Despite the deluge of criticism it received in September, the California Public Utilities Commission has doubled down with proposed changes to the state’s net metering system. Instead of a Net Metering 3.0, the Commission’s proposal – which will be voted on January 27th – has moved onto a Net Billing tariff – so the new system is no longer officially called NEM 3.0.
To put it simply, CPUC has sided with the interests and proposals of the big three investor-owned utilities in the state – SDG&E, PG&E, and SCE. The payments rooftop solar owners receive from the grid will be reduced, by 77% according to one reading of the new policy and by between 75% and 83% by another. Exact future payments for rooftop solar are unclear because of the complexity of the regulation in places, but it appears to have been cut to $0.05 per kWh in effect.
Any new rooftop plants past May 28th will be under Net Billing, but projects installed before that date will be grandfathered in under NEM 2.0, until they have been grid-connected for 15 years. It had been previously predicted that new rooftop solar plants would get grandfathered in for durations of up to 20 years depending on when during 2022 they are installed. This reduction of the grandfathering period from 20 to 15 years may get challenged in court.
There is however an up to $5.25 per kW per month “Market Transition Credit” for customers, which will decay by 25% for four years. A further grandfathering measure is the “Storage Evolution Fund” for existing NEM customers who transition to Net Billing in the next four years. Customers who are under the CARE or FERA assistance programs may also dodge grid connection fees or pay them at a lower level.
In June the Assembly Bill 1139 was rejected by a narrow margin in the California Assembly. The bill failed by only two votes and may be revived in 2022, with its threat of adding monthly fees payable to utilities by rooftop solar owners. Even if it is not revived, the new net billing tariff plan includes such fees – $8 per month per kW of an installation, though it varies by utility. This is by far the highest such charge in the country, with Alabama charging $5 and not coincidentally having no rooftop solar, while New York utilities commonly charge around $1.50.
Tying these charges just to kW size of an installation rather than to power produced shows another bias in favor of energy storage – CPUC wants people buying batteries, not building west-facing installations that generate more in the evening but have lower overall output per kW. Meanwhile, commercial-scale installations are exempt.
People are likely to avoid these fees by simply building no rooftop solar or, if they do, by buying plenty of battery energy storage to adjust their power import and export according to prices on the grid. In Hawaii, which underwent a similar reform, some 80% of residential installs now have batteries.
It should also be noted that California has a solar-plus-storage mandate for new commercial buildings as well as some multi-family residences which will come into force in 2023, though it’s unclear if people will be forced into a bad rooftop deal by this.
Rooftop solar generally needs payoff times under 8 years to garner investment, but per various estimates, these changes would bring the payoff time of rooftop solar above 10 years in California, perhaps even over 20 years – meaning the sector will effectively die in the state, having previously enjoyed a payoff time of 3 to 5 years. That is unless CPUC’s claims of providing a 10-year payback period once energy storage is included turn out to be realistic.
Multiple solar installers took a fall in their share price since the draft was released. Sunnova is among those calling the new policy a “tax on solar”, while Sunrun’s VP of Public Policy said the proposal “imposes the highest discriminatory rates on solar and energy storage customers in the US”.
An estimated 1,500 small business and 50,000 jobs are also involved in the sector within California.
The Commission states that it intends “more accurate price signals” to incentivize energy storage, so that more solar is shifted into the evening peak demand hours and more fossil fuel generation can be replaced thereby. CPUC states that export compensation will be “in line with the value behind the meter of grid-based power generation systems based on avoided cost values and import rates that encourage electrification and coupled solar with storage”
Both sides of the debate are using rhetoric featuring “equity”, with the utilities and their supporters arguing that generous Net Metering rewards those in society with the money to invest in rooftop solar, while unfairly placing grid costs on everyone; whereas the rooftop proponents argue that incentives must be generous to be feasible to lower- and middle-income citizens. CPUC’s proposals does also include a $600 million “Equity Fund” for low-income adopters.
Another rhetorical point in the debate contrasts energy democracy vs energy monopoly – in a state where dozens of smaller Community Choice Aggregators have made inroads on the big utilities turf in the past several years.
California is by itself the biggest US state for small-scale solar, accounting for more than half the total. But the questions asked of this kind of retrograde reform is whether such moves will spread into other states, pushed by the other utilities across the whole nation who are all members of the Edison Electric Institute.
Then again, CPUC is getting a new president, also one of its five voting commissioners, appointed by Governor Newsom on January 1st. So it is likely that this worst-case scenario for rooftop solar will not be implemented in quite such a harsh form. Perhaps it is harsh precisely so that a few concessions can easily be made by the Commission while still serving the interests of the state utilities.