NEM 2.0: Why Solar Pays for CA Homeowners

One of our nation’s leading newspapers, the New York Times, recently published an article questioning solar’s economic viability in California in Why Solar Doesn’t Pay in Some States. Of course the New York Times is fair to question and debate Distributed Generation (DG) solar and its outlook. However, this article overlooked several key points from the California Public Utility Commission’s (CPUC) ruling on Net Energy Metering (NEM 2.0) which the solar industry has considered a win and maintains solar’s profitability in California.  Although the CPUC ruled more than 6 months ago, this article demonstrates the importance of understanding and discussing NEM 2.0 and its implications for DG in California and the U.S.

Some of the key rulings include:

  1. Interconnection fee of $75 to $150.

  2. 20-year grandfathering for solar customers. Current solar customers are automatically grandfathered and their rate plan will not change for 20 years. Under NEM 2.0 future solar customers will not have to worry about their compensation changing or additional fees since the rate structure will be valid for 20 years once their solar system is operational.  

  3. Non Bypassable Charges (NBCs) are not credited. NBCs refer to charges allocated to Public Policy Programs, Decommissioning Nuclear Plants and other costs the utility companies incur outside of selling electricity. Under NEM 1.0 solar customers would receive credit for NBCs, but in NEM 2.0 each solar project will have a $.02 to $.03/kWh haircut. The haircut will be the retail rate minus the export rate multiplied by the net exports.

  4. California Energy Commission (CEC) approved equipment and 10-year warranty

  5. Net Metering up to 1 MW. There is now no generation cap for Net Metering and projects under 1 MW will not have to pay for facility upgrades.  

  6. No demand charges or grid access fees.  

The most interesting and important change is the Time-Of-Use (TOU) Tariff. Under NEM 1.0 solar customers would stay on their same rate schedule or their rate schedule of choice, but in NEM 2.0 solar customers are required to use a TOU schedule. The TOU schedule helps combat the Duck Curve which energy experts argue stresses the grid and NEM 1.0 only exacerbates the problem because solar customers are compensated at full retail rates regardless of demand and grid impacts. NEM 2.0, and the TOU tariffs, seek to compensate solar customers adequately for electricity supply and demand. As the Duck Curve shows, demand (and stress on the grid) is highest during the early evening and lowest during the day.

Under NEM 2.0 the three California IOUs can set their appropriate TOU schedule; consumers will have different rate schedules to choose depending on their load profile. The IOUs will shift to TOU once they hit their initial net metering caps, such as San Diego Gas and Electric (SDG&E). SDG&E smoothly transitioned to the TOU schedule on June 28th. In SDG&E territory the TOU schedule is 11 AM to 6 PM during the summer and 6 AM to 6 PM during winter and compensation ranges from $.20/kWh during off-peak winter hours and $.46/kWh during on-peak summer hours.  Southern California Edison (SCE) will not hit its NEM cap until July 2017 and their TOU will be 2 to 8 PM and 12 to 6 PM during summer and winter periods and their rates will be $.16/kWh during off-peak and $.33/kWh during on-peak.  Finally Pacific Gas & Electric (PG&E) will hit their NEM rate cap in November 2016.  PG&E has a slightly different TOU schedule, 3 to 8 PM and 4 to 9 PM, and their rates will range from $.15/kWh to $.55/kWh and the wide price range depends on Off-Peak, Partial-Peak, Peak, PG&E tiered pricing structure, and season.

While NEM 2.0 doesn’t significantly reduce solar’s economics, it requires a closer look at the project’s economics. Solar installers and customers must analyze their current utility bills and solar production forecasts more precisely because the NBCs will cause a haircut on their compensation. NEM 2.0 will go until 2019. When NEM 3.0 is implemented, it is expected that the Off-Peak credit will decline significantly and the Peak hours will shift later in the day (inevitably when there’s less sun). This rate schedule means that energy storage must be combined with solar to ensure solar’s profitability. NEM 2.0 highlights the on-going discussion around solar’s value to the grid and how to address net export compensation. As utility companies reach their net metering caps and have a significant increase of DG solar, the CPUC’s NEM 2.0 ruling could set the benchmark for solar rate design/compensation for distributed generation projects across the country. ​