Grid expert slams NEM 3.0 as “proposed dystopia” in ROTH Capital webinar, offers ten reasons why


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.

Dr. Ahmad Faruqui
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: 

  1. 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. 
  2. 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. 
  3. 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. 
  4. 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. 
  5. 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. 
  6. 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. 
  7. 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? 
  8. 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. 
  9. 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. 
  10. 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.

California Governor Gavin Newsom (center).

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.

Governor Newsom’s office’s climate plan, part of the recently released California Blueprint.

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.

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