A key part of the solar industry’s success has been widespread adoption of rooftop systems by homeowners, C&I businesses, enterprises, and public-sector organizations. Given that new technologies can be initially expensive, utility customers were incentivized to adopt rooftop solar through NEM rates. This would allow solar systems to export excess energy back to the utility at the full retail electricity rate. In effect, a solar customer’s monthly utility bill would be based only on the net energy consumed.
Utilities and some ratepayer advocates contend that solar customers are not paying their fair share for access to the grid and that Net Energy Metering leads to cross subsidization. Essentially, this suggests that those customers who cannot afford rooftop solar are paying for grid services on behalf of those who can afford solar. The CPUC’s proposed solution is a new rate structure called NEM 3.0. It introduces a “Grid Participation Charge” that greatly increases what rooftop solar owners would pay for use of the grid, and it reduces the value that solar owners receive for exporting to the grid. Solar proponents agree that NEM needs to be modified but argue that the reduction in rate value should be more gradual and not as draconian. And, they believe the Grid Participation Charge should be less severe.
Passed in 2014, Assembly Bill (AB) 327 requires the CPUC to develop a NEM policy that is cost-effective for all customers while ensuring that rooftop solar continues “to grow sustainably.” AB 327 did not, however, define what “to grow sustainably” meant. The CPUC must define this term through the NEM 3.0 proceeding and apply the definition of “to grow sustainably” as a critical metric to evaluate each NEM 3.0 proposal. (Source.)
The proposed Net Energy Metering decision is highly controversial and is expected to halve the residential solar market, according to analysis from Wood Mackenzie. However, the C&I market is less impacted as neither the solar nor storage asset is required to pay the Grid Participation Charge. And while the value of the export credit is significantly reduced, the majority of production at C&I sites is not exported and is instead used for onsite consumption. Solar self-consumption is likely to increase if a smart energy storage system is added, which is one of the main objectives of the order in the first place.
Although the C&I sector will be less impacted as a whole relative to the residential sector, there will be specific C&I solar projects that have lower returns under NEM 3.0. For relevant C&I projects, energy storage can mitigate the impact of Net Energy Metering by storing solar generation that would have otherwise been exported and shifting it to more favorable time periods. This is part of the intent of the CPUC decision: to incent new storage development.
C&I storage systems can deliver value under NEM 3.0 via “solar self-consumption,” while also providing many other value streams, such as demand charge management, demand response participation, SGIP compliance, and GHG reduction. Stem is the most experienced C&I storage provider in California, and our Athena AI-driven energy software is the industry’s leading platform for optimizing across all of these various value streams.
C&I solar developers should consider pairing energy storage with all of their solar projects since energy storage is the best solution to future-proof solar investments. NEM 3.0 is the latest chapter in an ongoing trend of utility rates becoming less and less favorable for distributed solar. A few years ago, the CA IOUs shifted their peak time periods to evening hours when solar is less productive, which reduced solar value. Today, the proposed Net Energy Metering decision will significantly reduce export compensation. Policies will continue to evolve while utilities typically implement significant rate changes every 3 to 5 years. Storage is the key to ensuring solar continues to deliver value, regardless of how NEM 3.0, or any other future rate structure, is implemented.
Adding energy storage to solar projects has become increasingly key to maximizing solar project value. But storage is different and fundamentally more complicated than solar, adding project risk and potential deployment delays. With our industry-leading expertise and best-in-class software, Stem works closely with developers to enhance solar plus storage offerings through optimized design, streamlined procurement, and customized deal support.
The guidance on this issue is unsettled in the energy industry. While the federal tax code allows for a battery energy storage system to qualify for the ITC when paired with solar (provided it is charged 75% of the time from the solar asset), the IRS has previously only dealt with this question in Private Letter Rulings (PLRs). To date, the IRS has claimed that a storage asset could be added to an existing solar asset and be eligible to claim the ITC but only if it is done less than one year after the solar asset went into operation and is at least 75% charged by the solar asset. Consequently, it is best for any retrofit project to seek the guidance of a tax lawyer before proceeding to develop such a project.
C&I customers are already susceptible to additional charges – like demand charges – from their respective utilities, whereas residential solar customers are not. The CPUC attempts to be equitable in the way it subjects these respective classes to new charges.
Originally, the CPUC was expected to rule on this proposed decision on January 27, 2022. However, the proposed decision never made it onto that meeting’s docket, and it is not expected to be ruled on now until sometime in mid-to-late February 2022 at the earliest. The CPUC has a new Chairman and another new Commissioner who are trying to better understand the impacts of NEM 3.0 on all stakeholders. In the end, this could lead to either a final or alternative decision.
California has been a pioneer in rooftop solar and is home to approximately 40% of the nation’s residential solar capacity. (Source.) However, there is fear among the solar industry that this proceeding is being closely watched by other states and could lead to similar developments across the country.
California and New York utilities are leading the way when it comes to installing EV charging stations through Make Ready-style policies. Through programs like this, entities can earn incentives that will offset a large portion of or, in some cases, all of the infrastructure costs associated with preparing a site for EV charger installation. Read More
Solar Self-Consumption is when an Energy Storage Solution can intelligently store excess energy and then determine when to use it during expensive Time of Use rates. Read More
Solar is not effective at reducing demand charges. A dispatchable resource, like energy storage, is needed to address this growing component of customer bills. Read More
To help maintain value, storage paired with solar can consume extra solar generation that would have otherwise been exported and can discharge during times when energy is more valuable than the NEM compensation rate. Read More
Sites can discharge stored energy during the new on-peak hours to offset the site’s energy draw from the grid and reduce costs. Read More
A microgrid is a relatively small, controllable power system composed of one or more generation units connected to nearby users that can be operated with, or independently from, the local bulk transmission system, typically a local utility company. Microgrids can disconnect from the main grid to function autonomously in “island mode.” Read More
Customers with electric loads from buildings or electric vehicle (EV) charging stations that could be powered by islanded generation units can benefit from a microgrid. End users who benefit from a microgrid include municipalities (e.g., WWTP), campuses, and commercial & industrial customers, federal agencies, and electric cooperatives. Read More
Stem’s microgrid solution consists of an advanced energy storage system (ESS), a custom-built microgrid controller, and our Athena® AI-driven software – all integral components of a clean energy intelligence platform. Read More
Incentives are available on a regional basis for energy storage projects. Click through to see where Stem’s expertise can help leverage your position. Read More
Stem’s energy experts guide you through a detailed and technical design process to: appropriate sizing to ensure your microgrid can meet demand; ensure a grounding transformer is used to support single phase loads; apply ground fault protection for island situations; PV inverters should have modbus communication and should have the ability to be curtailed remotely; and employ load management devices such as relays or integration to manage the load. Read More
The manufacturing industry can benefit from energy storage in the following ways:
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An energy storage solution (ESS) can benefit municipalities to: