Net Energy Metering in California: The Future of PV Solar

Solar energy in California has been established for so long that most people assume its trajectory is untouchable, but new changes proposed by the California Public Utilities Commission (CPUC) could dramatically alter the future of solar in the state.

The situation is one of waiting and ambiguity. A new Net Metering agreement (NEM 3.0 to those in the industry, “Net Billing tariff” to those trying desperately trying to re-brand after waves of bad press) is currently being debated and people in the solar industry are acutely aware that the potential for solar savings are expiring and that the opportunities to go solar could be much less rosy after spring of 2022.

Background

But what is a Net Metering Agreement, and why does it matter? Net Energy Metering (NEM) has existed in California since 1996 and contributed to solar energy’s rapid growth in the state. Under this agreement, homeowners with a residential PV solar system up to a 10kW size had an agreement with their Utility company who was required to provide a credit of the full retail rate for any energy sent to the grid. This, in combination with the Federal ITC Credit for 30% the cost of the system, rapidly increased the adoption of solar across the state. When NEM 2.0 was implemented in 2016 customers got credits on a Time Of Use (TOU) rate for when they were generated, and meter fees and interconnection fees were reintroduced.

California NEM 3.0

The new agreement put forward by the Coalition of Utility Employees (closely aligned with PG&E) and authored by California State Assembly member Lorena Gonzalez, proposes sweeping changes to the current agreement between Regulated Utility Companies (PG&E, SCE, and SDGE) in the State of California and owners of residential solar systems for 2022.

At first glance the proposal, Bill AB 1139, seems to want to increase access to residential solar savings of lower income households and neutralize the burden of maintaining the utility grid on houses unable to go solar. Sounds good, right? However with further dissection this outcome seems to be dependent on Utility company’s good-will and come at the cost of gutting the solar industry.

What is CPUC Proposing?

So what is in this bill? Available here, the proposal outlines (in standard legal-ese) the aspects of the existing Net Metering agreement that would change under this new legislation. The NEM 3.0 Proposal represents the highest solar tax in the country.

The major mechanisms are as follows: moving from crediting solar energy sent to the grid from residential solar systems at retail cost to “electrical corporation’s avoided cost”, and putting a direct tariff on solar systems based on the kW size of the system. Put in real numbers this means instead of customers seeing roughly 24 cents for each kWh sent to the grid they would receive about 5 cents per kWh, and that for each kW of system size $8 go to your Utility, instead of the standard monthly $10 “grid connection fee”.

How does it impact homeowners' ability to go solar?

The actual cost to a customer would vary from system to system, but in general the bill would reduce the potential savings anywhere from 50-70% and at least double the payback period for a residential solar system (Wang, Dec. 2021). It’s hard to know exactly the effect this will have on homeowners, but it can be reasonably assumed that this will reduce the number of people who can benefit from direct savings from installing a solar system.

Support for NEM 3.0

Supporters of the bill claim that residential solar systems force the Utility to operate at a loss and that the cost of that loss is handed down to utility customers in the form of rate increases. This primarily affects purchasers of utility electricity i.e. people that don’t currently have a residential solar system. It’s easy to see how this could become discriminatory as the median household income for those with a residential solar system is 49K higher than the American average (113K vs. 64K)(Barbose et al, 2021). Households with higher incomes enjoy reduced rates, energy security and increased home value through the current solar program, lower income homes that are more risk averse stay with the utility and pay ever increasing prices to support the utility company and the aging grid.

The changes therefore say they reduce the burden on non-solar households by directly transferring the costs to those with solar, or rather, those putting in a residential solar system after the proposed changes. While the intention of the bill may be to diffuse the costs placed on low-income households and provides a fund for low-income houses to potentially access, the ability to retroactively receive a rebate may not incentivise households that don’t see immediate savings.

Controversy

This proposed change has therefore generated a lot of protests from solar advocates. While those in-the-know are aware that the savings available now are too good to continue to be available forever (it’s true that Utility companies are forced to operate at a loss in the current arrangement) the new agreement must be amended to continue to make the transition to solar financially available for households on both ends of the income spectrum. Groups like the California Solar and Storage Association continue to advocate for changes to the proposal that will help keep residential solar as an affordable and attractive option to homeowners, a coalition of 347 businesses have sent a letter to Gov. Gavin Newson urging him to fight for a more favourable outcome for solar users, and the “Save California Solar” Coalition has argued for NEM to be repositioned so that it is even more favorable to customers than it is now.

How do homeowners retain the current NEM 2.0 Benefits?

As a result of this advocacy work there have been some changes to the bill over the year it’s been considered. It’s been amended four times as of Dec. 2021 since it’s submission in February of this year, often as a result of failing to pass in the State Assembly. Originally the bill would remove benefits for solar customers existing under NEM 2.0, but this was removed in June.

As for homeowners looking to take advantage of NEM 2.0 before NEM 3.0 is passed, starting a solar install as soon as possible might let you take advantage of this quickly expiring legislation, with a worst case scenario of a longer payback (but ultimately still a net gain).

When will the final NEM 3.0 decisions be made?

The proposal will be on the CPUC’s January 27, 2022 Voting Meeting agenda.

While there is still hope for the solar industry as a whole to survive in California if substantial changes are made to Bill AB 1139, what does this mean for homeowners considering solar? For people in the industry, the message is clear: the best time to go solar was five years ago, the next best time is now.