The California Public Utilities Commission has just released a draft decision to revise California’s net energy metering tariff. This is a move intended to improve pricing by aligning energy prices with the electric grid’s capabilities around the clock. While this may sound like a move to raise energy prices during peak load hours, it could instead have many more results, including incentivizing the adoption of solar energy.
What is the California NEM 3.0 tariff?
The proposed NEM 3.0 tariff’s billing structure would be updated to optimize grid use by customers. In order to meet the state of California’s climate goals while improving the reliability of a fragile and overloaded grid, this change would incentivize consumers to create and store their own solar power and take the load off the grid at peak use times. It would also promote affordability for low-income consumers.
According to the draft of this new tariff, the state of California has seen the installation of over 12 gigawatts (GW) of customer rooftop solar panels over the last 20 years since net energy metering was begun, which distributes the burden of producing clean energy across the consumer side of the grid.
However, the electrical grid in California “requires additional evolution of the industry,” according to this report.
California’s grid is powered by a good amount of clean energy during the daytime. This is due to grid-produced solar energy during sunny daytime hours. But peak demand hits in the late afternoon and the night-time, which still requires dependence on greenhouse-gas-producing energy sources.
The review of the current net energy metering tariff, NEM 2.0, found that the tariff impacts non-participating ratepayers negatively and harms low-income consumers. It is also considered ineffective regarding costs. To amend this, the new tariff proposes to move from a stand-alone solar system tariff to one that promotes the adoption of consumer solar systems. These solar systems will be paired with storage so that more energy can be retained by consumers producing their own energy. This takes the load off the grid at night when energy is required from storage.
What this current draft does not do is continue on the original plan from the previously proposed tariff, which attempted a plan for the state to adopt more solar energy paired with storage for the grid as a whole. The previous draft, published in December 2021, was unpopular and sent back to the drawing board for more work. This new version, which allows for more consumer involvement in adopting solar, was issued in November and will be heard by the commission considering the proposal by end of 2022.
Why net billing is important
Consumers producing their own solar power can use more when storing it on-site, but they also need improved “net billing” for the value they provide to the grid via their energy generation systems. This new 3.0 tariff would apply electrification retail import rates with “high differentials between winter off-peak and summer on-peak rates” to new residential solar and storage customers instead of the time-of-use rates used in the current tariff.
The NEM 3.0 tariff would also replace retail rate compensation for exported energy with Avoided Cost Calculator values that vary by grid needs. This is intended to send “strong price signals to customers” to shift energy use from the grid to mid-day and export electricity during evening hours to receive peak compensation rates when the need is highest. This encourages the installation of more solar panels and energy storage systems in consumer homes. These prices benefit customers who charge electric cars and home devices or appliances.
How new compensation for solar energy impacts low-income consumers
The new tariff creates a “glide path” that is an adder based on the values in the Avoided Cost Calculator. It allows for a transition for the solar industry to adapt to a solar-paired-with-storage marketplace. Other revisions in the new tariff also offer low-income consumers more access to distributed generation systems, including solar panels and storage systems.
Additionally, the draft provides a higher adder to help eligible customers achieve the same nine-year payback target for solar systems that other residential consumers receive. This will equalize access to this opportunity while drawing in more participants to help power the grid.
Potential concerns for the NEM 3.0 tariff
The ability to charge consumers shifting prices for energy depending on demand is ripe for the possibility of exploitation. In turn, it could harm low-income consumers and create chaos during peak demand times on the grid. This needs to be handled with oversight and care. Affordability to consumers was a main priority in getting this new draft of the tariff right because a “significant and growing cost shift” already exists in the 2.0 tariff and, to some extent, in the new tariff as well.
This cost shift mainly centers around the power of distributed generation customers to avoid fixed costs, such as grid costs and public purpose program costs, which then shift onto the backs of non-participating ratepayers. Low-income households who can’t afford solar systems would be an example.
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