California has always been a leader in all things green, and home solar is no exception. The Golden State accounts for nearly 50% of the national residential solar market, due to a combination of plentiful sunshine, high utility electricity prices, 38 million residents — and a whopping 69 state, local, and utility incentive programs for residential solar! These incentives cover a wide range of areas, including rebates, interconnection standards, zoning rules, permitting standards, property tax exemptions, and property-assessed clean energy (PACE) financing.
While all of these incentives have helped, none is more important to California’s solar industry than Net Energy Metering (NEM), which allows home solar customers to be compensated for the full retail price of the electricity they generate. As we’ve covered previously, state-level NEM policies are increasingly recognized as the most important type of solar policy in the U.S., and their success has made them a target for attacks from utilities and conservative energy interests. Due to some of the highest residential electricity prices in the country, NEM is especially critical to the economics of home solar investments in California, as evidenced by more than 400,000 solar installations taking advantage of the policy statewide.
Thus, the solar industry had ample cause to celebrate — and breathe a huge sigh of relief — when the California Public Utility Commission (CPUC) voted 3–2 to preserve existing retail NEM policies in the state through at least 2019. While there will be increased charges for grid maintenance and public purpose programs, as well as a $150 application fee for new NEM customers, the California Solar Energy Industries Association hailed the news for retaining “simple and proven effective” rates that should continue to drive strong solar adoption. The reaction to this “NEM 2.0” ruling was a dramatic contrast to the controversial and punitive-seeming recent decision to roll back NEM policies in Nevada, and the state’s utility monopolies grumbled that they were “extremely disappointed” at a ruling they found “unwise and unfair.”
The extremely welcome news for the solar industry came with a twist, however: new residential NEM customers will be subject to time of use (TOU) rates, which charge higher prices for electricity during hours when demand is highest. TOU rates — which already apply to commercial and industrial customers and will be phased in for all residential users by 2019 — are expected to benefit both the environment and utility planners by reducing the use of expensive, dirty “peaking” power plants during periods of heavy electricity demand. However, since TOU rates will also make the compensation NEM customers receive for their solar generation more variable, the Solar Energy Industries Association has expressed concern that it could challenge the current predictability of home solar investments “because we don’t yet know what those rates will be.”
Within every challenge lies an opportunity, however, and in this case TOU pricing in California may help unlock a huge market for another fast-growing clean energy technology: electricity storage via home battery systems. By pairing their solar panels with batteries, homeowners could store electricity generated in the middle of the day and maximize its value by selling it back to the grid during early-evening peak hours when demand and prices are highest. This trend is already underway in Australia, where the combination of TOU pricing and a reduction of incentive tariffs are driving that country’s uniquely high percentage of residential solar customers to look into adding battery systems like Tesla’s Powerwall to their homes.
Despite this wrinkle, the NEM 2.0 ruling is unequivocally good news for California’s solar future, providing policy certainty that will undergird continued strong growth in residential clean energy for years to come. And, by providing what could be an incentive for further innovation in storage, the push towards TOU pricing will help the state remain at the forefront of the energy industry’s evolution. By the time NEM 3.0 comes up for consideration in 2019, CPUC may be looking at a radically different — and cleaner, more distributed, and customer-empowered — market in the Golden State.
John Atkinson is the director of regulatory affairs for an alternative fuels startup and previously worked as a senior associate focused on energy issues at a DC-based consultancy. He has provided analysis at the intersection of energy, technology, and policy for clients ranging from Fortune 100 companies to startups, covering energy sources ranging from oil and gas to solar and other renewables. He currently lives in Los Angeles in a solar-roofed house, and composes electronic music for live performance and film when not geeking out on energy (or basketball).