
OK, there’s an elephant in the room here that hasn’t really been discussed that much. Electricity is zero-sum — every kWh that gets generated gets used somewhere. Every kWh that gets generated at my house and either used by me or sent out to the grid, EVEN AT A MORE REASONABLE FEED-IN RATE, is a kWh that is not generated by the utilities or the private utility-scale companies. This is just a fact. Distributed generation will reduce the profits of the utilities and private utility-scale generation companies. Utilities will fight this because the current structure incentivizes them to build as much expensive infrastructure as possible, including long distance transmission lines to transport renewable energy hundreds or thousands of miles even though much of it could be generated locally on rooftops. These incentives need to change, as well as the almost entirely volumetric pricing structure.
This is the debate we should really be having, because it undergirds these fights. Distributed generation and storage will benefit individuals and reduce the profits of large utilities, and society needs to decide how much value to place on distributed generation, and what the balance should be between distributed and utility-scale generation and storage. Completely killing distributed generation benefits a few large private companies. Having distributed generation and storage, as long as it is done with reasonable feed-in tariffs, improves grid resilience and benefits millions of individual ratepayers, as well as businesses, schools, and lower-income rate payers and apartment owners who can benefit from subsidized community solar projects.
IMHO, we shouldn’t kill this off, we should change the incentive structure and the rate structure so distributed generation can be included without any harm to lower income users. But yes, that would mean the profits of a few large companies will go down. The utilities don’t want the public to know that electricity is zero-sum and the only way to include distributed generation and storage without increasing rates is to let their profits fall. They are regulated monopolies and we don’t need to allow them to do that. Society, through the CPUC, can set a balance between the benefits of distributed generation to millions of individuals (of all income levels), businesses and schools, with the profits of the large utilities. This balance is the real debate, and the zero-sum nature of it means the utilities will fight any distributed generation at all.
As someone pointed out, in the extreme, if 50% of our electricity ultimately comes from distributed generation, the utilities will slowly morph in the direction of mostly providing the grid while generating less of the power, and maybe that’s not a bad thing in the long run, as long as the rate structures and the incentives are adapted as the transition occurs.
“The alternative is to put in a battery and leave net metering. Then you use your own generate power at all times, export nothing.”
Play this game out in your head John? What happens if several million households do what you’re suggesting?
Let’s say your home uses 400 to 800 kWh per month with a PV system that produces 400 to 800 kWh per month. Let’s say you’ve got a skookum setup and you’re able to get 90% of your electricity from your PV system and/or batteries. This means you’d only be consuming about 500 kWh a year from the grid. If we continue to price electricity volumetrically it means you’d only be paying fixed charges on 600 kWh of electricity a year. In this case you’d still be intermittently using the grid as a backup source of power but you’d be shifting most of your fixed charges onto the rest of the people on the grid. This idea that batteries are the solution to the cost shift is pure rubbish – they’ll actually compound the problem.
I believe the best solution to this problem is to decouple electricity rates such that the fixed costs are paid in a chunk based on your load profile. If you live in a modest apartment in the city your fixed fee would be minimal. If you live in a rural McMansion with a pool, an elevator, a shop, two EVs etc. your fixed fee would be a lot higher because this households puts much higher demands on grid infrastructure.
If we all paid fixed fees this way we could lower the price of electricity down a lot closer to wholesale. This would make it so electrifying heating and transportation are a lot more affordable not just for PV system owners but for everyone. This type of tariff structure would also clean up some of the cost shifts Faruqui was talking about with his fake holier than thou argument.
I went off grid with my system in 2007 and built it up to 8000 watts over 12 years. Using my own generated electricity for my 120 volts lights and appliances and buying the utilities 240-volt power for my 240 appliances and refrigerators and with tiered pricing, I was rewarded with a lower tier rate and cut my Electric bill by 70%. The utility said after the off-grid system, I was using what all my other neighbors were using from the grid and were happy with what they got from me. The remaining amount I purchased cost the same as the proposed $64.00 monthly solar fee plus the meter fee of $10.00 that everyone on the grids now pays. With energy storage chemical conversion on battery losses of 25% For every 5 Kilo watt hours I produce, I get 4 kilo watt hours back from my batteries. The utility NEM-3.0 as proposed will take 5 kilo watt hours and give me back only 1 Kilo watt hour.
