Brian Taylor

Sr. Director, California Public Sector

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Overview

With regulatory changes on the horizon, public agencies considering new on-site solar generation should act now to capture legacy rates for exported solar power and maximize electricity savings they can achieve over the lifetime of their solar energy systems.

  • Net Energy Metering, a Key Financial Incentive for On-Site Solar Producers, Is Under Attack: The California Public Utilities Commission (CPUC) will decide on the next revision of Net Energy Metering (NEM) rules as early as November 2021. Proceedings are ongoing, but the solar industry expects lower values assigned to exported solar power and decreased savings for new California solar and storage projects.
  • Key Dates California Public Agencies Should Watch:
    • Connect with a solar development partner by Summer 2021: Given the milestones needed to be achieved in advance of an interconnection filing, it’s advisable for public agencies who want to secure legacy rates under NEM 2.0 to begin conversations with a preferred solar development partner by Summer 2021.
    • File interconnection applications by October 31, 2021: To secure NEM 2.0’s more favorable rates, interconnection applications should be submitted on behalf of public agencies in advance of new rules going into effect. The electric power industry anticipates NEM 3.0 to take effect as early as November 2021.

“To preserve legacy 20-year rates from NEM 2.0, interconnection applications should be filed before NEM 3.0 is enacted, which could be as early as November 2021.”

What is Net Energy Metering?

Net Energy Metering or NEM refers to a utility bill credit for excess energy produced through on-site solar energy. As the meter “spins backward,” the solar facility reduces electricity bill costs for entities who have taken the step to procure solar energy. This policy was enacted in 2009 to incentivize homeowners, businesses, and public entities to pursue greener sources of energy.

Who Would Be Affected by The Switch to NEM 3.0?

The changes to NEM policy will have a significant impact on the savings profiles for public agencies. All customers of large electric utilities such as Pacific Gas & Electric (PG&E), San Diego Gas & Electric (SDG&E) and Southern California Edison (SCE) should pay attention to NEM 3.0 changes, as these utilities fall under CPUC jurisdiction. For entities served by these utilities, NEM is an issue to watch.

Many other utilities are self-regulated, meaning they fall outside the jurisdiction of the CPUC. Most irrigation districts and municipal utilities such as Sacramento Municipal Utility District (SMUD) or Los Angeles Department of Water and Power (LADWP) are in this category. Electricity customers with their own on-site solar in these utility districts receive a low fixed bill credit, measured in dollars-per-kilowatt-hour ($/kWh).

Are Changes to NEM Unprecedented?

Until 2016, exported energy from on-site solar systems was credited at the full electricity retail rate. It was that year that the CPUC revised NEM to its second iteration, commonly referred to as “NEM 2.0,” reducing savings that could be achieved by electricity customers. NEM 2.0 remains in effect, delivering the full retail rate minus about two cents per kilowatt-hour.

Unfortunately, proceedings at the CPUC now show that these compensation rates are to change again, and this time, if the proposals already shared by utilities are to be implemented as is, the changes will be much more significant than in the first revision.

NEM 1.0 = full retail compensation rates. NEM 2.0 = full retail compensation rates minus $.02 per kilowatt-hour. NEM 3.0 = retail compensation rates minus unknown quantity.

What are the potential impacts of NEM 3.0 to bottom line of public agencies?

The CPUC proceeding is only receiving proposals at this stage, but we can already see utilities taking a hard stance against the incentive.

To help public agencies understand the implications of proposals in this proceeding, we analyzed the proposal of one of California’s largest investor-owned utilities (IOUs) using a sample 3-megawatt system that a school or government entity might deploy.

A few years ago under NEM 1.0, our sample solar energy system would have brought $10.4 million in savings. Today’s NEM 2.0 compensation rates translate to $8.3 million in savings. Under this IOU’s proposed changes for NEM 3.0, the savings in our sample 3-megawatt system would actually go negative, costing the customer an additional $5.3 million over 20 years, instead of saving them even a penny.

Fortunately, the CPUC has not yet made a final decision, but the trajectory of this proceeding is not looking favorable for entities hoping to install on-site solar energy in the coming years. To get ahead of such changes and secure 20 years’ worth of NEM 2.0’s legacy rates, many public agencies are opting to act to in 2021 before any changes are enacted.

When Would My Public Agency Need to Act?

Interconnection filings are the lever that determines electricity rates over the life of a power purchase agreement or similar energy contract. All interconnection filings should be submitted before changes to NEM are enacted. While the exact timing for changes to be implemented is unknown, the electricity industry estimates it to take place as early as November 2021 and as late as spring 2022.

To ensure that interconnection filings are ready in time, serious conversations with a solar energy partner should start no later than Summer 2021.

Certainly, any major construction project is an undertaking that a public agency should walk into with internal alignment and clarity on the specific benefits. If you’ve got questions or would like to explore what a savings analysis might look like for your organization, please don’t hesitate to reach out.

The SPURR Advantage

Fortunately, the employees of SPURR understand what it means for public agencies to undertake infrastructure investments such as on-site solar energy or energy storage. They’ve worked to make the process of renewable energy adoption simple for California’s public agencies through its piggy-backable RFP.

More than 40 public agencies in California—including schools, colleges, cities, counties and other public organizations—have piggy-backed off of SPURR’s Renewable Energy Aggregated Program (REAP) to benefit from lower solar pricing and favorable contract terms that lower project risks.

Thanks to the time and resource savings afforded by the REAP program, California public agencies can beat the NEM stepdown deadline. However, given all the uncertainty related to impending NEM changes, the best time to begin such conversations is in the first half of 2021.

Through a competitive RFP involving seven developers, SPURR selected ForeFront Power as its developer for all public sector contracts, thanks to ForeFront Power’s financial stability, pricing, experience, and references.

Have Questions?

Schedule your no-commitment consultation today. I’d be happy to answer any questions directly or put you in touch with SPURR who helps public agencies like you every day.

Brian Taylor

Sr. Director, California Public Sector

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