CURRENTS: The Future of Net Energy Metering (NEM)

by Julia Kim, Local Government Commission

On December 15th, the California Public Utilities Commission (CPUC) issued a Proposed Decision on Net Energy Metering, which proposes a successor program to the current Net Energy Metering (NEM or Net metering) program to ensure that Californians will continue to receive the benefits from going solar.

Net metering is a billing mechanism that credits solar energy system owners for the electricity they add to the grid. Essentially, rooftop solar customers with net-metered homes can obtain credit for excess energy generated during daylight hours to use at night or when energy use exceeds the system’s output on a one-for-one basis; thus customers are only billed for their net energy consumption. Net metering is an essential piece of the state’s policy framework to spur investment in renewable generation, critical to accelerate our transition to a clean energy economy and increasing customer choice. Net metering supports the right to self-generate, reduces grid electricity use, and properly values solar electricity and adequately compensates solar customers. It also provides substantial economic benefits by increasing demand for solar and in turn creating jobs for installers, electricians and manufacturers who work in the solar industry and supply chain. Additionally, net metering encourages distributed energy, also known as on-site generation or decentralized energy, reducing the strain on distribution systems and preventing losses in long-distance transmission and distribution.

Although the proposed decision specifically declines to “impose any demand charges, grid access charges, installed capacity fees, standby fees, or similar fixed charges on NEM residential customers,” the successor program includes some adjustments to align the costs of NEM successor customers more closely with those of non-NEM customers, which include:

  • One-time interconnection fee (likely to be approximately $75-$150). This fee, which represents the costs for a utility to review and ensure that a NEM system interconnects safely to the grid, has historically been borne by all utility customers, including non-NEM customers. The Proposed Decision finds that these interconnection costs can be paid by NEM successor customers themselves without jeopardizing the economics of the NEM installation.
  • Non-bypassable charges that all utility customers pay. Non-bypassable charges are used to fund low-income and efficiency programs. They are the equivalent of approximately 2-3 cents per kilowatt-hour of energy consumed. Historically, NEM customers have only paid for non-bypassable charges if, over the course of a year, they consumed more electricity from the grid than their installation produced. The Proposed Decision finds that NEM successor customers should pay for non-bypassable charges on all energy they consume from the grid, regardless of the amount of energy they have exported to the grid.

The Proposed Decision also requires NEM successor customers who sign up in 2018 or later to utilize time-of-use rates as soon as they sign up. All NEM customers must utilize time-of-use rates beginning in 2019 when all residential customers go on default time-of-use rates. In the past, time-of-use rates focused on charging more for power during hot summer weekday afternoons, but increased solar generation is causing disruptions in these predictable peaks and dips. This will require flexibility in these mandated rates and improved demand-side management.

While many solar companies and advocates are in support of the Proposed Decision to continue NEM, concerns have been raised over reducing customer motivation to install solar by imposing additional fees and mandating time-of-use rates. Others are advocating for more robust policies and incentives that further strengthen the grid and help balance the system, such as incentivizing solar oriented toward the west to capture late-day sun or in targeted locations to feed the grid during peak demand hours. From utilities to solar companies and customers, this policy mechanism brings forth an array of differing opinions on how it can be improved, but the Proposed Decision successfully demonstrates alignment with aggressive state energy goals (to reduce GHG emissions to 40% below 1990 levels and increase utility power coming from renewable energy sources to 50% by 2030) and commitment to California’s transition to a clean energy economy.