Off Grid…WIN with NEM-3.0
On Grid …loose with NEM-3.0
“Play this game out in your head John? What happens if several million households do what you’re suggesting? ”
Exactly. The underlying issue is do we allow the growth of distributed generation and if so, how do we balance the benefits between the IOUs (and their generation partners) and the public who are investing in these distributed generation systems.
Right now, the utilities simply want to kill distributed generation, or at least forestall it as long as possible, whereas existing solar users want to be able to reap the entire cost reduction these systems can offer, which they would offer even without NEM if a user can generate 90% of their total usage. We are facing a future where systems that can provide 90% of individual usage will become increasingly practical. This is a discussion that needs to be had. If distributed generation grows significantly, the utilities will generate less power and and will be more dependent on fixed grid fees to fill in. These grid fees will need to strike a balance between lower profits to the utilities and ensuring that some of the benefits of distributed generation still flows to users who invest in it and communities who invest in it through community solar projects.
I agree with a system that separates fixed fees from volumetric fees and makes the fixed fees based on some form of load profile, but how would you handle the load profile of a house that generates 90% of its own electricity through a solar system with storage? If they choose not to be on NEM, there would be no ‘solar tax’ that would apply to them. Instead of load profile, the fixed fee may need to be based on something load-related, like square footage.
“This idea that batteries are the solution to the cost shift is pure rubbish – they’ll actually compound the problem.””
Ok, but what cost shift is remaining after you are providing all or almost all of your own power?
How much of the grid should I have to pay for as a ratepayer if I’m having minimal need for it?
There’s a cost shift. But it isn’t necessarily big and isn’t necessarily a function of how much electricity I USE since in theory you generate most of your own power. The cost shift is a function of the amount of electicity I BUY from the grid.
“This means you’d only be consuming about 500 kWh a year from the grid. If we continue to price electricity volumetrically it means you’d only be paying fixed charges on 600 kWh of electricity a year.”
How much is fair?
“In this case you’d still be intermittently using the grid as a backup source of power but you’d be shifting most of your fixed charges onto the rest of the people on the grid.
As stated above… it’s a shift but it’s not really fair to charge me disproportionately to my actual dependency on the grid.
Anyway you went down a path here I didn’t set you on. I wasn’t trying to address the cost shift. I’m addressing the outcome you can expect if NEM-3.0 goes into effect AND people still buy rooftop solar at all.
If they go solar at all they won’t go NEM-3.0 given the fact that it is just basically a bad deal for them. Which kills the net metering program. You can argue that the NEM-2.0 is giving away money to rich people. But I’m arguing NEM-3.0 is effectively the end of net metering as a viable program for new customers.
Now do we need to invest in the grid with utility scale solar and storage? Yep. You seem to want to do it by cost shifting to middle and higher income people with complicated grid fees, directly targeted at people going solar.
Trying to do that through the NEM system is ridiculous. We’re greening the grid. That’s established public need/policy in California. Progressive taxation to fund public infrastructure makes sense of course and you’re right on that part of the argument to want it to be progressive. But doing it through NEM program means yes you’re targeting middle income to higher income people. But not all of them. Just the people that go solar AND want to net meter. So you’re hitting a smaller group than you ought to, and since you’re targeting people that are actually aligning with public policy goals and fronting their own capital of their own accord, you’re driving away/alienating just the people that are trying to do the right thing.
NEM will no longer be viable.
I say, keep NEM viable. Set electricity rates across the grid to pay for greening the grid including solar, storage, etc. This will pay for any dependency on the grid including NEM users. People that use more power will pay more to green the grid in proportion to their demand not the worst case demand if their solar panels broke and their battery died.
