By Cynthia Clark, Alta Energy – Director of Energy Market Operations
The Net Energy Metering (“NEM”) methodology has proven to be a very effective way of facilitating distributed solar generation. NEM compensates solar system owners, in both commercial and residential sectors, at retail electricity rates for the power they produce while allowing them to retain the benefits of grid connectivity. Unfortunately, not every potential solar system owner has ideal circumstances to take advantage of net metering, such as a solar-suitable roof on the facility with the electricity usage. In some cases, a roof site may have the capacity support a system that can generate more electricity than is used at the facility. In other cases, there may be multiple tenants with separate meters at the facility, which can significantly increase project cost and complexity. Scenarios where such mismatches exist between the proposed solar system and the intended electricity off-taker in terms of production versus usage, physical location, or customer of record are typically incompatible with standard NEM policies. However, these situations represent a growing portion of the untapped distributed solar market, especially in regions with a high degree of distributed solar adoption. But with recent policy changes in California, there are opportunities to address many of these cases where standard NEM policies have fallen short – expanding solar opportunities beyond one roof and one meter.
Under typical NEM rules, the solar system is limited to a size that will not produce electricity in excess of the demonstrated historical demand at the interconnection meter on an annual basis. If the system does more electricity than is consumed at the interconnection point, the so-called annual “Net Excess Generation” is either uncompensated or paid out at a rate significantly lower than the retail electricity rates. This requirement can limit the size – and thus the economies of scale – for certain projects. For commercial customers with electrical load spread across a number of meters, the NEM rules can make system design unduly complex as such a design will likely require multiple sub-systems connected to multiple individual meters, which increases transaction and installation costs. Now, under the newly approved alternatives, customer-generators in Pacific Gas & Electric, Southern California Edison, and San Diego Gas & Electric service territories have more options to consider. “Virtual Net Metering” and “Net Energy Metering Aggregation” are both designed to allow a single solar system to offset the electricity usage at multiple meters.
Virtual Net Metering: One Connection, Multiple Customer Meters With Virtual Net Metering (“VNM”), the meters involved are limited to those that are connected to the same utility service delivery point (typically the transformer), but they can be associated with two or more distinct customers. This option may be suitable for landlord-tenant situations, as it allows the solar system owner to specify the percentage of NEM credits assigned to each “benefiting account” meter. The “virtual” in the name refers to the fact that all of the solar electricity is physically fed directly to the grid (rather than being used onsite) and the “netting” of generation credits against load is performed purely as a function of the billing process. Not unlike most “community” solar programs, multiple different customers can benefit from allocations of generated electricity from a single solar system. Some states and utility districts take this concept even further, enabling numerous customers anywhere in the same service territory to be partial owners of or “subscribe” to some portion of a shared solar generation system and receive bill credits accordingly. While California’s VNM program is currently limited to meters located at the same service delivery point, it is still a decisive step in the right direction, providing for a more aggregated approach that promotes larger systems and simplified grid interconnection – both attributes that drive down system costs and thus the cost of generated power.
Net Energy Meter Aggregation: Single System, Multiple Loads on Customer’s Contiguous Properties The Net Energy Metering Aggregation (“NEMA”) method has the potential to streamline the generation and use of onsite clean power by commercial and industrial enterprises with multiple sites and load meters located in the same general area such as a campus or any other set of adjacent/contiguous properties. The meters that can be included in the “aggregated arrangement” under the NEMA approach are limited to those located either on the property where the generation account (the meter that the generation facility is tied to) is located, or on property that is adjacent or contiguous to it. Furthermore, all meters in a given “arrangement” must be located on properties that are solely owned, leased, or rented by the NEM-eligible customer-generator.
This method functions similarly to traditional NEM, in that the electricity produced by the solar system actually offsets coincident load on the generation account in real time by physically supplying energy to meet the demand. Any excess generation flows to the grid, generating NEM credits that are applied to non-coincident load on the generation account and then to all of the other meters in the aggregated arrangement (the benefitting accounts). Unlike with VNM, the NEMA credit allocation cannot be specified; after offsetting total annual load on the generation meter, any remaining credits are distributed on a pro-rata basis according to total year to date electricity usage on each benefitting account meter. This method has already been deployed to service the common area amenities of a planned community in Southern California Edison territory. Similarly, NEMA could also be used to offset the common area charges for a shopping center or apartment complex. Other potential applications include combinations of eligible meters in a group of co-owned or co-leased buildings, such as an office campus or industrial complex.
Choices, Choices… What are some of the factors to consider when evaluating options? Aside from the obvious differences in scope (multiple customers versus multiple service delivery points), there are different fixed and ongoing costs to consider with each arrangement.
VNM requires new separate metering for the solar generating facility (cost to customer ranges from $1,000 to $12,000), a one-time set-up fee of $12 to $25 per account, and potentially additional fees of $3 to $7.50 per account if the NEM credit percentage allocations are changed more than once per year.
Costs for additional meter equipment associated with the NEMA option are unlikely, since it utilizes an existing meter for interconnection. However, service panel upgrades may be required (at customer expense) due to the fact that the system will likely be sized to exceed the local load (and therefore the established capacity of the service panel) at the generation meter. There is also a one-time setup fee of $25 per aggregated account and an ongoing additional billing fee of $5 per aggregated account per month. For both options, the initial set-up fees are capped at $500 per aggregated arrangement.
These fees could increase in the future, with regulatory approval, if the utility can demonstrate that they are insufficient to cover the additional cost of manual billing adjustments that are required to reflect the allocation of NEM credits to aggregated meters. Depending on the adoption rates for NEMA, a utility may opt to adapt their enterprise billing software to accommodate multi-account NEM billing, but that would also involve recoverable costs for the utility.
Hybrid Model: Net Energy Meter Aggregation with a “Virtual” Twist There is also a third option, which is a hybrid model of the VNM and NEMA: applying the NEMA option via the Net Generation Output Meter (“NGOM”) method, where local load is not being offset through the interconnection meter (see below). In contrast to NEMA, where the NEM credits are allocated to the aggregated accounts on a pro-rata percentage, the generation system is interconnected through a separate “export” meter (or NGOM) that is installed at the customer’s expense (just as with VNM) and all electricity produced is delivered the distribution grid. While the meters eligible for aggregation are limited to those serving the same customer on contiguous properties (same as NEMA), this method allows more control over the allocation of NEM credits (as with VNM). There is no load to offset at the generation meter, and customers are allowed to specify the percentage of total NEM credits they would like to have allocated to each benefitting account in the aggregated arrangement.
Summing it All Up In all cases, the customer-generator entering a VNM or NEMA arrangement in California will waive their right to compensation for annual net excess generation; a situation that can be easily avoided by ensuring sufficient load on the meters in the aggregated arrangement (or adding eligible meters to the arrangement). And since most distributed generation systems are size-limited by space for PV panels, not total electricity usage of the building, excess production is typically not an issue. It should be noted that all three options are still subject to the existing net metering project capacity of 1 MW per aggregated arrangement, and that all such projects contribute to the total net metering program capacity obligations for each utility. Collectively, these new policies will allow many solar projects to go forward that would otherwise not be viable, by creating alternatives to aggregate the generation system capacity and simplifying physical interconnection logistics in order to utilize locally-generated power. While there are key differences between the options presented, the general principle is the same: increasing policy flexibility allows customization of NEM principles to facilitate solar adoption for a larger segment of customers.