Thoughts on Solar

TL;DR: NEM 3.0 will drastically lower payback rates in SCE territory
Act before April 14th to lock-in the better rates of the current rules!

(NB: If you are NOT an SCE customer, you can ignore this entirely as it won’t affect you at all!)

In December, the California Public Utilities Commission (CPUC) unanimously approved the Net Energy Metering (NEM) 3.0 proposed decision, making it the law in the territories serviced by the three Investor-Owned Utilities (IOUs) - PG&E, SDG&E, and SCE.  While the final rules aren’t as bad as they started out to be (more on that below), they are still a disaster for the industry.  Here’s our take…

NEM Today…

NEM is the policy that allows solar power system owners to be compensated for the energy that they export to the grid.  Typically, because energy use at home is lower during the day, while your solar system is producing its greatest amount of energy, that energy goes back onto the grid, where the utility then sells it to your neighbor, just as if they had generated it themselves.  But the utility didn’t need to incur any cost to generate that energy, so it is only fair and right that the customer who had invested in that solar power system should be compensated for the excess they provide to the grid.

NEM has had two distinct iterations in IOU territory.  The original form of NEM was full retail compensation - that is, the utility customer was credited one-for-one for the energy that they export.  Since that is the same amount that the utility gets to charge the neighbor receiving that energy, the transaction is essentially a push for the utility.  While that is still the case with the municipal utilities like PWP and LADWP, it is no longer the case with the IOUs in general and SCE in particular.

Back in 2017, the CPUC rolled out NEM 2.0 - and while it was a disappointing departure from full-retail NEM, it wasn’t as bad as the IOUs wanted.  Instead, the changes added a one-time interconnection fee ($75 in SCE territory), required solar customers to be placed on Time-of-Use rates (as opposed to the more economically beneficial tiered rates), and introduced the concept of Non-Bypassable Charges which reduced the value of exported energy by a little over two cents per kWh.  (You can read my post explaining NEM 2.0 here.)  Existing NEM customers were “grandfathered” in for twenty years, thereby guaranteeing that they would retain the value of their investment.

However, that wasn’t the end of the IOU’s war against rooftop solar.  It was understood that there would be a subsequent rulemaking - NEM 3.0 - and the IOUs vowed to bring solar to heel when that rulemaking rolled around.  Indeed, solar managed to thrive in the years since NEM 2.0 went into effect, with California installing more than 1.5 million solar systems by last September.  

I have written at length about the NEM 3.0 Proposed Decision that was released in December 2021, and the solar industry’s efforts to fight it off (as in here, here, here, here, here, here, and here)!  There was good reason for our sense of urgency and our advocacy: the PD was a disaster!  It would have threatened the grandfathering of existing NEM customers, it would have imposed an outrageous tax on new solar systems, and it would have drastically cut the compensation rate for energy exported back to the grid.  If approved as proposed, it would have decimated the solar industry in IOU territories.  Fighting back was our only option.

First - the Good News…

Our unprecedented advocacy had positive results.  The initial PD was withdrawn, and we bought 11 months of delay allowing thousands of additional solar systems to be installed under NEM 2.0.  The rules as adopted leave alone the grandfathering for NEM 1.0 and 2.0 systems which will remain under their rules for 20 years.  Most importantly, we killed the solar tax that would have added a monthly charge of $6/kW on all new systems!

We made a lot of noise and we defeated some of the worst provisions of the original PD - kudos to all who wrote, and spoke, and marched, and called - it made a difference.

And Now, the Bad News…

But as important as those results are, we took a major hit when it comes to the export value of solar energy sent back to the grid - on average, roughly a 75% haircut - and the change happens overnight!  Instead of providing a “glide slope” of reduced export rates over, say, a five-year phase-in period, the drastically reduced export rates land as of April 14.  This will create a “gold rush” to get applications in before the rules change - more on that below.

Not only did the CPUC drastically lower the export rate, they made the means of calculating it completely Byzantine in its complexity, making modeling of export savings more complicated by orders of magnitude.  Under existing NEM 2.0 rules, your compensation was tied to when the energy was exported (since all solar customers were put on a Time-of-Use rate).  That meant you could be getting compensated under one of six export values: essentially high, medium, and low periods for both Summer and Winter seasons. 

By contrast, the new system uses one value for every hour of the year - 8,760 discrete values!  Seriously?

In an effort to provide some clarity out of that chaos, our friends at CALSSA boiled that down into this heatmap that averages those values down to “just” 576 values (12 months times 24 hours, times two categories - weekday and weekend).  Here’s the weekday version (click for larger):

The color coding here is a simple gradient going from red for the lowest values to green for the highest.  There is one thing here that is really curious - see those two green numbers?  If you are exporting energy to the grid between six and seven p.m. during September, SCE is going to pay you nearly $3 for that energy!  Of course, there is very little solar output at those hours, but a properly programmed storage system can time its release of energy to coincide with those peak hours.