Or just do it more of this infrastructure through the progressive income tax and federal grants (which are also ultimately based on progressive taxation). Ongoing you still have to maintain the system but you won’t be desperately trying to ramp up charges do once in a generation realignment of the grid to address climate change.
You just about covered the cost shifting to solar customers. but saving the planet from climate change is everybody’s responsibility. Charging just solar customers, that are just 10% of the residential customers and less than 3% of the generated electricity on the whole grid, $64.00 per month when all the customers could pay just $6.40 per month to get the battery storage needed for power shifting or power outages would make more sense. I believe in the science of climate change and that is the main reason I installed solar rather than invest that money into the stock market. Waiting for the politicians to act is like watching the Netflix movie “Don’t look up.” Unless every individual does what they can do to limit fossil fuel burning in their own lives and households and save the forests, oceans and habitats of other species on our planet, we are doomed. Batteries are short term storage. What we really need is more long-term storage. Hydroelectric is long term storage. Winter rains give summer air conditioning power kind of storage, only we need to pump water back behind all the existing dams during peak solar and wind outputs and reduce the existing flows through them to retain more water at high solar and wind production hours. Right now, they release more water at night from behind dams to cover the nighttime use that is turning long term storage into short term storage. Batteries could be that short term storage and the water could be kept behind the dam until the shorter days of late fall and winter until the rains come and naturally re-fill the reservoirs. unfortunately, this is out of my hands. Only the solar and batteries that I install are, along with how much energy I use. Replacing that incandescent light bulb with an LED bulb is the same as adding another solar panel and battery. Doing more with less is another way to fight climate change. For profit Utilities, by nature, want you buy more, not less. We are fighting Capitalism and corporate greed here. If NEM-3.0 goes through, install your solar OFF-GRID and save the planet.
Once again, the ‘cost shift’ is a narrative created by the utilities. Distributed generation of any kind (solar, or individual wind or hydro if you live somewhere where you can do that) means less generation by the utilities, and thus less profits. This issue goes even beyond NEM, since if you generate 90% of the power you use and don’t even export any to the grid, the utilities still lose profits due to not selling you generated power.
The cost shift that the utilities talk about is created by them because they don’t want to lose profits, instead they want to raise rates. Thus they tout the cost shift they created to avoid reduced profits to try to kill off distributed generation (of any kind).
Distributed generation will mean less generation by the utilities, and the real discussion should be how to change the rate structure to adapt to that and create a balance allowing users who invest in distributed generation to benefit from their investment and the grid to benefit from increased resilience while ensuring that the utilities are still profitable enough to maintain the grid and the the remaining utility-scale generation.
The so-called cost shift is just the utilities pushing only their side, which is the desire to not see distributed generation at all.
John: “Ok, but what cost shift is remaining after you are providing all or almost all of your own power?”
I wouldn’t call it a ‘cost shift’, but even if you’re generating all your own power and not exporting to the grid, there’s still an affect on utility profits that is a result of distributed generation itself. As people have mentioned, imagine in the future 50% of users (and the heavier users at that) are generating 90% of their own power. This will negatively affect the profits of the IOUs and their partners because they will be generating and selling far less electricity. Why do they frame a loss of profit as a ‘cost shift’? Because currently, the utilities want to maintain their existing level of profits by raising rates.
Electricity is zero-sum and we can’t have distributed generation without there being some reduction of profits to the utilities. But by having owners of distributed generation share some of the benefits, there can be a balance struck between loss of utility profits and cost savings to owners of distributed generation. That’s not what the utilities want, though. They want to simply kill distributed generation.
Distributed generation has many benefits besides just cost savings to users, and the utilities shouldn’t be allowed to kill it off, but as Lee has pointed out, the rate structure needs to change to a fixed+volumetric model so that the utilities are increasingly supported by fixed fees. This will facilitate the CPUC finding a balance between lower profits for the IOUs and cost benefits for those who invest in distributed generation.
