California NEM 3.0: Unpacking rooftop solar’s fate

After a series of starts, stops, and outright confusion over the future of rooftop solar, California regulators have released their latest proposal to reform the state’s net metering program. 

The process known as NEM 3.0 has pitted advocates against investor-owned utilities over how customers should be paid for sending excess solar power to the grid. And since it involves the country’s largest solar market, the entire industry is paying attention. 

Vote Solar’s executive director, Sachu Constantine, returned to the Factor This! podcast to break down the latest proposal, which is drawing fire from both sides. Check out Constantine’s analysis of the original NEM 3.0 proposal in Episode 6 of the Factor This! podcast.

"I think, in the end, not everyone's going to be happy. But by in large this puts the possibility of a strong, forward-thinking decision in our sights and certainly possible by the time the final rolls around in December," Constantine said.

The proposal from the CPUC honored some of the concerns of the solar industry. A glide path, albeit a sharp-angled one, would transition the market between generations of net metering policy. And NEM 1 and 2 customers are grandfathered in.

Constantine identified five key pieces in the latest NEM 3.0 proposal:

1. Movement away from retail rates for exported solar power to the grid toward an avoided cost approach
2. Time of use rates
3. No solar tax (grid access fee for solar customers removed from proposal)
4. Grandfathering in NEM 1 and 2 proposals
5. Incentives for energy storage

The latest proposal from the CPUC is seen by many as an improvement from the previous one. But Constantine still has concerns over how the plan treats low-income or otherwise disadvantaged communities.

Eligibility for incentives for low-income customers in the NEM 3.0 proposal is limited to CARE/FERA customers. Constantine said millions of California families living below 80% of the area median income would not qualify for the incentives.

Meanwhile, the CPUC is assuming very low costs for rooftop solar systems, he said, at $3.30 per watt installed. Industry trends show the cost to be closer to $4.24 per watt installed. Fixing this discrepancy could benefit low-income customer eligibility.

"One of our big concerns is, we don't want to leave any communities behind," Constantine said. "We are concerned about the ability of low-income, or otherwise disadvantaged communities, to participate in this program going forward."

The proposed revised tariff would be what the draft called an “improved version of net billing” with a retail export compensation rate aligned with the “value that behind-the-meter energy generation systems provide to the grid” and retail import rates that “encourage electrification and adoption of solar systems paired with storage.”

The proposed tariff would apply electrification retail import rates, with what it said would be “high differentials between winter off-peak and summer on-peak rates” to new residential solar and storage customers instead of the time-of-use rates in the current tariff. 

It also would replace retail rate compensation for exported energy with Avoided Cost Calculator values that vary according to grid needs. It said that the high differential electrification retail import rates in combination with the variable retail export compensation rates provided by the Avoided Cost Calculator would send “strong price signals to customers” to shift their use of energy from the grid to mid-day and export electricity during the evening hours, which promotes the installation of storage with the solar systems. 

The price signals also would potentially benefit customers who electrify their vehicles, home devices, and appliances.

In an effort to ensure the sustainable growth of customer-sited renewable distributed generation, the new tariff would provide a “glide path” in the form of an adder based on the values in the Avoided Cost Calculator. The glide path would allow for a transition period for the solar industry to adapt to a solar paired with storage marketplace.

Constantine believes the proposal is a step in the right direction, but there's still work to be done.

"Let's find ways to improve it," he said.