Clearly, solar power systems that also include storage will fair better under the NEM 3.0 rules than will solar only systems.  Which is great for those who can afford the extra expense of adding storage, but is awful for everyone else.

In addition to the vastly lowered export rates, all solar customers will be forced onto the TOU-D-Prime rate.  That rate structure imposes a monthly fixed charge of $14.  (Compare that to the 3.1¢/day rate imposed on the tiered, Domestic rate that SCE customers were historically paying.)

The On-Peak rates are eye-popping!  If you are using energy during that 4-9 p.m. window in the summer you will be paying 54¢/kWh!  While that peak is crazy high, the  differential between On-Peak and Off-Peak is enormous: 30.7¢/kWh.  Again, if you have storage and can shift energy from mid-day production peaks for use after 4 p.m., you can leverage that difference.

Of course this reliance on storage to make NEM 3.0 less painful is in discord to the IOU’s professed concern for the inequities of solar - i.e., that it is only for the rich. Making the payback period for solar longer for everyone simply makes it less affordable by working-class people.  Needing to add storage on top of that, really pushes these systems toward the rich, and away from the middle class.  But then, this was never about concerns over lower income customers, this was always about protecting SCE’s profits.

Going Forward

Ok, so we are stuck with a bad decision that goes into effect April 14.  In order to qualify for NEM 2.0, the interconnection agreement must be submitted no later than April 13, and must be “free of major deficiencies and includes a complete application, a signed contract, a single-line diagram, a complete California Contractors State License Board Solar Energy System Disclosure Document, a signed California Solar Consumer Protection Guide, and an oversizing attestation (if applicable).“  The ruling doesn’t define what a “major deficiency” is, and up until now, it has been SCE’s sole discretion as to whether an application was complete and valid.  We have seen applications kicked for the most minor of issues, and if you submit near the deadline, and SCE kicks the application and you now miss the deadline, the value of your project will have changed drastically for the worst.

I’m not sure what other companies will do, but this is our intention: WE WILL NOT GUARANTEE SYSTEM SAVINGS FOR ANY APPLICATION SIGNED AFTER MARCH 31!

We can be certain that there will be problems as we get closer to the deadline, so the above rule will be hard and fast, and our contracts will reflect that reality.  So, a word to the wise: if you are thinking about going solar in SCE territory this year - act NOW!  You do not need to complete the project this year to qualify - you just need the application in and complete.  You have up to three years to actually complete the project!

It’s gonna be a crazy first quarter - the joys of riding on the solar coaster!  Get in touch now so that we can get the process completed in a timely manner.

These may be the dog days of summer, but it is the height of our busy season: multiple projects underway, lots of site evaluations and proposals to manage, and a growing backlog of repair requests on legacy systems that were built by installers who are no longer around. But instead of doing any of that, tomorrow I will be in Sacramento. Let me explain why…

Back in June we wrote about a bill that was then pending in the California legislature, SB 700.  Had it passed, that legislation would have created a predictable, comprehensive rebate program for energy storage throughout the state.  As last week’s eclipse made clear, solar power is having a large (and getting larger) effect on the grid, and the best way to smooth the path of that integration is to add energy storage.  But even on non-eclipse days, there is a substantial need for energy storage to time-shift the availability of solar - which peaks at noon - with the demands of the grid, which peak hours later.  Moreover, as more and more utilities force consumers onto evening-weighted Time-of-Use rates, it will become harder to make the economic case for solar without storage.

But the fly in the ointment is cost - storage today is just too expensive for most consumers. 

We are with storage today where we were with solar itself in 2007.  Back then, solar installations cost around $8.00/Watt - and next to no one had solar!  When the California Solar Initiative kicked off that year, it provided incentives starting at $4.00/Watt that would gradually step down as enough MWs were installed.  The theory then - and experience proved it to be sound - was that by incentivizing the installation of solar, the cost of solar would come down.  Today, the CSI incentives are gone, but the cost of solar is now below $4.00/Watt!  We cut the cost in half, and now solar is commonplace.  Success!

So why not repeat that process with storage?  Why not indeed?

One argument is that we already have a program in place for incentivizing storage, called SGIP.  But SGIP is massively bureaucratic, and operates as a lottery, meaning there is no guarantee that an applicant will get funded.  While neither of those conditions might be a deal-breaker for utility-scale projects (and utility-scale developers), they are a terrible fit for a program that is targeted at residential, commercial, and non-profit installations.  What is needed there is transparency, an easy application process, and a predictable - that is, marketable - rebate amount.

