Like it or not, Net Energy Metering 2.0 is coming soon to California and it is bound to shake things up. To understand the potential impacts of NEM 2.0 it important to understand what net metering is and how it currently influences the roof-top solar market. Net Metering 1.0, the current set of regulations mandated by the state, is largely responsible for California’s thriving solar industry. It gives homeowners the ability to essentially use the grid as a free “battery.” Any extra electricity produced by solar panels during the day can be exported to the grid and “stored” for future use. For every kilowatt-hour of electricity exported to the grid when the sun is out, homeowners are entitled to a free kilowatt-hour when the sun is down. Customers can and often do cut their electricity bill to zero by sizing their solar system to produce equal or more electricity than is consumed daily by their household.
The problem with this current system is that there is a limit to how many solar owners can reap the benefits. Taken to the extreme, what if everyone in California had an electricity bill close to zero? How could utilities afford to maintain the grid? Who would pay for other energy sources such as coal and natural gas when sun went down. Even when a smaller percentage of people rely on NEM 1.0, rate payers without solar are often left to cover the utility’s costs. On the flip side, the generous policy of NEM 1.0 has enabled the solar industry in California to become the largest in the nation. Tens of thousands of jobs have been created and California has become a global leader in combatting climate change.
The California Public Utilities Commission is in charge of weighing the benefits and costs of NEM. They hold proceedings during which stakeholders make their points and from there legislation is created. In 2013 the state passed Assembly Bill No.327, a bill that covers a range of Californian energy policies. Included in the bill was a cap on renewable energy nameplate capacity that could operate under NEM 1.0. Once 5% of a utility’s nameplate capacity is derived from NEM 1.0 projects, NEM 2.0 takes effect. It will kick in mid-2017 regardless. As customers of Pacific Gas & Electric, Southern California Edison and San Diego Gas & Electric edge rush to take advantage of NEM 1.0 and the ITC, it is unlikely that we will make it to 2017 before NEM 2.0 rears its head.
The details of NEM 2.0 still have not been agreed upon and estimates vary widely as to what it will entail. Pull too hard one way and the utilities will not be able to cover their costs, push too hard the other way and solar industry in California could regress. Here are 3 levers that the CPUC can manipulate in order to make things work:
- A charge on homes with solar that would help pay for grid maintenance. In theory such a charge is logical but in its limited practice, it hasn’t fared well. A major utility in Arizona, The Salt River Project, recently began charging homeowners with solar $50 a month. This has been met with much controversy and a lawsuit from Solar City, who claimed that such a fee was too high and forced them to transfer employees to new states with regulations more conducive to roof-top solar.
- Rates based on time of use. The CPUC has ordered PG&E, SCE and SDG&E to begin charging their customers on a time of use scale by 2020. Cheaper electricity during peak sun hours should encourage people use more energy during the day when their panels are firing on all cylinders. Higher electricity costs in the late afternoon after the sun has gone down should deter people from using energy derived from fossil-fuels. For example, lets say 10AM-6PM kilowatt-hours cost 10 cents and 6-9PM kilowatt-hours cost 50 cents. NEM 2.0 systems would have to export 5 kilowatt-hours of energy between 10 and 6 in order to get 1 kilowatt-hour back between 6 and 9.
- Disproportionate Energy Crediting. NEM 2.0 could simply decrease the value of extra energy exported back to the grid. Instead of one kilowatt-hour in one kilowatt-hour out, utilities may only credit you with a fraction of whatever you put in. This will have a tremendous impact on the economics of a grid-tied system.
Any combination of these controls can be enacted and the uncertainty surrounding NEM 2.0 is leaving many unsure as to how to proceed with solar. Whether you buy from us or somebody else, it is our recommendation that you move as quickly as possible so you can take advantage of NEM 1.0 and the 30% tax credit that expires at the end of 2016. Feel free to contact us and we will point you in the right direction.