The comment scheme on this site makes it difficult to effectively reply to your comments. Good luck on the 27th.
Hi… I published an article on this site in late 2020. There was some hope for a follow up article which explained more about how the balancing options worked. This article never happened but the bulk of the research since late 2020 appears to support the idea I was looking to expand on – i.e. balancing options don’t always play well together. The notion that we need a little bit of this and a little bit of that is mathematically incorrect.
If we want to move forward we need to rationally price rooftop PV and recognize the current NEM scheme is a sweetheart deal.
1. Rooftop solar costs several times more than utility wind and solar. The addition of a battery could help during power outages but there’s no reason to force other ratepayers to help you pay for your battery. Batteries, as many have already pointed out, have the potential to lead to the same sorts of cost shifts as NEM has.
2. Residential PV systems in Germany have 20 year paybacks. In 2021 the German rooftop solar market had a great year installing several GW. Oh, and the feed back rate for excess generation is around 6 cent/kWh and the solarity in southern Germany is about 1000 kWh/kWp-year.
3. The fixed charges aren’t discriminatory. Each kW of solar produces around 100 kWh a month and around 50% of these kWh are self-consumed onsite. This means you’re escaping fixed charges on
those 50 kWh. A fixed charge component of 16 cent per kWh adds up to a $8 per kW. 4
. If the cost shift argument is holier than thou why do we have TURN and the Office of Ratepayer Advocates making the argument? And again, by all means, lets get rid of volumetric pricing and eliminate some other cost shifts.
5. This argument is obviously false. If you’re blending in utility solar electricity that costs 3 cent/kWh into a pool with average prices that are higher than 3 cent/kWh you’re going to blend down the average wholesale prices. Volumetric pricing is indeed regressive so let’s get rid of it. Faruqui is making a disingenuous argument here because he must know that moving away from volumetric pricing would squeeze the economics of rooftop solar in the same way NEM 3.0 is set to do.
6. The most mature solar rooftop markets are in Germany, Italy and Australia. This PD gets CA a lot closer to the payment structures in these places.
7. This argument is demonstrably false. Californian homes use around 6,000 kWh per year compared to a national average of 11,000 kWh. This 5,000 kWh gap in electricity consumption and the underlying savings is largely due to energy efficiency.
8. This is actually yet another argument for moving away from volumetric electricity rates. We don’t want to make heat pumps attractive just for solar homes – we want to make them attractive for all homes. The obvious way to do this is to raise fixed charges to something like 30 to 60 $/month and lower the volumetric rates down such that they track wholesale prices more closely. This would give you the price signal you need to encourage heating with electricity.
9. Spain and many other countries have made retro-active changes to solar support policies. In all cases that I can think of this was due to solar incentive costs ballooning out of control and causing unanticipated budgetary concerns.
10. I believe the voice of the people is simply a loud minority complaining about losing their sweetheart deal.
We should have started down this path 5 years ago. It the changes move forward the market is set to shrink like it has everywhere else that solar incentives have been slashed. Thankfully, rooftop solar has returned in nearly all the markets where incentives have been slashed. Maybe it’s not as lucrative as it was is the glory days but it’s a lot more sustainable.
Just a note, NEM-1 was a sweetheart deal, Nem-2 was a true cost replacement for NEM-1, NEM-3, as written, is a private utilities’ dream come true with no up-front costs, to squeeze more money from customers and protect is Natural Gas interests. We are not Germany, Italy, Australia, Spain or even Hawaii where each city or state has to deal with its own utility. PG&E is the nation’s largest interconnected utility, with 6 different regular rates plus 4 low-income rates for its customers.
I think NEM 2.0 was little more than kicking the can down the road. I believe this is widely recognized to be the case.
