On January 28 the California Public Utilities Commission (CPUC) voted 3-2 to adopt new rules governing what is known as Net Energy Metering, thereby creating the framework for Net Energy Metering 2.0 (NEM 2.0). Here is our take on what the CPUC did, and didn’t do.
The first and most important thing to know is that for many people, the new rules adopted by the CPUC will not affect you at all! These new rules only directly apply to customers of the three investor owned utilities (IOUs): SCE, PG&E, and SDG&E. If your electrical service is provided by one of the municipal utilities - like PWP or LADWP - nothing that the CPUC did last month will directly affect you since the CPUC does not have jurisdiction over the munis. (That said, the munis often follow the lead of the CPUC, so it is entirely possible that they will individually adopt their own version of NEM 2.0, but that will be a discussion for another day.)
Even for solar clients in the service territory of one of the IOUs, if you have already signed a net metering agreement, you will be grandfathered in and allowed to continue to operate under the old rules for 20 years. Once the 20 years have elapsed, you will be transitioned to the net metering rules (NEM 5.0?) then in effect.
Beyond all of that, even for new solar clients in IOU territory, these new rules do not go into effect right away. Rather, the old rules will still apply until your utility reaches their 5% of customer aggregate demand cap, or July 1, 2017 - whichever comes first. In SCE territory it is an open bet as to which will occur first (see more below).
Bottom line: this is not happening right away, so you still have time to benefit from the existing rules.
Net metering is changing!
Lots of people weighed in on NEM 2.0 including all three IOUs, CALSEIA, NRDC, and various advocates for rate reform and consumer protection. While some of the proposals, and their proponents, were entirely predictable, others were not, and at least one such position was seriously disappointing.
For example, the three IOUs all advanced proposals that would have significantly reduced the value of going solar. SCE wanted to reduce the rate for energy exported from full retail to just 7¢/kWh (with a 1¢ adder if you give SCE your renewable energy credits), plus a $3/kW/month “grid access charge", and a one-time $75 interconnection charge. (SDG&E’s proposal was even worse, seeking a $9/kW/month charge!) On top of that SCE wanted to eliminate virtual net metering altogether.
At the other extreme, the “solar parties” (such as CALSEIA and The Solar Alliance) advocated for keeping net metering at full retail value. However, in a nod to changing realities, they did support paying on nonbypassable charges (more on that mouthful in a minute) but not until after 2019.
Still, there was one proposal that strikes us as entirely reasonable which CALSEIA opposed - mandatory warranty periods. Back when the California Solar Initiative was in place (i.e., when SCE was paying rebates), solar contractors were required to provide a ten-year warranty on their work in order to participate in the program. With the demise of the CSI program, technically that warranty requirement also went away. As part of the NEM 2.0 rulemaking, ratepayer advocates advanced the notion of restoring the warranty requirement - a common sense request that no one should oppose.
But the “solar parties” did oppose it, asserting that such a requirement could “discourage innovation in product offerings." Seriously? What “product” might we reasonably want to offer that having to stand behind it would be discouraging? When pressed about this position during CALSEIA’s NEM 2.0 webinar, Brad Heavner, CALSEIA’s policy director, said that the view was that the market could decide this: presumably if a company didn’t offer a warranty and that was important to the customer, they would go with a different company. This was not, however, a position that CALSEIA pushed hard to win, and in the end, they lost on this point.
In our view, opposing a mandatory warranty paints solar in a bad light. It puts the industry on the side of those who do the least reliable work, and penalizes those companies who go the extra mile to install systems that will stand the test of time. From what we have seen it is tough enough to get a company to honor its warranty commitments, let alone relying on the “invisible hand” of the market to protect consumers. CALSEIA did a lot of great work on NEM 2.0, but this position was a mistake.
The ultimate decision is a major defeat for the IOUs, and a partial victory for the solar industry. For the IOUs, they clearly overplayed their hand, advancing proposals that were so clearly anti-solar that the Commissioners couldn’t really take them seriously. According to a CALSEIA webinar, toward the end of the proceedings the IOUs suggested an energy export feed-in-tariff which, if they had proposed it at the start, might have gained traction. Something to think about as we look toward subsequent iterations on NEM rules.
The solar industry retained full retail value for energy exports, but they also saw three changes that undercut somewhat the value of that victory: nonbypassable charges (NBC) for all energy taken from the grid, one-time interconnection fees, and mandatory time-of-use (TOU) rates. Let’s look at each in turn.