SB 700 died in Committee - I want to know why!

SB 700 would have done all of that.  Instead, it died in committee, without even getting a hearing, let alone a vote.  It died because the Chair of that committee - my very own Assemblymember, Chris Holden - decided to put it in his pocket.  Why did he do that?  I don’t know - he didn’t say.

I’m going to Sacramento to find out.

I should be staying here in Pasadena, helping folks get solar on their homes.  Instead, I will be getting on a plane first thing and flying to the Capital to meet up with other solar installers from around the state. Our mission - to try and impress upon the legislature how this bill would be good for the grid, good for their constituents, and good for local jobs.

We hope to do some educating, and at the same time, learn some important lessons ourselves.  I will let you know how it goes.  Watch this space…

On Sunday we wrote about a growing problem in California: as we have increased the role of solar generation in our electric mix, we have found ourselves in the awkward position of having to occasionally curtail that production, or worse yet, pay neighboring states like Arizona to take our excess!  This is clearly not sustainable, but fortunately there is a fix in the works in the form of Senate Bill 700, and it just needs the support of the solar community to make it happen.  Here’s our take…

The Glut

As everyone knows, the production of a solar power system peaks at solar noon - on a cloudless day providing a nice “bell curve” for power output, like in this illustration from an actual, Run on Sun solar installation.  The problem is that the peak demand for electricity does not align with solar’s peak; rather, peak demand occurs much later in the day when folks come home from school and work and crank up the electrical devices that define modern living - giving rise to the dreaded “Duck Curve“.  If only - as our friend Carter Lavin ruminated the other day - there were a way to shift that energy in time from the solar peak to the demand peak!

Of course, there is such a way.  It is called energy storage.  Storage could provide that time-shift needed to make the most of our abundant solar energy.  So why aren’t we using it?

In a word - cost.  Today, energy storage systems are just too expensive, and the existing rebate system for storage systems, known as SGIP, is a joke.  The SGIP process, which is essentially a lottery, is no way to run a rebate program.  As we have argued in the past, for a rebate program to be meaningful, it has to be stable and predictable.  SGIP is neither.

The Glory

But this isn’t rocket science, and we have a relevant case study right before us - the California Solar Initiative (CSI) rebate program.  When CSI began, back in 2007, its 10-year mission was to dramatically grow the PV market in California and, in so doing, drive down the costs of solar.  Back when it began, Run on Sun was installing systems for $8.47/Watt.  By 2014, after CSI ran its course, our install price was down to $4.13/Watt - a reduction of 52% in just seven years!  CSI (along with the muni-rebate programs) helped to achieve that cost reduction by providing transparency and predictability that a lottery program cannot replicate.  Moreover, the CSI program was easy for even the smallest contractors to navigate, making the program available to all.  This is what is needed to bring storage prices down, drive exponential growth (and the local jobs that go with that growth), and stop the madness induced by our present power glut.

So how do we get there, if SGIP is not the way?

Glad you asked - enter SB 700 (Weiner, D-San Francisco), the Energy Storage Initiative (ESI) that would create a 10-year, $1.4 Billion rebate program along the lines of CSI, but for energy storage systems.  Here’s how CALSEIA describes the bill:

SB 700 would create a 10-year rebate program designed to grow the California local storage market and make storage more affordable for consumers. The rebates would step down as more storage systems are installed and economies of scale are achieved, thereby driving down the installed cost of the systems. Local energy storage enables the integration of large amounts of renewable energy, creates value for consumers by helping them save money on energy bills, and increases grid reliability.

“Thanks to the leadership of Sen. Scott Wiener, Californians are one step closer to taking control of their clean energy future,” said Laura Gray, energy storage policy advisor with the California Solar Energy Industries Association. “This bill would allow homes, businesses, schools and public buildings to use solar and renewable energy at all hours of the day and night. Using a combination of solar and storage, consumers will make the sun shine at night.”

The bill has already passed the California Senate (sadly, on a straight party-line vote), but it faces an important vote as early as July 5th in the Assembly Utilities and Energy Committee, Chaired by Pasadena’s own, Chris Holden.  This bill should have bi-partisan support given the urgent need to move to an all-renewables future, but for that to happen, Committee members (and the Assembly as a whole) need to hear from their constituents. 

If you are in Chairman Holden’s district (which includes all of Pasadena and Altadena) you can reach his office at: 916-319-2041 and urge him to support SB700. 

Otherwise, you can find out your member of the Assembly by doing a search here.

Together we can get this bill over the hump - watch this space!