You are correct, NEM2.0 was meant to encourage homeowners to install solar while solar was still less than 1% of the total input on the grid. Today it is pushing 3 % thanks to NEM-2.0 but NEM-2.0 was supposed to be good until solar roofs became 10% of the total grid input. Since Residential power consumption is only 30% of the total consumption a utility sells to, you would need 33% of all the homes in California to be generating solar power to add up to that 10% where cost shifting would be significant enough to warrant a change to NEM-2.0, not the current 3% of all generated power that it is in 2022.
The rate payer advocates are defending people on fixed incomes. These folks need to save money a lot more than you need to pay off your Tesla Solar roof. I’ve lost many tens of thousands of dollars on my solar investment. Oh well… That’s just the way the cookie crumbles.
NEM 1.0 and 2.0 have long since served their purpose and launched a rooftop solar industry in California. These overly generous incentives have become the epitome of a special interest subsidy.
You seem to forget that I am already Off-Grid with batteries with my system and grandfathered into NEM-2.0. it’s new people that plan to install solar making a choice to connect to the grid or staying off the grid with an Off-Grid system. The $24,000.00 monthly connection fee totals after 25 years on MEM-3.0- and 10,000-watt system and the low compensation for what people do send to the grid that would keep their utility bill permanently high, is why 95% of the respondents said they would NOT install solar on grid if NEM-3.0 passed. Most of them would only consider an Off-Grid system in the future. What happens when 50% of your potential customers don’t subscribe to your service? You either charge more to the remaining 50% or go out of business.
“What happens when 50% of your potential customers don’t subscribe to your service?”
I hope I’m here to see it. Having the last laugh is always satisfying.
“the epitome of a special interest subsidy”
Not really. Greening the grid is a societal goal, not individual self interest. It’s a win-win. “Rich people” front the capital to green the grid now, and they get paid back over time.
Really want to make sure non-solar folks are held harmless? Pay for the exported power with general fund tax dollars. Easy.
Frankly I’m OK with reducing the exported power rate but the fee based on the size of the system is unfair and totally counterproductive. It seems designed to make sure I you can’t escape paying for your electricity even though you’re generating it yourself.
Any fee to maintain (and expand) the grid should be allotted among rate payers in general. Not be a solar penalty.
” The $24,000.00 monthly connection fee totals after 25 years on MEM-3.0- and 10,000-watt system and the low compensation for what people do send to the grid that would keep their utility bill permanently high, is why 95% of the respondents said they would NOT install solar on grid if NEM-3.0 passed. Most of them would only consider an Off-Grid system in the future. What happens when 50% of your potential customers don’t subscribe to your service? You either charge more to the remaining 50% or go out of business.”
Most people may not go completely off-grid, but close to it. What will probably happen more often is that systems will be built with storage, and they will be isolated and not grid-tied. They will switch to the grid only when the battery is exhausted. Because they do not export energy, they are not on NEM and there is no per-kw solar penalty tax. Systems like this may not be able to reduce electricity bills to near zero as is possible with NEM 2.0, but someone who used to pay $300/mo. will now pay $30/mo. or so, mostly to cover bad weather days, with the benefit that there is no need for generator to fill in the gaps. For sake of argument, let’s call systems like this semi-off-grid.
The thing is, these larger systems with storage will start out much more expensive than current grid-tied systems with no storage, and will start out with a much longer break-even period. Of course, under NEM 3.0, the break-even period will be just as long for a grid-tied system with no storage. Under NEM 3.0, all systems will have a much longer break-even period. This is not a coincidence. The CPUC and the utilities refer to this is ‘encouraging storage’, but the changes are purposefully implemented in a way that will kill the rooftop solar market for a decade or more.