As part of their rate schedules, the IOUs have certain rate components that are known as nonbypassable charges or NBCs. For example, if you were to look at SCE’s Domestic Rate schedule tariff page (check out page 3), you would see a whole host of factors that go into making up the rate that the customer ultimately pays. The decision affects three of those NBCs: the Nuclear Decommissioning Charge, the Public Purpose Programs Charge, and the Department of Water Resources Bond Charge. The sum of those three charges for an SCE residential rate payer comes to 2.224¢/kWh. (The lion’s share of which is the charge for public purpose programs, such as bill assistance to people on limited incomes.)
Under the old rules, solar customers would only pay for these charges on the net energy that they consumed in a month. So, if your consumption was 1000 kWh per month, and your solar system produced 800 kWh, you would only pay these charges on 200 kWh, about $4.45. Under the new rules, however, every kWh that you pull from the grid, whether it is ultimately netted out by energy you exported, is subject to NBCs. Sticking with the same example, of the 800 kWh that you produce, imagine that 500 kWh of that are consumed at your home and the remaining 300 kWh are exported. Meaning that you imported a total of 500 kWh from the grid. As a result, under NEM 2.0 you will pay NBC on 500 kWh — raising the charge from $4.45 to $11.12, and increase of $6.67/month on the solar customer’s bill.
The relatively small impact of the NBCs is due in part to solar industry lobbying that held the line at around 2¢/kWh versus a proposal, apparently favored by the two dissenting Commissioners, to include more charges that would have brought the total above 4¢/kWh. (Indeed, we are told that keeping the NBCs at 2¢/kWh is what caused those two Commissioners to vote against the final package.)
Frankly, we think the NBC costs are fair. The programs supported by the NBCs are a public benefit and all other customers pay for those based on every kWh they pull from the grid. Under the new rules, so will solar customers. Of course, if you are in a lease and only saving $20/month from your old bill, this is a much bigger hit. Yet another reason to avoid leasing!
Also reasonable was the imposition of one-time interconnection fees to be set based on the IOUs actual cost of handling the interconnection. The CPUC estimates that the fee will be somewhere between $75-150. (Recall that SCE advanced a $75 fee as part of its proposal, so it will be fascinating to see if they try to come back for a higher fee now!)
The biggest hit to solar mandated by the NEM 2.0 rules was the requirement that solar customers get switched over to TOU rates. (SCE is moving all customers to TOU rates eventually, but that target date is 2019.) Under TOU rates, you pay more for your energy depending upon the time of day when you use it, as opposed to being on a tiered rate schedule where you pay more when you use more during a billing cycle. For residential customers, SCE sets its peak charge time as the hours between 2 and 8 p.m., and Noon to 6 p.m. for commercial customers. This means that, for residential customers, solar exported to the grid before 2 p.m. will be valued less than energy that needs to be pulled from the grid after the sun goes down, but before 8 p.m.
It is this change to the rate structure, and to a lesser extent the imposition of the full NBCs, that makes intelligent energy storage that much more valuable. With smart storage, you won’t export energy during the day, you will store it for later use. That reduces the total amount of energy pulled from the grid (lowering the NBCs) and allows you to shift the availability of the energy to the evening so as to avoid peak TOU rates altogether. There can be no doubt that this is the future for how solar installations under NEM 2.0 (and likely beyond) will be the most cost-effective. We are optimistic that by the time NEM 2.0 goes into effect for SCE clients in our service area, we will have an intelligent storage solution to offer.
So when does all of this go into effect? As we noted above, at the very latest, the new rules go into effect on July 1, 2017. Most likely, however, they will go into effect sooner than that since the actual start date is tied to when the IOU reaches its 5% cap. In SCE territory, the following NEM report is informative:
SCE’s total customer aggregate demand, the basis for the 5% cap, is 44,807 kW. 5% of that is 2,240 MW of solar installed. As of the end of December, 2015, SCE had 1,388 MW of solar either installed or with net metering agreements in place, leaving 852 MW remaining under the cap.
The report also shows that applications for 48.1 MW of new solar were received during the month of December. If we take that number as a fair monthly average, we can expect SCE to reach its cap in 17 to 18 months. So to lock-in your system under the existing rules, you will need to have your net metering application complete and on file with SCE before then (May-June 2017). We will continue to update on the status of SCE’s progress toward its cap.
