by Tyler Boden, Boden Energy Solutions

In California today, most homeowners and businesses considering a switch to solar energy are not doing so to save the Earth, but rather to save money. Sure, it’s a nice bonus to be doing a good thing for the environment; but if it weren’t good for the pocketbook, people wouldn’t do it. 

Ever since 1996 - when California established its commitment to the growth of solar energy by enacting its Net Energy Metering (NEM) agreement - utility customers looking to add solar to their property have enjoyed a strong incentive for doing so. This NEM agreement allowed for customers to receive full retail credit for the energy they exported to the electric grid, up to the total amount of energy they used in a year. Their billing cycle would switch to annual, instead of monthly, and they would “true up” at the end of each year to settle any leftover balance with the utility company before starting fresh in the next fiscal year. If they overproduced, they would get wholesale value for the surplus exports.

Then, in 2006, the Federal government rolled out the Investment Tax Credit (ITC), which gave people a dollar-for-dollar credit against their income tax liability for 30% the cost of their solar investment. It was planned for the solar ITC to carry on for only 10 years, but the credit has been modified and extended on several occasions (most recently in 2022) and will now remain at 30% until the end of 2032. 

Over 230,000 Californian homes have solar installed because of the favorable investment value, but the friendly environment for adding solar in California has resulted in an unintended consequence. There is a phenomenon happening in the electric grid, commonly referred to as the “duck curve,” which California policymakers have been weighing against their lofty renewable energy goals for about a decade. The term “duck curve” reflects the image of California’s grid-wide hourly electricity usage curve throughout the day, once solar is applied. Without factoring in solar, the usage curve would be low in the middle of the night, ramp up at breakfast and again at dinner, then drop again at bedtime. When solar production is applied, however, the curve looks different. Instead of ramping up, it dips so low during the daylight hours that it looks like the belly of a duck. Hence, the “duck curve.

While the term for this phenomenon might seem cute, it’s bad for business. Utility companies are forced to sell excess energy to neighboring states for little to no value, then ramp up their natural gas energy generation when the sun starts going down, which comes at a high cost. As a result, electric companies throughout the state are transitioning to what is called Time Of Use (TOU) electric rates for customer billing, which makes using energy between the hours of 4PM and 9PM more expensive.

The “duck curve” phenomenon has also had an impact on the NEM agreement. When legislators noticed the trend in the early 2010’s, they began the process of modifying the NEM agreement for future solar customers. Passed into law in 2013, Assembly Bill 327 established the terms for rolling out a successor tariff to the original NEM agreement, which would ultimately be rolled out in 2016. The new agreement, called NEM 2.0, made two significant changes to net metering for customers. First, it required that NEM 2.0 customers to take service on a TOU rate schedule; and second, it incorporated a charge for sending energy to the electric grid, called Non-Bypassable Charges (NBC). These two changes resulted in a nominal increase in payback period for those looking to add solar, but when the Federal ITC was extended in 2016, the growth of solar continued.

With solar continuing to grow year after year, and the “duck curve” persisting, the high-cost ramp up isn’t going away for utility companies. Therefore, the CPUC was forced to change the NEM agreement once again on December 15th, 2022, to what is known as NEM 3.0. Discussions about NEM 3.0 have been underway for more than a year, and the CPUC knew it needed to make a change drastic enough to encourage solar customers not to send energy back to the grid. As such, the NEM 3.0 agreement will reduce the value of energy that customers export to the grid by an average of 75% per kilowatt hour. However, much like with the rollout of NEM 2.0, there will be stipulations that allow for existing customers to be grandfathered onto the existing NEM agreement for 20 years. For anyone considering a switch to solar, getting grandfathered into NEM 2.0 would be strongly recommended to realize the highest investment value. Customers will have to have a completed interconnection application submitted to the utility by April 14 to qualify for grandfathering, so for anyone considering a switch to solar, the time to pull the trigger is now.