Bittersweet victory for solar industry after CPUC’s net metering decision

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In the latest round of The People versus California's Utilities, solar plaintiffs scored a resounding victory last week with a unanimous vote from the state's energy regulators.

The California Public Utilities Commission (CPUC) approved a new formula to calculate how many of the state's solar customers can participate in Net Energy Metering, which allows utility customers to receive a credit on their bill from excess domestic solar generation “sold” to the grid.

The 5–0 vote effectively lifts the ceiling from 2.4GW of small-scale residential and commercial solar to 5.2GW. Commissioners this time went much further than they did in January when they blocked San Diego Gas & Electric's general rate case, which sought to scrap the “silent subsidy“.

“Since it was first adopted, the NEM program has helped to drive significant investment to the solar industry in California, and has been a model for many other states,” said commissioner Mark Ferron. “Our decision today continues the NEM programme and also initiates a comprehensive study of the program to allow us to evaluate the costs and benefits of NEM to participants and non-participants.”

NEM was capped at 5% of the utility’s “aggregate customer peak demand”. But how many MWs that meant varied because California's three main investor-owned utilities were doing their own separate calculations. Questions arose over whether the utilities were using the correct formula to reach their own numbers.

Last month, CPUC president, Michael Peevey, published his findings in a proposed decision in which he found that utilities were calculating aggregate customer peak demand contrary to the intent of the legislation.

Pacific Gas & Electric estimated that a 5% cap would be equivalent to 1,040MW of installed capacity and predicted that it might reach its cap in its territory by 2013.

“It's not as if it's a crisis yet,” said David Rubin, a PG&E customer energy solutions manager, at the PV America West conference in San Jose earlier this year.

California's IOUs called on the CPUC to reject proposals to revise the method of calculating the cap.

PG&E told commissioners: “PG&E fully supports solar power of all forms and in all size ranges, and sees a robust and sustainable market for rooftop systems long after the current 5% NEM cap is triggered.”

But California's largest utility added that the revised method was “flawed as a matter of facts and law, as well as a matter of principled decision-making.”

The Interstate Renewable Energy Council (IREC) kick started the process in July last year, when it requested clarification from the CPUC of how “aggregate customer peak demand” was determined.

The Distributed Energy Consumer Advocates (DECA), the Vote Solar Initiative, the California Solar Energy Industries Association (CALSEIA), the Solar Energy Industries Association (SEIA), and the Sierra Club joined collective forces.
“Solar policy victories don’t come easily – so today is truly a day to celebrate!” said Vote Solar on its website. “This important solar policy has already delivered tremendous benefits to California: supported 25,000 solar jobs, driven US$10 billion in private investment in the state’s clean energy industry, given thousands of homeowners, schools, water districts, industrial users, and cities control over their electricity bills, and installed two natural gas plants worth of valuable peak solar power generation that our utilities won’t have to build and you won’t have to fund.”

The Joint NEM Parties had cause for celebration last week. But if every cloud has a silver lining, every sunny day has a chance of rain…

After the champagne corks had popped, some in California's solar industry sipped rather than swigged in celebration.
Utilities failed to persuade commissioners to reject the proposals. But they appear to have succeeded with asking for the last minute addition of a compromise in the form of a study to examine their claims that NEM is a subsidy that benefits wealthier Californians who want to install solar.

PG&E told commissioners: “The PD essentially removes any NEM cap for the next decade. If the cap is raised from 1,044MW for PG&E to over 2,400MW, that will allow another 1,800MW of solar projects to receive full retail NEM credits beyond those 600MW of projects now installed.

“If solar projects continue to be installed in PG&E’s service area at the current rate of 12 to 14MW per month, this will allow solar vendors to avoid any debate about NEM cost shifting for over ten years. At that time, the cost shift from solar installations could be over US$700 million annually for PG&E’s customers.”

This “cost-shifting” allegation was recognised as the wolf in sheep's clothing it most likely is by one of the commissioners who reportedly told the utilities “shame on you to whoever started those rumours”.

But the 11th hour addition of a study of the cost benefit analysis of net metering to be finished by 2014 has made last week's decision bittersweet. It is not the unreserved “inflection” point for the policy that some were hoping for and the inclusion of a new study introduces enough regulatory uncertainty beyond 2014 to satisfy the utilities.

In some ways, the study will duplicate other reports such as this year's report from Crossborder Energy, Re-evaluating the Cost-Effectiveness of Net Energy Metering in California and a report from 2010 commissioned by the CPUC entitled, Introduction to the Net Energy Metering Cost Effectiveness Evaluation.

Crossborder Energy's report found that the net cost to other PG&E ratepayers (US$0.02 per kWh of NEM exports to the grid) was just one-seventh of the net cost calculated in the CPUC’s 2010 study (US$0.14 per kWh of NEM exports to the grid).

Ben Higgins, the director of government affairs at Californian solar company, Mainstream Energy, said: “In many ways, it's an important win and an important stake in the ground for small scale solar within our state.

“California is the most important solar market in the US. Depending on how you look at the numbers, it represents 50% of the whole of the US solar market. The vast majority of systems that have been constructed are net metered.”

“The California Solar Initiative and NEM have been the most successful customer sided solar programme in US history. We now have roughly 110,000 net metered systems online in California – the solar industry installed around 150MW of commercial and residential solar within the state in 2010, 260MW in 2011.

“But there has been some criticism of NEM policies in California. This decision will insulate us through 2014 from some of those attacks.

“The outcome of that study and that debate are as yet unknown. I hesitate to say we have certainty beyond that point.”

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