NEM lives to fight another day in California

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Good friends will support you, and sometimes tell you things you don't want to hear. To say that the California Public Utilities Commission report into the costs and benefits for net energy metering was the most hotly anticipated report of the year is a gross understatement.

The findings of the draft report, namely that NEM will cost California's utilities up to US$1.1 billion each year, seem to have stunned most solar companies and even advocates into silence.

Energy and Environmental Economics, the consultants commissioned by the CPUC, used data from the approximately 150,000 customers enrolled in NEM programmes across the state's investor-owned utilities. Those customers represent around 1,305MW in installed capacity, which generated around 2,400GWh of electricity last year. The consultants also analysed the costs and benefits of NEM at two additional levels of installed capacity: the capacity needed to reach the goals of the California Solar Initiative (CSI) of 2,916MW and the capacity needed to reach the 5% NEM cap at 5,573MW by 2020.

The study was designed to evaluate the benefits, and who bears the economic burden, if any, of these different levels of net energy metering. While the solar industry has gone to great lengths to claim that there are only benefits of NEM. Although the CPUC report excludes environmental benefits, a Crossborder Energy report, commissioned by Vote Solar, valued the benefits of NEM to utilities as high as US$92 million a year.

However, the utility industry has been on the offensive, charging that there can be no gain without pain on the grid.

‘California Net Energy Metering (NEM) Draft Cost-Effectiveness Evaluation’ was touted as a force of independent arbitration to settle once and for all which side had got it right. But the report may just be the ammunition the industry was looking for as the NEM battle intensifies following the passage of AB327, which will essentially remove the 5% cap after 2017.

“Costs associated with all NEM generation are forecast to be approximately US$1.1 billion per year in 2020 (in 2012 dollars),” said the report. “This is approximately 3.2% of the forecasted utility revenue requirement.”

“In 2020, with a complete deployment of systems to the NEM cap, NEM customers avoid approximately US$172 million in public purpose charges, or about 6.5% of the total estimated 2020 public purpose funding.”

Rest assured that utilities will compensate for that loss through increased rates, even though the report says that solar customers will still pay a fair share towards the costs of running the grid, such as transmission and distribution.

But such “balance” is not enough to keep the solar industry happy. Vote Solar claimed the report was biased. So far, the Solar Energy Industries Association has been slow to respond. But CALSEIA, its California chapter, has been quick to condemn the report as “flawed” and “out of date”.

Bernadette Del Chiaro, CALSEIA's executive director, said: “The draft study is flawed because it includes cost estimates of solar electricity generated and consumed on-site by a solar home, school or business. All solar electricity generated and consumed on-site has the same zero impact on other ratepayers as energy efficiency.

“If a homeowner installed a more energy efficient refrigerator or windows, are they causing harm to their fellow ratepayers who didn’t make such investments? Of course not. In fact, it has been a long-standing policy principal in California that reducing electricity demand, whether through conservation, energy efficiency, or through self-generation, provides net economic and social benefits for the state.”

One not so small flaw in the report may be the assumption that the 5% cap will be met in 2020. There is still some confusion about how this 5.6GW is calculated. At least one analyst, GTM Research, estimates that 3.9GW of behind-the-meter capacity will be installed by the end of 2016.

David Field, the chief executive officer of third-party ownership company OneRoof Energy, said: “It’s encouraging to see that regulators are beginning to dive deeper into the data and engage credible third-party analysis of net metering. This will facilitate more intelligent and rational public dialogue.

“[But] ultimately, we need more localised market-specific studies. In some markets with ageing infrastructure, solar reduces costs for everyone because the utility can avoid the need to invest in infrastructure upgrades. In areas where the grid is newer and has greater capacity, distributed solar may not be as mutually beneficial. We need to look harder at the data and work together to achieve the right public policy that best serves the interests of the entire community.”

However, others in California's ‘solarocracy’ have been crying foul.

Jim Jenal, CSI data-cruncher extraordinaire and founder of an installation company Run on Sun, pointed out in his blog that the report contains an “incredibly important caveat which renders the entire analysis suspect”.

“It is important to note that the attached NEM Cost-Effectiveness Evaluation is focused exclusively on the utility ratepayer impacts of NEM, and does not include the overall societal benefits from the deployment of clean energy resources, although significant environmental, public health and other non-energy benefits occur,” the report says.

Linking the report last week with the release the day after the launch of the latest Intergovernmental Panel on Climate Change, Jenal said: “It is patently absurd to ignore the societal benefits provided by solar installations, particularly in light of the existential threat posed by climate change brought about by burning fossil fuels.

“The entire analysis views the world from the perspective of the status quo in which fossil-fueled utilities have a 'revenue requirement' that the rest of us are expected to provide. Such a worldview – and such a business model – leads to skewed results like these and if followed, would push us all closer to Midnight.”

Ratepayer advocates have not been on the solar industry's side. After all, the report also found that the average household income for solar customers was around US$91,210, compared with the median income of $54,283. Clearly there is a social equity issue to be addressed.

Marcel Hawiger of TURN, the Utility Reform Network, told the San Jose Mercury News: “There's no question that there's a subsidy to solar customers. Net metering was a policy designed to jump-start the solar industry in California, but it's not a sustainable policy.”

However, the report is only a draft with a comments procedure open until 10 October. Both sides have waited a long time for this report, but events may have rendered it already less relevant, if not obsolete, with the recent passage of AB327. But the solar industry is right to be concerned that changes to NEM won't go its way, or at least as far as it would like, after the CPUC's report has handed, on balance, more rope to the utility industry.

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