California could eliminate net metering subsidies for grid-tied solar PV systems. Discover exactly what this means for you (regardless of where you live) and what you can do to keep costs down and business up.
California’s current net energy metering (NEM) program is ending on July 1, 2017–or earlier, if the program reaches 5% of aggregated customer peak demand. After that, existing people are grandfathered in for 20 years. And new solar users will face a completely different tariff that’s predicted to strongly favor the utilities and be far less cost-effective for solar users.
One hope: The California Public Utilities Commission could maintain current NEM rates. The industry is currently lobbying regulators to do just that.
But the threat of changing NEM structures reached beyond California. Since it was first adopted in Idaho in 1980, NEM has spread to 43 states. And last year, the Washington Examiner said nearly half of them are trying to reduce NEM benefits and solar subsidies.
The federal law that made NEM possible, PURPA, was amended with utility companies’ input in 2005 to give states wide latitude on solar deployment caps (five states, including California, have already reached their caps). This ends the era of net metering as we know it.
That’s led more homeowners and small businesses to go off-grid, investing in batteries using the money they would have saved on utility bills. And as more renewable energy users leave the grid, traditional installers and manufacturers risk being left behind.
In this article, you’ll learn how net metering works, what these changes mean for you, and how you can make sure you don’t get hurt when they’re rolled out.
What is net metering?
Net metering is a special billing arrangement where customers with solar PV systems get credit–often full retail value–for electricity they add back to the grid.
For example, a residential customer’s solar system might generate excess electricity during peak daylight hours, when power plants often struggle to meet demand. The homeowner’s extra electricity is sent to local distribution facilities and returned to the power grid–and the homeowner gets a credit off their electric bill or their electric meter runs backwards. At night, the customer uses some of the power they sent to the power grid.
NEM stabilizes the power grid because residential solar systems typically put energy back into the grid at a time when the utilities need it most: mid-day at peak demand. It also lets RE users maximize ROI on their solar systems because they can zero-out their bills, get accurate performance data, and earn full retail rates for the electricity their solar panels put back into the grid.
And California’s NEM, which started in 1995, now leads the country with 247,041 solar installations generating 2,407 megawatts (MW).
Under the current system, California’s power customers with PV systems sized 1 MW or less get financial credit for the electricity that their systems deliver to the utility grid. They can use those credits to offset power they get from the grid during the same 12-month period. If the customer produces excess power, then they get a check from the utility at a wholesale rate (which reduces utility companies’ profits).
But those benefits are coming to an end.
In October 2013, California Gov. Jerry Brown signed into law Assembly Bill 327, a bill designed to help California reach its mandate of obtaining 33% of its energy from solar and renewables by 2020.
With it came sweeping changes for the economics of consumer and commercial solar. AB 327 dramatically alters the current NEM structure, which California’s investor-owned utility company argue saddles them with more transmission and distribution costs. On July 1, 2017, the California Public Utilities Commission (CPUC) will be able to modify NEM contracts and tariffs for existing customers.
Anyone who isn’t grandfathered in will likely face drastically cut benefits, if NEM is available at all. New grid-tied customers with solar systems are expected to face a Feed-in Tariff (FIT) and pay a larger amount of the distribution infrastructure costs and monthly charges–even if they don’t use the power grid. And the major California utility companies are proposing paying NEM customers at a reduced rate, instead of the retail rate–roughly 50% to 60% of the current rate.
Changes in peak demand rates have hit commercial, industrial and institutional customers especially hard. Many California schools, for instance, adopted solar early and enjoyed net zero utility bills. But when demand rates started applying to all four seasons, they were forced to pay full demand rates–similar to a tax on every taxpayer.
At the same time, the Federal Solar Investment Tax Credit (ITC) is scheduled to expire, dropping government credits from 30% to 10% for commercial systems and 0% for residential users.
What does this mean for you?
As grid-tied benefits such as NEM and PV subsidies dwindle, grid-tied systems become less cost-effective.
Now, many homeowners and industrial and commercial customers are going off-grid. They’re using the money they save on utility bills toward renewable energy batteries, especially lead-acid batteries that offer longer life, improved safety and recyclability, and a 100+ year track record.
With battery banks, renewable energy users never have to worry about the grid going down or subsidies disappearing. And backup systems using natural gas can offer an additional buffer during periods of low power generation.
Off-grid users are even protected from an unexpected threat: forest fires. In some areas, especially Southern California, power companies are turning off power when there’s a risk of forest fires during high winds. San Diego Gas & Electric routinely shuts off power to rural customer when it’s windy and dry. Homes that rely on water wells don’t have the electricity to pump water out–so homeowners can’t protect their property from fire by wetting it down.
What you need to know about off-grid
As subsidies and net energy metering for grid-tied PV systems go by the wayside, demand for grid-tied NEM systems will decrease. That’s why it’s time to start planning for more off-grid installations. Here are several keys.
Homeowners and commercial and industrial property owners:
- Reduce energy demand before going off-grid. Energy efficient electronics and gas fired air-conditioning, insulation, and electronics and lifestyle changes dramatically reduce system costs.
- Keep batteries in float during the daytime by producing additional solar electricity, provide larger battery band to manage demand.
- Check with an installer or consultant you trust to find the best system and approach for you.
- Consider using a natural gas backup generator to supplement your renewable energy and battery backup systems.
- Learn how to choose the right batteries for your system.
- Work with your installer to make sure you have large enough solar panels and batteries to handle low production days and beat demand charges.
Installers and distributors:
- Get training and education on how to properly design, install and maintain off-grid systems.
- Learn more about battery storage, which is one of the key differences between grid-tied and off-grid systems.
- Start adding more off-grid projects to your mix, so you’re protected as the market for grid-tied systems decreases.
By Mark Snyder, Mark Snyder Electric