On November 10, 2022 the California Public Utilities Commission (CPUC) released the latest version of a Proposed Decision to change California’s Net Energy Metering (NEM) program. Unfortunately, the implications are still devastating for new solar projects.

Background

As we have been following in our series of articles over the past couple of years, the CPUC has been considering substantial changes to the State’s NEM program, which will substantially reduce the value of behind-the-meter solar projects. The CPUC’s initial Proposed Decision (December 2021) introduced the new Net Billing Tariff (referred to by some as NEM 3.0), which included:

• A new monthly fixed fee for new residential solar projects
• A substantial discount to the value of exported electricity for new projects
• A shortened 15-year period for customers with existing NEM 1.0 & NEM 2.0 projects to stay on these legacy tariffs before having to transition to the new tariff
• Only a 10-year guarantee that the rules of the new program would not change

Shortly after this initial Proposal Decision was released, the Proceedings were put on hold (February 2022). In May of 2022, the Proceedings were re-opened by the CPUC asking for comments on several items including the consideration of a new credit adder (a glide path for transitioning new residential solar projects to the new Net Billing Tariff), as well as increased charges for solar customers.

Summary of the New Proposed Decision

The following is a brief summary of the latest version of a Proposed Decision, especially as it relates to non-residential solar projects:

• Net Billing Tariff: The Proposed Decision adopts a Net Billing Tariff as a successor to NEM 2.0 (the current NEM program).
• Reduced Export Values:  Instead of earning credits based on retail electricity rates, exported electricity would be valued a significantly discounted rate, based on a new Avoided Cost Calculator(ACC), which equates to about an 80% reduction in value of exports when compared with NEM 2.0.
• A 5-Year Glide Path Period to Lock In Export Values for a 5-Year Term: Non-residential customers will have 5 years from the Final Decision to lock in these ACC Credit values for a 5-year term, after which export compensation rates will be based on the average hourly avoided cost values from the most recent ACC. Customers enrolling after the five-year glide path will not receive a lock-in period for ACC values.
• No Additional Credits for Non-Residential Customers: The Proposed Decision adopts an Avoided Cost Calculator Plus Adder(higher export value credit) for Residential and Low-Income customers over the 5-year glide path period. However, non-residential customers will not receive this adder.
• NEM 1.0 & NEM 2.0 Tariffs Will Not Be Changed By This Proposed Decision: In contrast to the initial proposed decision (which reduced the time period that existing projects could remain on legacy tariffs), the Proposed Decision expressly states that while the Commission “has the authority to revise NEM 1.0 and NEM 2.0 tariffs”, the Commission “should not revise the NEM 1.0 or 2.0 tariffs”.

Implications: The New Proposed Decision Will Substantially Reduce the Value of New Solar Projects

While it is encouraging to see the CPUC reversing course regarding making changes to tariffs for existing NEM 1.0 & NEM 2.0 projects, the expected impacts to new projects is devastating. Unfortunately, this latest Proposed Decision will still result in new solar projects (that aren’t able to secure the current NEM 2.0 program) facing massive cuts in the opportunity to generate savings. Projects in general will generate far less economic value, and many projects that might have made economic sense under NEM 2.0 simply will not under the new Net Billing Tariff.

To put this into perspective, here is a summary of a couple of case studies that TerraVerde pulled together to assess the impacts of these proposed changes.

To evaluate the impacts of this proposed change, TerraVerde Energy evaluated a solar + battery project portfolio that we recently developed on behalf of one of our School District clients. This project included 4 solar projects and 1 solar + battery project deployed under a power purchase agreement in PG&E’s service territory. The results of the case study showed:

• The District is projected to save $45,162 in year 1 under NEM 2.0
• The District would lose $57,009 in year 1 under the proposed Net Billing Tariff

We found a similar result in a case study we developed in assessing the impacts of the Proposed Decision for one of our Water Agency clients. We evaluated a solar project we recently supported an agency in deploying under a power purchase agreement at a water reclamation facility. When comparing the expected year-1 savings under the current NEM 2.0 Tariff vs. the new Net Billing Tariff, the savings are utterly wiped out and the project produces a net loss of over $84,000 in year-1.

• The Water Agency is projected to save $191,794 in year 1 under NEM 2.0
• The Water Agency would lose $84,012 in year 1 under the proposed Net Billing Tariff

The reduction in the value of credits for exported electricity is simply too devastating and will likely kill the economic viability of many potential new solar projects.

What’s Next?

As the proceedings continue, a hearing for oral arguments is scheduled for next week. A Final Decision could be voted on as early as December 15, 2022, which could put the new Net Billing Tariff into effect as early as April 15, 2023.

Consistent with the initial Proposed Decision, the latest version states that the sunset for new projects to secure NEM 2.0 will be no later than 120 days after the effective date of the Final Decision. To secure NEM 2.0, customers need to submit an interconnection application for their new projects to the electric utility prior to this sunset date. As detailed in the latest Proposed Decision, “the interconnection application date is defined as the submission date of an application that is free of major deficiencies and includes a complete application, a signed contract, a single-line diagram, a complete California Contractors State License Board Solar Energy System Disclosure Document, a signed California Solar Consumer Protection Guide, and an oversizing attestation (if applicable).” Teams that are exploring potential new solar projects should move swiftly to submit interconnection applications to secure NEM 2.0 while it is still available.