On the whole, the solar industry dodged a bullet, especially when you look at the latest battles over NEM in other states, like Nevada. This success is a tribute to the thousands of people who took the time to advocate for solar, whether they be our trade association, CALSEIA; individual solar companies, like Run on Sun; or solar customers who reached out to inform the Commission of the true value of solar. Not lost in the debate was the importance of solar as a job creation engine in California.
Moreover, the political climate in California, from the Governor on down, has been strongly supportive of solar and they deserve our thanks as well.
We would love to hear your thoughts and if you have questions that haven’t been answered here, please leave them in the comments and we will do our best to address them.
The new year is well underway (Happy New Year!), and so it is timely to revisit the question of financial incentives to Go Solar in the Run on Sun service area. (You can read more detail about all of these incentives on our Solar Financing page.)
Beyond a doubt, the most significant incentive for going solar is the 30% federal tax credit. Previously set to expire at the end of this year, the federal solar tax credit was extended late last year, continuing at the present 30% through 2019.
The credit applies to solar installations in every utility’s territory, so no matter where you live in the U.S., this credit applies to you. (NB: this is a tax credit, not an income deduction, so you need the tax “appetite” to take full advantage of this incentive - check with your tax advisor.) For residential clients, the basis for the credit is the full cost of your solar project, less any rebate that you might receive from the utility. Commercial clients, who must declare any rebate as income, do not need to deduct their rebate from the system cost when calculating the basis.
Once common everywhere, utility rebates are going the way of the dodo—with one or two notable exceptions. We have rank ordered the local utilities below, based on the reliability of their rebate program.
The big winner, again and by far, is the solar rebate program operated by our own Pasadena Water and Power. Year in and year out, PWP offers rebates to its customers in a transparent and consistent manner - something that cannot be said of any of its neighboring utilities.
As of this writing, PWP is offering a rebate of $0.45/Watt for both residential and commercial customers, and a rebate of $0.90/Watt to non-profit customers (who cannot take advantage of the federal tax credit). Alternatively, PWP also offers a performance-based incentive that is paid out over two years based on the actual production of the system. Residential and commercial customers are paid 14.4¢/kWh, whereas non-profit customers are paid 28.8¢/kWh.
LADWP offers a rebate, if you have the stamina to receive it. Vexed with the most bureaucratic process to be found this side of Orwell’s 1984 dystopia, applying for and receiving a rebate from DWP often feels like a reward for a life well spent.
That said, LADWP is currently offering rebates of $0.30/Watt to residential customers, $0.40/Watt to commercial, and $1.15/Watt to non-profits. Just don’t hold your breath.
These two municipal utilities often feel like one and the same given their similar approach to rebates - which is to say, now you see ‘em, no you don’t.
Unlike their neighbor to the east, neither BWP nor GWP is able to maintain a rebate program throughout the year. Instead, both open their rebate windows on or about July 1st (i.e., the start of their fiscal year) and then hand out money until it is gone, at which time the window slams shut until the following July 1.
Burbank’s program operates under a lottery, which last year opened on July 1 and was exhausted by August 15. In addition, BWP imposes restrictions on the azimuth and pitch of rebated systems, despite their being no technical justification for doing so.
Glendale’s program is even less transparent, and the installation/rebate process is outlined in a 23-step ode to inefficiency.
We will revisit both of these program in mid-June to provide what guidance we can to the residents of these two cities.
The “Solar Partnership Program” in Azusa is fully subscribed. There is a wait list that solar-hopeful customers can get on in the hope that at some point there will be rebate funds available - with no guarantees that there ever will be.
The Anaheim Solar Incentive Program was fully subscribed as of October 1, 2015 and is now closed, with no published plans to revise the program in the future.
SCE’s rebates, which were part of the larger, California Solar Initiative, have expired and no new funds are anticipated. Of course, SCE customers still have the highest electricity rates around, which provides its own—albeit perverse—incentive to Go Solar!
You may have heard that there are forces afoot - brought to you by the investor-owned utilities - that would lead to a “catastrophic” diminution of savings from solar power systems. Stories from the LA Times, to CNBC, to even the Motley Fool all are proclaiming that change is coming to solar and the end is in site for any real solar savings. To which we say - not so fast. Take a deep breath and read on to see our take.
For example, just today the LA Times ran a story in the Business section quoting solar customers who were “just so angry” over not having access to renewable energy credits (RECs) under the state’s new renewable energy targets law. Yet, that isn’t a change to past practices – no residential client has been able to sell RECs on the open market.
