Is California's NEM Policy Still Unfair to Non-Solar Users?

alifornia is right back in the middle of a heated debate over rooftop solar. A fact sheet released by the California Public Advocates Office (PAO) claims that while solar panel owners are saving money, others are stuck with climbing bills as they cover the cost of grid maintenance. To bring more balance, PAO proposes to move early solar adopters from the old NEM system to newer NEM 3.0 rates.

This action could greatly reduce the value of solar investments and change the state's solar energy landscape. SunValue is here to make sense of this discussion and clarify how such a shift could affect you.

What is Net Energy Metering (NEM)?

Let's quickly recall what Net Energy Metering (NEM) is all about. It is a simple and effective billing system that helps solar panel owners save money by sending extra electricity back to the grid.

When solar customers produce more energy than they use, their electric meter spins backward, giving them a credit on their utility bill. Net metering makes solar energy more affordable and appealing for people, but the rules and credits vary by state.

In California, NEM has gone through three phases:

NEM 1.0: The original version offered a one-to-one credit for solar energy sent to the utility. Customers received a credit equal to the retail price of electricity from the grid.

NEM 2.0: This update still allowed solar users to earn credits, but added some charges that slightly reduced the overall benefits. It applied to those who installed their panels from July 2017 to April 2023.

NEM 3.0: The difference between NEM 2.0 and 3.0 is quite significant. The latest net metering version, released in December 2022, slashed the credit for new solar customers by about 80%. This change was made to lessen financial pressure on non-solar users who were indirectly funding those with PV panels. Additionally, it encouraged people to install solar batteries for energy storage during high demand, improving grid stability.

The PAO’s Report: A Threat to Legacy NEM Customers?

Net metering is again in the spotlight because of the latest report by the California Public Advocates Office (PAO). Even with the changes brought by NEM 3.0 vs 2.0, they say, the financial burden on those without panels keeps growing. They call this a "solar cost shift," estimating that customers without panels will pay an extra $8.5 billion by the end of 2024 because of rooftop solar incentives.

By generating their own electricity, solar customers enjoy cheap solar power and reduce their electricity bills. However, utilities still need money for grid maintenance and infrastructure. According to PAO, non-solar consumers are increasingly paying higher electric rates to cover the shortfall.

Source: The California Public Advocates Office (PAO)

To solve this problem, PAO has offered two major changes:

• Fixed Compensation for NEM 2.0 Customers: The agency proposes to freeze NEM 2.0 customers' rates on the same level as when they joined, instead of letting them increase with market electricity prices. This would reduce the benefits of solar use.
• Transition to NEM 3.0: The PAO also suggests moving NEM 1.0 and 2.0 users to the less rewarding NEM 3.0 system. This would happen either when they sell their homes or after 10 years of interconnection.

CALSSA's Response: Debunking the Cost Shift Myths

The California Solar and Storage Association (CALSSA) was quick to respond to the PAO’s report, saying it is based on false assumptions and incorrect calculations. CALSSA claims the watchdog unfairly targets solar customers and ignores the wider benefits of rooftop solar energy.

Myth #1: Self-Made Energy is Expensive for Utilities

PAO claims that when people make their own electricity with rooftop solar panels, utilities have to pay a cost. But CALSSA disagrees with this. They explain that the electricity made by solar systems and used immediately doesn't put any more strain on the grid than energy-saving options like LED lights.

Myth #2: Grid Infrastructure Costs are Fixed

The PAO suggests that the cost to maintain the electricity grid doesn't change. This implies that as more people go solar and buy less electricity from the grid, customers without solar panels have to make up the difference.

But CALSSA notes that utilities' network and distribution spending has increased 400% in the past 20 years even though electricity usage hasn't. It means that the costs aren't as fixed as the PAO claims and utilities might be overspending on infrastructure.

Myth #3: The Avoided Cost Calculator Exposes Solar’s Flaws

The PAO often uses the Avoided Cost Calculator to argue for cutting the NEM 3.0 export rates. However, CALSSA is skeptical about this tool because it doesn't recognize all the positive effects of local power generation. For example, the calculator ignores all the benefits solar power can offer in the long run, such as reducing pollution and decreasing reliance on big power plants.

Impact on California’s Solar Market

If the adjustments proposed by the PAO happen, they could have a big impact on California's solar industry.

A lot of homeowners and businesses put money into solar thinking they would get a steady payback based on the net metering rates when they installed their panels. If there's a sudden move to NEM 3.0, these expected incomes could drop a lot. This could be hard on early solar adopters and might make people lose trust in California's energy policies.

Additionally, the planned changes might scare off potential new solar users. People might not want to risk buying solar panels in California if they think the laws can switch up anytime. This could slow down how quickly homeowners adopt solar, which could get in the way of the state's renewable energy goals.

NEM 3.0 has already had a chilling effect on the industry. There has been a drop in new solar systems, and more California solar power installers are going bankrupt. Many are starting to ask a question that once seemed ridiculous: given the harsh rules, are solar panels worth it in California? The suggested changes from PAO could make things even worse, further damaging the state's previously flourishing solar market.

Latest Updates on California's NEM Policy in 2024

As of 2024, California's net metering debate continues to evolve. In July 2024, the California Public Utilities Commission (CPUC) implemented changes to the Net Billing Tariff (NBT) that further impact solar customers.

Under these modifications, delivery-related credits can only offset delivery-related charges, while generation-related credits can only offset generation-related charges. This unbundling of charges aims to more accurately reflect the value of solar energy exported to the grid.

Additionally, the solar industry in California has seen significant shifts since the implementation of NEM 3.0. Reports indicate a decline in new solar installations, with some estimates suggesting a 40-80% drop compared to pre-NEM 3.0 levels.

This downturn has led to increased financial pressure on solar installation companies, with several firms reporting layoffs or closures. The industry is now focusing on adapting to the new landscape by promoting solar-plus-storage solutions and exploring new market segments to maintain growth in the face of reduced incentives for standalone solar systems.

What’s Next for California’s Solar Future?

The PAO is suggesting a drastic change that could really affect solar energy users. In the meantime, solar supporters keep defending existing NEM customers and fighting against what they believe is an unjust attack on the industry.

For now, the future of rooftop solar in California remains uncertain. What is certain, however, is any changes to the net metering policy could have far-reaching effects on millions of Californians, the state's overall energy scene, and its climate goals.

Sources:

https://docs.cpuc.ca.gov/PublishedDocs/Published/G000/M499/K988/499988412.PDF