Net Energy Metering (NEM) was started in 1996 with the intention to incentivize more solar in California by paying a retail credit for energy produced and exported to the grid by solar. Back in 1996, PG&E’s expensive summer peak power was noon and 6 PM and it was hoped that solar could help reduce the demand on the grid by producing power during this peak window. The demand occurred because this was when commercial Air Conditioning was at its highest. During 1996 solar was in its infancy and NEM was designed to help justify the up -front expenses of solar and produce power when it was needed most, during peak. Let’s look at how people were compensated for NEM, and how this success led to our current system of Net Billing Tariff.
How customers were compensated for NEM 1 (1996) and NEM 2 (2016). Under NEM 1 and 2, solar customers who exported power to the grid, received credits at or close to retail rates. This allowed us to build solar systems that could not only cover the home's load during the day, but to build it large enough to export to the grid during summers high solar production, building credits for the evenings and winter months. This design allowed us to easily “zero out” most utility bills by simply building bigger solar systems, increasing exports and financial credits. Energy Storage Systems (ESS) were sold primarily for backing up homes when the grid/utility was down. From a billing standpoint the way this worked is customers would pay a small monthly fixed fee, say $10, and then true up at the end of the year with three potential options:
1) If the annual credits were less than the annual bill, (minus the small monthly fixed charge) they would pay the utility the difference.
2) If the credits exceeded the utility costs, and the amount of generation was a little more than the power imported from the utility, the true-up would be $0.00.
3) If the customer over generated and credits exceeded what was owed, the customer would receive a small amount for over generation (usually $0.025-$0.035 per KWH).
This is a graph of a typical NEM system with high daily exports to cover evening usage.
The Success of NEM: In 1996 NEM got off to a very slow start, the NEM initiative did help with the justification, but solar was still in its infancy stages. Over the next 10 years only about 20,000 solar systems were installed as consumers found them expensive. Then in 2006, Governor Arnold Schwarzenegger signed the 1 million solar roof initiative, with the aggressive plan to install over 1 million solar systems in California to produce 3 Giga Watts (GW) of power. In addition to NEM, this program created the California Solar Initiative (CSI), a state rebates to help promote solar. The program had two goals, to increase solar manufacturing to scale, reducing its price and to incent renewable solar to help off-set peak mid-day demand. This program succeeded its goals, reaching the 3 GW solar power mark in 2015 and the 1 million solar roofs by 2019. As a note, in 2019 solar was producing almost 9 GW of power, 3 times the goal originally set. With the success of this program, prices for solar manufacturing drop to a third of those in 2006 and the CSI incentive program ended. During this same timeframe we saw Hawaii end NEM because of the success of solar and began emphasizing batteries to limit grid exports. The writing was on the wall that this would also become the direction for California.
I remember sitting in a meeting at Sonoma Clean Power in 2016, CEO Geoff Syphers stated that the Glory days of solar by itself were over and adding storage to solar to help level the grid would become the norm. This made sense as our success in the industry was creating problems for the grid, producing too much power during mid-day for the grid to absorb. So, in addition to the policy changes above, PG&E movied the peak to the early evening. Since most of the power for solar is produced between 10am – 3pm, this move, significantly lowered incentives for solar. To address this, the California Public Utilities Commission (CPUC) had PG&E create a transition schedule for solar users, E6. E6 was a transitional program with a peak beginning at 1pm-7pm and phasing out over 5 years to the then current non-solar schedules. The primary non-solar schedule was ETOU-B, with peak from 3-8 PM. The second schedule ETOU-A would be the default schedule both plans would move to in 2020 with a peak of 4pm-9pm (later becoming ETOU-C). Because of these program changes, solar applications to PG&E dropped for the first time since NEM began. Several large solar companies left California for the greener pastures of Texas and New Jersey. It took 3 years for solar to recover and return the same number of applications as in 2016.
The success of solar moved the beginning of peak from noon to 4pm. Obviously more solar to off-set peak was not the answer. Incentives for solar (except the Federal tax credit) declined or were eliminated and incentives moved toward storage that could store solar power and discharge it during evening peaks. While systems with applications into PG&E before April 15, 2023, would continue to receive NEM 2, all new systems after that date would move to Net Billing Tariff (NBT). Under this new agreement adding storage to solar would become a standard practice.
As we move into 2024 the solar industry would need to adapt to NBT where PG&E would cut solar exports to the grid by 75%.
NBT summary: Compared to NEM, NBT system designs and justifications are turned on their heads. We want to minimize exporting power to the grid since credits from PG&E will be reduced by 75% when compared to NEM. Thus, we will want to use or store power when our solar systems are producing the most (usually from 10 am – 3 pm). One of the easiest ways to do this is to add a savings battery. With energy storage systems (ESS) added to solar, we will be able to charge our ESS with solar during the day (minimizing exports) and use our ESS to cover our evening loads, minimizing imports. With exports receiving minimal compensation, it will benefit us to use as much of the solar power as we can during the day to minimize exports and storage the rest of our solar power in batteries. Unlike older NEMs, we cannot economically just add more solar to off-set our costs from our Utility. The new designs will include smaller solar systems, using power during the day (including charging our ESS) when solar export credits are low, and minimize using power by using our ESS during the evenings when costs are high.
This is a well-designed NBT system with minimal exports to the grid, and storage to cover evening loads.
In summary NBT is offering both challenges and opportunities to the solar industry. Many of us saw it coming and have been transitioning towards storage systems for years. New technologies, combined with higher utility pricing have made combining solar with storage viable to our market-place. If you would like to learn more about justifying systems under NBT see or blog Is solar still viable under PG&E’s NBT.