Changes to Net Metering Will Negatively Affect the Solar Industry

Net Metering – What is it?

NEM stands for Net Energy Metering. To put it simply, when your commercial solar system generates more electricity than you need at that time, NEM gives you a credit for the electricity you did not use. Your credits go towards your electricity usage when the solar panels are not generating free electricity. It is essentially a debit/credit system

Net Metering History

Solar incentives, plenty of sunshine, high electricity rates, and existing net metering policies have helped CA become the national leader for solar. And as more and more people installed panels in the state, the three biggest investor-owned utilities–Pacific Gas and Electric (PG&E), San Diego Gas and Electric (SDG&E), and Southern California Edison (SCE)–inched closer to their net metering “cap,” each respectively hitting it between 2016 and 2017. This resulted in the California Public Utilities Commission (CPUC) to create their next generation net metering policy, known as NEM 2.0.

Compared to CA’s original net metering policy, NEM 2.0 provides solar credits at a slightly reduced rate: ~2 cents less per kilowatt-hour (kWh) to be specific – you have non-bypassable charges to thank for that one! But considering what was at stake, NEM 2.0 was a win for rooftop solar; the industry has continued on a strong growth trajectory since.

Net Metering is Changing

If you look at the best solar markets in the US, they all have one thing in common: a strong net metering policy. Net metering–or NEM–allows you to earn credits for any excess solar electricity you send to the grid when your solar panel system generates more than you need.

Over the next few months, California will be releasing the third iteration of net metering, or NEM 3.0. It is uncertain exactly how credit values will change, or what they’ll change to, but it is certain that whatever happens will have large implications for the country’s leading solar market.

What We Do Know – It Impacts the Bottom Line

Export compensation for solar electricity sent to the grid in many states offer a credit equal to the retail value of electricity. This is known as one-to-one net metering where you are credited at the same rate for solar exports as what you’d pay to use electricity from the grid. The big three utility companies in CA are asking the CPUC to set a new credit rate that’s substantially lower in value. The value of net metering credits could diminish by up to 75 percent.

In addition to reducing the value of solar credits, utilities are asking the CPUC to implement two monthly charges for solar customers: a grid benefits charge, and a customer charge. Both are intended to help the utility recover costs associated with the upkeep of transmission and distribution infrastructure, meters, general billing costs, and non-bypassable charges, all you still use as a solar owner but which you may not explicitly pay for under one-to-one net metering.

Timeline For Proposed Changes

We know that California will certainly be transitioning to a new net metering program, but the official policy is yet to be finalized. What is addressed above were some of the proposed changes from the utility companies, but other stakeholders in the process have also submitted proposals of their own. The CPUC will now hold hearings with official testimony from interested stakeholders, as well as a vote, before deciding around January 2022.

What Can Be Done to Mitigate These Changes?

Fortunately, customers who have solar under NEM 1.0 or NEM 2.0 benefit from a grandfather clause that will lock in their net metering rates for 20 years; this means if you already have a solar panel system in CA, or application for interconnection is completed by December 31, 2021, you’re unlikely to be affected by NEM 3.0 for a long time.

Interconnection Application by 12/31/21

The Interconnection Application is a written notice to a utility company of plans to construct, install and operate any system which will be connected to the grid. After the utility receives the required documentation, the application is reviewed for approval. Some of the key items that must be completed and included in the application are:

  1. Array Location – Site map and solar panel location
  2. System Size – It is important that changes to the application do an increase in system size prior to construction
  3. Point of Connection – Determination of where the system is connected must be determined and not changed prior to start of construction
  4. One Line Diagram – This is the complete electrical design of the system

Essentially, the system must be fully designed to apply for interconnection. There are a number of steps that determine the fully designed system, and sufficient time is required for this.

It is important that if the intent is to accomplish the interconnection application prior to 12/31/21, the process should be started immediately. Sunworks will assist in this process professionally and expeditiously.