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NEM 2.0: What You Should Know

The California Public Utilities Commission (CPUC) voted 3-2 on January 28th to adopt a modified Proposed Decision (PD) for the Net Energy Metering (NEM) successor tariff, known as NEM 2.0. This Final Decision adopts nearly all of the Proposed Decision, leaving most of the existing NEM 1.0 regulations intact. There were two substantive changes from the PD to the Final Decision: the Non-bypassable Charges (NBCs) were defined for the NEM 2.0 tariff and incentives for disadvantaged communities has been removed and will be addressed in the next phase of the NEM proceeding.

NEM 2.0

Here are the changes from NEM 1.0 to NEM 2.0 adopted by the CPUC:

  1. No new NEM-specific charges: NEM 2.0 largely leaves in place the existing NEM 1.0 structure. There are no new NEM-specific demand charges, capacity or grid access fees, or monthly netting of energy.

  2. Grandfathering: NEM 2.0 customers will have their accounts grandfathered on this successor tariff for 20 years from the date of first commercial operation.

  3. Interconnection fees: NEM 2.0 customers with onsite generation systems of less than 1.0 MW will now be required to pay “a reasonable fee” for interconnection, based on the utility company’s actual costs for these interconnections. We anticipate this fee will be in the range of $75-$150 depending on the electrical utility and account type. As with the current NEM regulations, NEM 2.0 customers connecting systems less than 1.0 MW will not be required to pay study fees and distribution upgrade costs.

  4. No maximum system size: There is no maximum generator size for NEM 2.0 accounts. However, accounts larger than 1.0 MW will be required to pay for full Rule 21 interconnection and facilities upgrade costs.

  5. Non-bypassable charges: NEM 2.0 accounts are required to pay non-bypassable charges (NBCs) for all energy they consume. These NBCs cannot be offset by energy exported to the grid. Non-bypassable charges for NEM 2.0 are specifically defined as:

  • Public Purpose Program Charge

  • Nuclear Decommissioning Charge

  • Competition Transition Charge

  • Department of Water Resources Bond Charges

  1. Components and warranties: NEM 2.0 customers will be required to prove the following in their NEM applications:

  • Major solar PV system components must be CEC approved

  • A 10-year warranty on all equipment and the installation of that equipment

  1. Residential TOU rates and fixed charges: For residential customers, NEM 2.0 introduces the following:

  • Residential customers will be required to use TOU rates (when available).

  • Fixed charges may be introduced in the future.

  1. The future of NEM: The NEM 2.0 tariff described in this decision will be reviewed by the Commission in 2019 for small commercial and residential customers.

What This Final Decision Means

This is a big win for the solar PV industry and customers in California. On the positive side, the value of energy produced by future PV systems will be similar to the value under current NEM rules. Importantly, accounts interconnected under NEM 2.0 will be grandfathered on NEM 2.0 for 20 years from the date of operation, and there is no maximum size of generating system that can be interconnected.

NEM 2.0 will also have other real and potential negative impacts:

  1. The impact of NBC payment for NEM 2.0 customers varies according to the utility, tariff and amount of energy exported by the system. The value of energy exported to the grid will be reduced approximately 2 to 3 cents per kWh. This won’t affect customers who do not export significant amounts of energy, but will reduce the value of PV energy for most customers who do export energy during summer months.

  2. The CPUC is studying various effects of the NEM tariff under two other proceedings. These studies are scheduled to be completed in the next couple years. With this new information, the Commission will review this decision and may make substantial changes to NEM.

  3. This decision does not attempt to address the issue, inherent in existing NEM, that the value of energy produced by renewable energy systems under NEM is highly dependent on the applicable utility tariffs – how and how much the utilities charge for electricity. Utility electrical tariffs change all the time, as many as four times a year, and these changes impact the value of net metered renewable generation such as solar PV. An example of this is PG&E’s A-6 tariff, an all volumetric tariff that highly values solar PV energy. In their most recent General Rate Case, PG&E proposed reducing the demand cap for A-6 accounts from 499 kW to 75 kW, including all existing customers. This change would have resulted in most small/medium commercial PG&E NEM customers moving to the A-1 or A-10 tariffs, with an immediate and ongoing loss of energy value from their PV systems of 30-50%. Needless to say, a loss of this magnitude would have been a financial catastrophe for many NEM PV customers in PG&E territory. This change was only avoided by the Commission holding the decision and reassigning the rate case to different administrative law judge. Electrical utilities will continue to push for tariff changes that reduce the value of renewable energy generation. NEM 2.0 does nothing to address this significant risk.

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