Important Update: Changes to Solar Net Energy Metering (NEM) Rules

If is considering commencing any solar energy projects in the next two years, please review this status report regarding impending revisions to net energy metering (NEM) rules.

Executive Summary: Anyone planning new solar should strongly consider submitting interconnection applications prior to November 2021, to secure 20 years of grandfathering under current NEM rules that are more solar-friendly than the rules to come.

Deep Dive:

  • Regulators at the California Public Utilities Commission (CPUC) are revising the NEM rules for customers of PG&E, SoCal Edison, and SDG&E (the Utilities) in proceeding R.20-08-020. The case is on track to conclude late this calendar year. (Municipal utilities such as LADWP, SMUD, Modesto Irrigation District, etc., set their own NEM rules.)
  • Among other things, NEM rules dictate how solar customers are compensated for “excess” energy that they send out to the grid, when “the meter runs backwards.”
  • Under the current rules, called “NEM 2,” when solar customers send energy out to the grid, they receive bill credits nearly equivalent to the full retail rate. Credits for power sent out to the grid are “netted” against charges for power that the customer imported from the grid at other times. The higher the bill credit, the more a solar customer saves on their utility bill.
  • Critics of NEM 2 rules say that the current system subsidizes solar customers and increases electricity rates for non-solar customers. In prior NEM cases, the Utilities have argued that customers should receive bill credits far below the retail rate.
  • The bad news is that we expect new NEM rules, called “NEM 3,” to move in the direction favored by the Utilities, meaning lower credits and much poorer economics for customer solar, also called “behind-the-meter” solar, as compared to NEM 2.
  • For example, if the average all-in retail rate for grid power paid by a customer is 23 cents per kWh, under NEM 2 the customer probably receives 21 cents of credit on average for power sent out to the grid. Under NEM 3, credits for that customer might drop to 10 or 12 cents. These are illustrative rates. Every customer’s experience will differ. But the examples accurately depict the likely magnitude of how NEM 3 may negatively affect future solar projects.
  • The good news is that customers who submit interconnection applications to the utility prior to the conclusion of the CPUC proceeding (we estimate Nov/Dec 2021) will be granted 20 years of grandfathering on the current, more solar-friendly NEM 2 rules.
  • Interconnection applications are filed with the Utilities well before construction starts. They can be filed even before a solar contract is signed, although that requires careful planning.

SPURR’s Renewable Energy Aggregated Procurement (REAP) Program Team has years of experience with hundreds of solar projects implemented by nearly 50 public agencies. If you have any questions about NEM rules or interconnection applications, about solar or energy storage in general, or about how the REAP Program works, please don’t hesitate to email or call me.

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