Similarly with the upcoming changes in the state’s net metering rules - while the investor owned utilities, including our own Southern California Edison, are lobbying like mad to make solar less economically appealing, no decision has yet been reached. Moreover, the California Public Utilities Commission (which is charged with resolving this issue) has consistently sided with the solar industry, and most likely will do so now. If they don’t, there will still be the option of seeking a legislative fix before the new rules can go into effect.
And that raises yet another point that counsels for a less breathless approach to all of this: the new rules won’t take effect for at least a year, and clients who install solar before then are locked into the present, solar-friendly net metering rules for the next twenty years!
So let’s recap:
But there is one catch here - the second half of 2016 is poised to be crazy with lots of consumers trying to get their projects completed in time to take the tax credit. This will invariably lead to a real crunch and folks who wait too long will miss out. If solar is in your plans for 2016, the time to get started is now!
When you are fortunate enough to work in the Solar Industry you really should be thankful everyday. After all, we are a part of doing something wonderfully important at work, and how many people can honestly say that? We provide genuine value to our clients by bringing them clean, affordable solar energy, and we get to make our living at the same time – pretty cool!
But with the holidays upon us, starting with Thanksgiving tomorrow, we wanted to take a look back on this year and highlight some of the things for which we are especially thankful, today and all year around.
So, in no particular order, here is our list for 2015…
Of course, at the end of the day, it is all of our clients for whom we are the most thankful! From the first to the latest, from the smallest to the largest, and everyone in between - you are why we do what we do, and we never for a moment take for granted the trust you have placed in us.
May your holidays be filled with peace and joy and love!
Recently a potential client was asking us about an oddity in their Pasadena Water and Power (PWP) electric bill. PWP has a tiered rate structure, but the most visible component of that tiering, the Distribution charge, steps up above 350 kWh of usage in any one month, but it steps down above 750! Which lead us to the question, are PWP’s electric rates regressive?
PWP’s Residential rate structure, like many utility tariffs, is a model of complexity. On your bill there are a number of obvious charges, and a few that are not so obvious. The obvious ones are on the right-hand-side of the bill and include a Customer charge, a Distribution charge, a Transmission charge, and an Energy charge. (The not-so-obvious charges include those related to public benefit programs and paying to put power lines underground.)
All of these obvious charges are tied to the customer’s usage, but only one, the Distribution charge, is tiered. At or below 350 kWh of usage per month, the customer pays just 1.5¢/kWh. Between 351 and 750 kWh of usage the Distribution charge increases dramatically all the way up to 11.65¢/kWh, nearly an eight-fold increase! Ok, the whole point of a tiered rate structure is to discourage higher use by making you pay more as your usage increases. But PWP’s rate then does something truly odd - above 750 kWh/month the rate comes down, dropping from 11.65¢/kWh to just 8.5¢/kWh! What sort of an incentive is that?
That rate design is certainly counter-intuitive, to say the least, but is it regressive? In other words, is there a point at which a large residential user ends up paying less per kWh than does someone who uses less? To find out, we modeled daily usage from 10 kWh/day all the way up to 60 kWh/day. As a reference, a typical Run on Sun client in PWP’s service area averages around 25 kWh/day. Since the Transmission and Energy charges are adjusted higher in the summer months, we broke out the overall rates seasonally as well.
Here are our results (click for larger):
The blue line is the winter rate and the orange is summer. If you use a tiny amount of energy you will pay between sixteen and seventeen cents per kWh, with rates rising sharply until you get to 25 kWh/day. Beyond that, the rate of growth flattens out markedly, but it never dips down. (That is true even if you carry the analysis all the way out to 200 kWh/day!)
Contrast this with the SCE Domestic rate - that is a truly aggressively progressive rate structure with energy charges of 14.5¢/kWh for those using within the smallest (baseline) tier of energy, going all the way up to 30.8¢/kWh for energy used in the fourth tier, which kicks in for monthly usage above approximately 900 kWh.
So no, PWP’s Residential rate is not regressive, but by flattening out the rate for usage above 25 kWh/day, it sends at best a mixed signal if the utility is trying to encourage its customers to reduce their usage.
How does this relate to solar? Well, if your usage is above 20 kWh/day you are spending at least 20¢/kWh whereas the cost of a solar power system will be less than half of that! So yes, in PWP territory - and particularly while they still have rebates in place - installing solar will still pay you big dividends.