Net Metering 3.0 - Is The Fate of California’s Solar Industry Hanging in The Balance?

Is everything alright in sunny California? On the surface, it might seem like a strange question to ask. And one that’s completely out of context. But a closer look at the uncertain fate of Net Metering 3.0 indicates otherwise. While California’s utility industry has long been rallying against the state’s net metering laws, the current state of affairs leaves a lot to be desired.

But what is net metering? Why’s there such a hue and cry over it? How does Net Metering 3.0 affect California’s booming solar industry?

For answers to these questions, we need to start at the beginning.

The History of Net Metering

In 1979, architect Steven Strong incorporated solar panels in two of his projects – the residential Granite Place and the government-funded Carlisle House. Strong’s projects worked on a simple principle. When the solar panels generated more power than was being used by these buildings, the utility meter ran backward. When the photovoltaic cells didn’t generate enough power, the meter drew on electricity.

Thus, Strong accidentally triggered the first instance of net metering in America. But all this happened in Massachusetts. Yet, the environmental promise of net metering made most states put forth their own net metering laws. Minnesota became the first American state to implement net metering laws in 1983. California joined the bandwagon pretty late, in 1996.

California’s Tryst with Net Metering – A Closer Look

The first-ever NEM law was stipulated by the SB 656 legislation with a few goals in mind. The state was pushing for economic growth and wanted private investors to finance renewable energy sources.

Over the past 20 years, the interest in NEM and renewable energy resources has grown. California, too, revised its NEM law multiple times. After a fair share of changes, the California Public Utilities Commission gave the green signal to NEM 2.0.

Implemented on January 28, 2016, NEM 2.0 initiated the following changes:

NEM customer-generators had to pay a one-time but upfront fee of $75-150

Instead of retail rates, the time-of-use (TOU) initially meant for large commercial/industrial customer-producers became effective for everyone

In short, customers who were feeding solar power from their rooftop solar grids into utility service providers saw a decline in financial rewards. Despite that, NEM 2.0 became successful enough to make California the highest solar power generator in America by October 2020.

But, NEM 2.0 was mired in controversy.

As California’s solar prowess and industry continued to prosper, the voices of dissent kept rising too. Utility companies claimed that net metering gave undue advantages to customers.

The Two Sides of The Argument

So, was NEM 2.0 good or bad?

The utility industry pressed forth their demand of implementing major changes to NEM 2.0. They were joined by the Natural Resources Defense Council, Utility Reform Network, Public Advocate’s Office, and other groups.
Their argument was simple- they believed that NEM 2.0 only benefited the rich who could make upfront investments in cutting-edge solar panels. Low-income families, on the other hand, had to put up with net metering induced price fluctuations. Given that most of these low-income families comprised persons of color, the issue took on racist tones, becoming a matter of grave concern.

Utility industry giants, including Sempra Gas Company, PG&E, Southern California Edison, and a handful of investor-owned utilities (IOUs), pressed for changes in NEM 2.0.

But the rooftop solar installers disagreed. They had good reason too. After all, middle-class working neighborhoods comprise half of California’s rooftop solar market. These tensions between customer producers and utility companies prompted the present-day debate.

The Newsom Administration initiated California’s controversial shift to implementing NEM 3.0.

NEM 3.0 And Its Implications

By August of 2020, the California Public Utilities Commission (CPUC) started the NEM 3.0 proceedings. Although the legislation has not issued its verdict yet, NEM 3.0 could:

Reduce the incentives for customer-producers

Devalue the shift to solar energy by as much as 50-75%

Declare California’s age-old grandfathering NEM clause null and void

However, the effectiveness of NEM 3.0 remains debatable. But if the IOUs’ demand of allotting fixed charges to customer-producers is implemented, it could sound the death knell for California’s solar industry. The question on everyone’s mind is – Will the CPUC be able to offer a ‘sustainable tariff’ that still prompts enough growth in the state’s solar industry?

Customer producers will need to wait till January 2022 to know if the odds are in their favor.

But one thing’s for sure – NEM 3.0 could either kill or boost California’s solar industry. There is simply no middle ground.

Key Takeaways – NEM 3.0

The CPUC is yet to declare its verdict on NEM 3.0, expected sometime in January 2022

NEM 3.0 will be implemented within six months of CPUC’s decision

Solar users who can get themselves NEM 2.0 status will be exempted from the changes applicable in NEM 3.0 for up to 20 years

California’s customer producers could witness as much as a 75% decline in their solar value

New customers must submit their applications before January 2022 to get themselves grandfathered under NEM 2

Commercial and agricultural customer producers who submit their applications containing a “nearly final system design” can implement their NEM 2.0 systems even after NEM 3.0 is implemented

The Ongoing Battle

The utility industry may have put its foot down, but California’s solar users give no indication of backing out. 347 organizations comprising businesses, housing, environmental advocacy, citizen’s welfare, etc., came together to form the Save California Solar Coalition. The coalition addressed an open letter to the Newsom Administration and the California Public Utilities Commission to protect California’s solar industry. They also demanded that solar power be kept affordable in the state.

According to Dave Rosenfeld, Executive Director of the Solar Rights Alliance – “Net metering is helping bring costs down and making it possible for more people to access the savings, resilience, and other benefits of solar power while also moving California closer to our clean energy goals. Voters of all backgrounds want to continue that progress. They know the utilities do not have their best interests in mind.”