Dive Brief:

• California regulators on Monday unveiled their proposal to revise the current net energy metering (NEM) framework and replace it with a net billing tariff, scheduled for a full commission vote in January.
• The proposed successor tariff includes an export compensation rate that is based on the avoided cost values provided by behind-the-meter resources, and import rates that will encourage electrification and solar-plus-storage, according to the California Public Utilities Commission (CPUC). 
• Some California investor-owned utilities were optimistic about the proposal, saying it is a step in the right direction. However, solar advocates warned that the recommended changes could put rooftop solar out of reach for millions of Californians. 

Dive Insight:

NEM essentially provides a financial credit for customers who generate their own electricity and provide any surplus back to their utility. Over 90% of customer-sited solar capacity located in the footprint of California’s three large investor-owned utilities — Pacific Gas & Electric (PG&E), Southern California Edison (SCE) and San Diego Gas & Electric — are on NEM tariffs, according to the CPUC

In 2016, regulators adopted the current net energy metering tariff, under which customers receive a credit at the retail rate for energy that they export back to the grid. However, the commission’s review into this tariff found that it negatively impacts customers who don’t participate in NEM, isn’t cost-effective, and places a disproportionate burden on low-income ratepayers, the agency said in its latest proposal. 

The CPUC’s new proposed decision would adopt “more accurate price signals that will promote greater adoption of customer-sited storage, which will help California decrease its dependency on fossil fuels during the early evening hours, when the sun is down and energy demand is high,” according to the agency. 

Leading up to the proposal, California stakeholders had largely focused on two recommended structures of export compensation for customer generation: retail rate-based compensation, on which the previous NEM tariff was based, and compensation based on values from the avoided cost calculator — a mechanism used by the commission in evaluating the cost-effectiveness of distributed energy resources. 

California utilities, ratepayer groups and the Natural Resources Defense Council had recommended to regulators that they adopt the avoided cost calculator approach. However, solar advocates like the California Solar & Storage Association pushed back on that idea, saying that it would undervalue energy exports, reduce compensation to customers, and lead to longer payback periods. 

However, the commission concluded in its proposal that continuing to base export compensation on retail rates is not the best way forward.

“Retail rates do not reflect the actual costs of the exports or the benefits the exports provide to the utilities and the grid, both of which we need to ensure are approximately equal," the agency said in the filing. 

While the rates will vary based on time and location, “you’re talking [about] going from average solar compensation that might be in the 20s cents per kWh to three, maybe five, in a lot of daylight hours,” said Brandon Smithwood, senior director of policy with Dimension Renewable Energy. 

Noting that this would probably lead to less compensation for customers compared to the previous NEM tariff, the commission also proposed implementing a “market transition credit” to encourage the deployment of distributed renewable energy. The monthly credit varies based on each utility and customer segment, but could reach up to $5.25/kW, and would continue at this level for four years, after which it would begin to decline by 25% a year. 

In addition, the proposed decision would put in place a monthly “grid participation charge” of $8 per kilowatt of installed solar for residential customers. 

Investor-owned utilities were optimistic about the proposal. PG&E — which has 20% of the country’s rooftop solar in its service area — is still reviewing the details of the proposal, but utility spokesperson Ari Vanrenen said in an emailed statement that it is a step in the right direction.

“Over time, NEM has resulted in deep inequities between customers with rooftop solar and those without, who are often lower-income customers. Sensible reform is necessary to support customer equity and help continue California’s success toward a clean energy future,” Vanrenen said. 

“Despite continuing to offer subsidies to existing and future customers, the proposed decision will reduce the financial burden on non-solar customers who have subsidized net energy metering by significantly overpaying rooftop solar customers and who cover the costs of using the electric grid that solar customers have avoided,” SCE said in a statement. 

But the solar industry warned that the changes proposed by the commission — including reducing monthly savings and adding new fees — would put rooftop solar out of reach for millions of California residents. 

“I’m not aware of a solar-only fee that high anywhere else in the country. Solar-only fees unfairly discriminate against solar customers, charging them for the energy they produce instead of buying from the utility,” Susannah Churchill, Western senior regional director with Vote Solar, said in a statement. 

Sunrun’s Vice President of Public Policy Walker Wright said in a statement that the proposal, if adopted, will likely cost tens of thousands of jobs, especially among the thousands of solar companies that have not yet entered the battery technology space.

“The proposal is contrary to the state’s objectives of addressing climate change and eliminating frequent blackouts,” Wright said. 

And Meghan Nutting, executive president of regulatory and government affairs with Sunnova Energy International, said in a statement that now is not the time to put the brakes on solar development.

“We’re disappointed that California would even consider taxing solar when we know that it’s a key contributor to our clean energy goals, saves all ratepayers money and, when combined with storage, keeps families safe during power outages,” Nutting said.

In addition, while some groups had outlined proposals for community distributed energy resources, the commission decided against adopting a successor tariff for these resources in the proposed decision, deeming it premature — a decision that disappointed some stakeholders. According to Smithwood, regulators have been generally deferring action on community solar for the past decade.

“[In] one of the largest states in the country, there’s maybe a handful of community solar projects that will get built in the next several years,” Smithwood said.