California’s Net Energy Metering (NEM) is a contested CPUC decision that is currently being debated in California and will have a significant impact on the solar industry – especially for residential customers. But what does it mean for commercial & industrial (C&I) solar developers? Read on to learn more.
What is Net Energy Metering 3.0?
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.
Why is Net Energy Metering important for California and the C&I sector?
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.
What does Net Energy Metering mean for energy storage and the ability to optimize solar?
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.
How can C&I solar developers prepare for Net Energy Metering now?
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.
Why should solar developers work with Stem for Net Energy Metering?
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.
Why does California Net Energy Metering impact residential solar more than C&I customers?
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.
What is the timeline for a final decision on California’s Net Energy Metering 3.0?
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 later in the year, although the exact timing is uncertain. 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.
Are other states considering similar changes to their existing net energy metering laws or rules?
California has been a pioneer in rooftop solar and is home to approximately 40% of the nation’s residential solar capacity. 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.
Why Stem?
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. Stem can help partners navigate the details of California’s Net Energy Metering, what it means for energy storage, finding new value streams, and how to be successful for customer projects.
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