California Public Utilities Commission Issues Proposal to Evolve Net Energy Metering

"Changes to net energy metering will kill rooftop solar!" the solar industry says.

"Greedy solar companies are shifting costs to lower-income, non-solar customers!" say the utilities.

You may have heard there's an epic battle underway between the solar industry and electric utilities in California, as well as other solar-rising states like Arizona and Hawaii, over payment for customers who are selling the excess rooftop solar energy they generate to the power companies. But taking recent solar controversy headlines at face value creates an illusion about what's really at stake with rooftop solar, electric utilities, and electricity consumers like you and me - especially in light of the new rules proposed today by the California Public Utilities Commission for rooftop solar customers that could affect all of us.

The issue is far more complex than what the headlines have implied. The tussle is over a longstanding policy known as "net energy metering," sometimes referred to as "NEM," that allows utility customers with rooftop solar to get credits for each kilowatt-hour of energy they export to the grid and then use those credits, on a one-for-one basis, to offset their own electricity consumption from the grid, which can occur at times when their solar panels are not generating -- like on cloudy days or the middle of the night. In many cases, it's as simple as letting a customer's meter run backward.

The simple and intuitive crediting mechanism has also produced benefits for all customers -- including those who don't own or lease a rooftop solar system -- because it avoids utilities having to buy power and make investments in generation and new pole and wires, reduces wear and tear on the existing grid, and helps clean up our air. And while emissions-free solar has been growing by leaps and bounds, we need it to do so much more. The CPUC today agreed that now is the time for California to create new opportunities to get even more solar in the places we need on the electric transmission grid and to extend it into the times when we demand electricity the most.

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Today's Proposal

The California Public Utilities Commission's proposed changes include three major elements:

  1. A one-time interconnection fee at the time of installation of a new solar project that the commission says is likely to be approximately $75 to $150 (depends on the size of the rooftop solar system). This fee, which represents the costs for a utility to review and ensure that a NEM system interconnects safely to the grid, has historically been paid for by all utility customers, including non-NEM customers. Now, the fee will be paid by the owner of the project.
  2. A change in the charges for NEM customers that are used d to fund low-income and energy efficiency programs. These are the equivalent of approximately 2-3 cents per kilowatt-hour of energy consumed. Historically, NEM customers have only paid for the charges that pay for low-income and energy efficiency programs if over the course of a year they consumed more electricity from the grid than their solar panels produced. And more often than not NEM customers were contributing virtually zero direct dollars toward these important public benefit programs. In today's proposal, the commission recommends that new NEM customers pay these charges on all energy they consume from the grid, regardless of the amount of energy they have exported back to it.
  3. The commission's proposed decision requires new NEM customers who sign up in 2018 or later to utilize time-of-use rates. Though all NEM customers will have to utilize time-of-use rates when all residential customers go on default time-of-use rates in 2019.

A Net Metering Inspection and Tune-up

Just as we periodically do with our cars or bikes to keep them running safely and efficiently, California's NEM policy has been "in the shop" to receive a multi-point inspection and tune-up. Under a 2013 law known as AB 327, the California Public Utilities Commission (CPUC) is tasked with reviewing and setting forth a plan to evolve net-metering policy. More than 320 documents have been filed since the regulatory review kicked off in July 2014, underscoring the topic's complexity. The CPUC's proposal issued today is the next step in the process, and interested parties will have a chance to weigh in on that, as well.

NRDC's goal is to rev-up the solar industry while ensuring we can rely on it for the many miles ahead (I might add that's figuratively and literally, e.g. "fueling up" electric vehicles) to help us maintain a strong grid. The key is to make sure that solar customers aren't thinking about their solar-power system as one thing and the rest of their home as another. Instead, we need to encourage solar customers to think of their home holistically --solar system and all--and set the price of electricity in ways that reward them not just for the solar but also managing how much energy they use, and when they use grid power and how. Here are three facts to better understand the issue:

Fact #1: Thanks in part to California's burgeoning rooftop solar generation, the amount of electricity we need from dirty power plants often reaches its lowest point at midday instead of the middle of the night when we're asleep and businesses are closed.

Under California's forward-thinking, climate solution policies (which just were expanded by SB 350, the Clean Energy and Pollution Reduction Act of 2015), we've seen much more renewable energy come onto the transmission grid. The sun generates a lot of power for California in the middle of the day due to our large amount of rooftop photovoltaic panels and huge solar farms. However, for all the wonderful carbon- and pollution-free energy that solar power provides, there's one unavoidable physical truth we can't forget:

Fact #2: The electricity grid must be in perfect balance to work, meaning the amount of electricity supply must exactly match demand at all times.

Not too long ago, California's fossil fuel electricity needs reached their highest level on the hottest summer days to power all the air conditioning needed to keep us comfortable - an amount of power that was very challenging (and expensive) for utilities to supply. In the first couple of decades that solar power began to come online--and this is still the case in almost every state except California--solar provided a substantial benefit by supplying additional electricity when demand was highest and rewarding homeowners for helping to solve this problem made a lot of sense.

Thanks to solar, that's changed in California in recent years. Solar has conquered California's summer peak fossil fuel electricity demand problem (the greatest amount of electricity we need to be sure we can supply to keep the lights on) and there are new challenges. We still need a lot more solar, but now we don't just need it down the block or even in the neighborhoods where a lot of solar is being generated. We need to make the grid more robust and flexible through more demand response (customers reducing energy use at specific times), energy efficiency and through storage from such sources as electric vehicles so we can take advantage of that solar where it's most needed.

Fact #3: It's no easy feat to balance our electricity supply with when and where people need it.

The grid experts and operators who work behind the scenes to keep the lights on have created a term called net peak, which is the amount of electricity supply from resources other than solar and wind required to meet the precise level of electricity demand at any point. Though generally still a rare occurrence in California, at certain times and within certain areas on the grid, the net peak gets near zero -- meaning that solar and wind is nearly providing more than the power needed in the area at that time. These rare periods of overgeneration shouldn't slow down our adoption of more solar energy, but it does mean that we need to figure out new approaches to more efficiently use, store, or move excess solar and wind production to places and times that demand it in order to increase its value - and that requires continued investment in the grid. Even though the solar industry and utilities don't agree on how to pay for it, their interests in a robust and flexible grid are highly aligned.

Because of solar and wind, the fossil fuel kilowatt-hours produced midday are cheaper in California's electricity market than those kilowatt-hours in the evening when folks are coming home from work and turning on lights and gadgets. To get the most out of solar homes, we need some of those panels tilted to capture more late afternoon sun, and we need to make sure solar homes use the grid power they need more efficiently and wisely just as all customers should to keep their bills down.

What does this have to do with net energy metering?

NRDC and the CPUC recognize that current NEM policy credits homeowners the same for excess solar generation sent onto the grid no matter when or where. It would be better to credit homeowners more for excess generation that helps balance the system - like more solar oriented toward the west to capture late day sun, incentivizing more solar in locations where it can help the grid, and shifting and tailoring consumption from the grid -- so we can be sure to use the power we have wisely - and not have to turn to polluting fossil fuel sources. Also we should reward solar homeowners who shift some of their electric usage to the middle of the day, when they are generating electricity and generally use it more efficiently.

About the Authors

Pierre Bull

Policy Analyst, Energy & Transportation program

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