The reality (and the goal) of NEM 3.0 as it currently stands is to reduce the rooftop solar market to the point where it will take a very long time for penetration to ever come close to 50%, or even rise much above the current 4%. This is due to the high break-even period that will apply to *all* systems, both grid-tied without storage and semi-off-grid with storage, under NEM 3.0. The solar penalties in NEM 3.0 are designed so that grid-tied systems without storage, and semi-off-grid systems with storage will all have a break-even period of 15-20 years, at least in the near term. The rooftop solar market will be reduced to wealthy people who can absorb a 20-year break-even period, and very low income people who will qualify for a subsidized community solar project of some type. The middle class, where most of the growth is, will be largely shut out of solar under NEM 3.0 as currently envisioned. Maybe in a decade or so cost reductions of solar power systems will have finally caught up with costs imposed by NEM 3.0, but it’s unknown. NEM 3.0 has a ridiculously short ramping period for the changes to take place.
So yes, most people agree that NEM 2.0 is not long-term sustainable, and most people agree that some changes will be necessary as rooftop solar penetration starts rising above ~5%, but the utilities’ and CPUC’s plan is not designed to introduce fairness by ramping up changes over time according to actual year-to-year increases in penetration, they jump immediately to what the structure should be at 50% penetration, which is an effort to kill off the market for at least a decade or more.
I think you’re right that the utilities are hoping to kill off the majority of new rooftop solar for a decade or more. But I’m hopeful that the battery technology breakthroughs I’m seeing will accelerate the adoption of residential battery storage much faster than many think. For just one example, have a look at what the largest battery manufacturer in China (CATL) is doing with new sodium ion batteries. They aren’t joking around. These batteries are likely to be mass produced and come to market in the next 2 years at much lower prices than LFP batteries which have already come down by an incredible amount. As these batteries mature and continue to drop in price, there can be an exponential increase in electric utility customers going fully off-grid. Most people are probably fearful of doing that presently. But as they see others doing it successfully, it will snowball very quickly. Of course, in the meantime, I’m also hopeful that the CPUC will be pressured into changing their egregious proposal for NEM 3.0.
Dan, I also hope that occurs too. There’s no doubt it will change fast, it’s a matter of whether fast is 5, 10, or 15 years. If NEM 3.0 goes through unchanged (which it may not now that Newsom has chimed in), the cost structure of the penalties means that prices for a storage-equipped solar system will need to drop by at least 2 or 2.5 times to restore the current break-even period for a non-storage system under NEM 2.0. My money is more on the decade time frame for that. In the mean time, middle-class ratepayers will be shut out of solar.
And yes, the utilities are trying to delay the inevitable individual transition to energy independence and distributed generation as long as possible. Ultimately, distributed generation and ratepayers becoming energy independent will reduce the utilities revenue without changes in their business model, and they have a vested interest in preserving the status quo of non-distributed generation (including their guaranteed profits from large infrastructure projects) as long as possible. While most (including myself) agree that NEM 2.0 is not long-term sustainable, there doesn’t need to be any ‘cost shift’ in a version of NEM 3.0 that has a longer ramp-down or ‘softer landing’ if purely punitive fees are avoided (and $20,000 in solar penalties over the 25-year lifetime of a typical system is definitely punitive) and the ramping down of feed-in tariffs is tied to actual solar penetration and fair assessment of costs. That’s not what the utilities want, though, they want to cut the legs off for as long as possible, slowing down the transition to a more distributed model that their business model will need to adapt to.
Please see Gov. Schwarzenegger opinion piece today in NY TImes:
https://www.nytimes.com/2022/01/17/opinion/schwarzenegger-solar-power-california.html
“California should do more to incentivize clean energy in lower-income areas. And the state should be promoting the installation of a million batteries to store the energy that the solar panels capture. That’s how we can truly democratize energy. But adding a tax and removing incentives will hurt the solar market, and making solar more expensive for everyone does nothing to help our most vulnerable.” …
“In areas of California outside the utility commission’s control, we have already seen what happens when policies ratchet up rooftop solar costs. When the Imperial Irrigation District in Imperial Valley abandoned net metering in July 2016, residential solar installations declined 88 percent over the next two years as measured by added megawatts. The Turlock Irrigation District ended net metering at the beginning of 2015; within two years, annual residential solar installations declined 74 percent. Sacramento, sadly, is about to see this happen too.”
Very helpful, Thanks a lot.