Net Energy Metering (NEM) is a special billing arrangement where the homeowner’s electric meter tracks electricity consumed and surplus electricity sent back to the utility grid, crediting the excess electricity produced by PV solar systems at the full retail value.
Homeowners with electric service under a NEM 1.0 tariff, prior to December 31, 2015, will remain on the current NEM tariff for 20 years from the date their distributed generation system was interconnected. Current proposals for a new NEM 2.0 tariff is scheduled to be adopted in 2016, and will change NEM as solar homeowners have come to know it.
How Net Energy Metering (NEM) 1.0 works
Customers with NEM 1.0 receive financial credits from their utility provider for power generated by their solar system and fed back to the utility grid. Excess electricity returned to the grid causes the dial on their electric meter to spin backwards, this credit then offsets future electricity consumption. Each month, NEM customer electricity bills receive credits for excess generation at the same full retail value rate that the customer would have paid when the electricity was generated. When evening hours or weather affect electricity production, the credits are used at the then current electricity rate.
Customers pay for the net amount of electricity used in excess of what their solar system generates annually. PG&E has a 12 month True-Up window that averages out credits and debits of electricity consumption. This allows homeowners to install a solar system slightly smaller to meet their annual electricity demands due to seasonal variations based on actual electricity demands and the seasons of the year. This is a great benefit to homeowners as annual production of solar is relatively reliable whereas shorter windows of time reflect weather fluctuations.
Ideally, at the end of the annual True-Up period, the electricity balance zeros out. If there is any surplus electricity, the utility provider will reimburse to the homeowner at a separate (wholesale) fair market value, approximately $0.04 per kilowatt hour (kWh).
More than 90% of California’s solar PV systems are interconnected to the utility grid in the three large investor owned utilities’ (IOUs) territories via NEM tariffs. Standard NEM tariffs are for residential and small commercial rate customers utilizing solar and wind energy programs, 30 kilowatts or less, to serve all or a portion of their onsite electricity needs.
Proposed NEM 2.0 Changes
The three large IOUs, PG&E, SCE and SDG&E, have proposed to the California Public Utilities Commission (CPUC) new utility tariffs to end current NEM and replace it with an entirely different program that will change the economics of why solar is a great investment in California. Specific NEM proposal changes for 2016 include:
- Change NEM credits to a wholesale rate instead of the full retail value rate when the electricity was generated (PG&E is proposing $0.10 per watt compared to E-6 summer rates of $0.33)
- PG&E is proposing to change the annual (12 month) True-Up to a monthly True-Up, thereby paying the net surplus electricity generated rate at $0.04 per kWh at the end of each month and NOT allowing customers to use the extra credits throughout the other months of the year.
Other uncertainty for solar is the end of the 30% federal Investment Tax Credit in December 2016 and the utility rate changes proposed to be implemented by 2019.
What is California doing to help the solar industry?
In 2014, the California Public Utilities Commission (CPUC) decided to protect the net metering rights of existing distributed generation customers by grandfathering the terms of NEM for 20 years from the date of interconnectivity with the utility provider. The decision is intended to enable customers to benefit from the existing NEM tariff for the expected useful life of their solar systems as well as the reasonable payback period. Under NEM 1.0, this 20 year grandfathering applies to the original site of the interconnection and can be transferred to a new owner.
Governor Jerry Brown addressed in his State of the Union (January 2015) that in order to derive 50% of our electricity from renewable sources by 2030, we will need to transform the electricity grid and distributed power will play a significant role which basically means rooftop solar.
With a commitment to increase awareness of the solar industry in California, the California Energy Industries Association (CALSEIA) is working to get legislators informed about these solar issues. Earlier this month, they organized a Solar Worker Lobby Day in Sacramento where Clean Solar and other solar industry companies met with assembly men and women to educate them on pending legislations, including the fate of NEM. CALSEIA represents members of the solar industry throughout the state with a political presence at the Capitol in Sacramento, at the CPUC in San Francisco, and other events, like hearings and workshops.
Another economic consequence of solar policy changes is the effect on employment rates in California. In 2014, the solar industry in California employed nearly 55,000 individuals; projections indicate job layoffs of up to 40% in the next 15 months if the utilities market is not stabilized.