California Solar-for-Businesses Policy Update: NEM 2.0 and Beyond

Geoffrey Dunican

The Decision

On January 28th, the California Public Utility Commission (CPUC) decided in a 3-2 vote to adopt the December 2015 Proposed Decision for the Net Energy Metering successor tariff (NEM 2.0). Ultimately, under NEM 2.0 the CPUC has preserved full retail rate compensation for net-metered solar systems. This is great news for California businesses. One of the most significant outcomes from NEM 2.0 is the removal of the net-metering capacity cap for total net-metered solar energy interconnected to the grid. These changes will continue the CPUC’s progression of utilizing rate-based policies to dictate the growth and valuation of solar power in California. The NEM 2.0 tariff will go into effect once the current NEM capacity cap of 5% total peak grid-demand is reached, which will likely be in the second half of 2016. Businesses that interconnect solar systems under NEM 2.0 will be grandfathered under that tariff for 20 years from the date of interconnection.This decision has sent a very clear message to California electricity ratepayers and the state’s Investor Owned Utilities (IOUs: PG&E, SCE, SDG&E) that consumers deserve more choice when it comes to procuring electricity. Along with the December 2015 extension of the federal Investment Tax Credit (ITC) and the inclusion of 50% bonus depreciation, there is a clearer path for businesses to make high returning solar energy investments (e.g. acquiring solar kWh at prices well below retail rate through various project structures).

Option-R Tariff Will Continue to Provide Businesses with the Best Economics

  • PG&E and SCE’s Option-R tariff will continue to provide the best solar project economics for large commercial and industrial ratepayers in California
  • It reduces on-peak and mid-peak demand charges to near zero, and will also pay a premium rate for excess solar generation
  • The average Option-R solar project is achieving unlevered after-tax returns of 10% - 15%, with a less than 5-year payback

System Sizes Are No Longer Capped at 1MW

  • Net metered solar systems can now be sized greater than 1MW
  • This provides large electricity-hungry businesses greater choice and cost controls when procuring energy
  • Like NEM 1.0, systems must be sized according to peak on-site load

Virtual Net Metering Expands to Commercial & Industrial Space

  • Virtual Net Energy Metering (VNEM) has also been expanded to allow lease holders in large multi-tenant commercial and industrial facilities to utilize solar across multiple meters at a single site
  • Businesses that lease their property in a shared building now have the ability to access cheaper and cleaner solar energy
  • This rule also presents a new opportunity for large property portfolio owners and developers who have on-site load, or who also want to enhance their sustainability agendas and LEED certifications
  • PACE financing works very well for large landlords whose tenants want to procure solar energy

Non-Bypassable Charges are Adjusted

  • Non-Bypassable Charges (NBCs) have historically been charged to all ratepayers to fund energy efficiency and renewable energy efforts in disadvantaged and low-income communities
  • Under the previous NEM tariff, NBCs were placed on the net consumption of energy from the grid (import from grid minus solar export)
  • Under NEM 2.0, NBCs will be placed on all electricity consumed from the grid, regardless of any exported solar generation. The charges will be between ~$0.02-$0.03 per kWh

The Future of Renewable Energy in California Remains Bright

In 2019, the CPUC is planning to overhaul solar rates in California to maintain the sustainable growth of solar, which will have a significant impact on future project economics. Over the next 3 years the CPUC will utilize the Distribution Resources Plan (DRP) and the Integration of Distributed Energy Resources (IDER) proceedings to quantify the true value of distributed technologies, and their systemic grid benefits. According to Brad Heavner, Policy Director at CalSEIA, the next CPUC rate decision in 2019 will likely result in a solar export tariff at a stipulated value-of-solar rate, instead of the current net-metered retail rate.Until then, California businesses have a clear 3 year investment runway. To find out more about how California solar policies can impact your business, click HERE to contact PowerFlex, or email us at