Alta Energy continuously monitors a variety of renewable energy and utility policies across the U.S., with a particular focus on net energy metering programs such as those administered by the California investor-owned utilities (PG&E, SCE and SDG&E). Net energy metering, or NEM, is a regulatory structure that allows utility customers with eligible renewable energy systems to receive financial compensation at competitive retail electricity rates for excess renewable energy generation that is exported to the grid. NEM policy is crucial in allowing the profitability of solar for commercial and industrial (C&I) enterprises. NEM 1.0, the policy currently in place for PG&E customers, is nearing expiration as the solar capacity approved under the program approaches the cap set at its outset. While it is difficult to say exactly how much time remains until NEM 1.0 expires, we have been closely monitoring trends in the remaining capacity using data released weekly by PG&E.

Once this cap is met, the current NEM 1.0 policy will expire and a new policy, NEM 2.0, will be triggered. NEM 2.0 will influence the economics of commercial solar projects by changing the tariff structure through which businesses are rewarded for the energy produced by their systems. One major change will include the pass-through of certain fixed charges – known as “non-bypassable charges” (NBCs) – to NEM customers, as these NBCs will no longer be credited on a consumption (per kilowatt-hour) basis. Additional changes are expected and will be outlined towards the end of this post, and later explored further in a separate piece on NEM 2.0 and its effects.

Each California IOU has its own NEM program, and the capacity remaining in the first round of the programs is dwindling. When net metering was first approved in California, the three investor-owned utilities, (PG&E, SCE and SDG&E) were required to offer terms for customers either until the eligible solar capacity met 5% of their total generating capacity or until July of 2017, whichever came first. As of August 30, 2016, there were 196 megawatts (MW) remaining in the PG&E program cap, out of a total of 2,409 MW, meaning that the PG&E program is now about 92 percent filled.

Figure 1: Space Remaining in PG&E NEM 1.0: This graph plots the capacity in megawatts remaining in the NEM 1.0 program by date since January 2015. The graph shows a steady decrease from 1,112 MW in January 2015 to 229 MW in August 20161. This graph was generated using data from PG&E’s NEM Monthly Growth Chart.

Figure 1: Space Remaining in PG&E NEM 1.0: This graph plots the capacity in megawatts remaining in the NEM 1.0 program by date since January 2015. The graph shows a steady decrease from 1,112 MW in January 2015 to 229 MW in August 20161. This graph was generated using data from PG&E’s NEM Monthly Growth Chart.

Vying for the remaining 8 percent are over 10,000 applicants, including both C&I and residential customers. It is difficult to say which of these customers will be approved before the cap for the NEM 1.0 program is met due to the many variables on which approval depends, such as the permitting status and feasibility of each project. Further, the rate at which the remaining 10 percent of the cap fills will also depend on complex variables internal to the utilities, such as workload, process, grid interconnection considerations, and human resources available — factors that are outside the control of solar customers wishing to be approved within the remaining cap.

Bearing these caveats in mind, it is possible to forecast an estimated date of when PG&E NEM 1.0 subscriptions will hit the 2,409 MW cap. Below is a graph showing the cap’s remaining space at the end of each month since December of 2014. Following historical trends, the model predicts that the cap will be hit sometime around the end of December of 2016.

Figure 2: Projected Cap Date for PG&E NEM 1.0 Program: This graph projects future program availability based on observed trends. The green dots represent monthly entries, which can be found in PG&E’s NEM Monthly Growth Chart1, and the blue line represents the current and projected trends. The graph predicts that the program will be full in December 2016.

Figure 2: Projected Cap Date for PG&E NEM 1.0 Program: This graph projects future program availability based on observed trends. The green dots represent monthly entries, which can be found in PG&E’s NEM Monthly Growth Chart1, and the blue line represents the current and projected trends. The model predicts that the program will be full in December 2016.

There are reasons to believe this trend may not hold.  There has been a good deal of day-to-day, and even month-to-month variability observed in the approval rate over the past several years. Since 2014, PG&E has approved an average of 45.33 MW per month, 14.32 of which are for commercial customers (as defined by the “standard” and “other” data categories). This is only an average, however, and observed monthly approval rates have spanned the range of 31.93 MW to 64.23 MW per month – the distribution of these monthly values is shown in the chart below.

Figure 3: Capacity Approved Per Month: This graph counts the number of months in which different amounts of capacity were approved for the NEM 1.0 program. The capacity approved per month ranges from as little as 31.93 MW to as much as 64.23 MW (1).

Figure 3: Capacity Approved Per Month: This graph counts the number of months in which different amounts of capacity were approved for the NEM 1.0 program. The capacity approved per month ranges from as little as 31.93 MW to as much as 64.23 MW (1).

Historical data is useful, but the truly pertinent issue is how the rapidly approaching program cap will affect the acceleration – or deceleration – of the approval rate. It could be that as the deadline approaches, more qualified projects will be submitted and quickly approved by the utility, thus absorbing the remaining capacity faster. The inverse of this may also be true—that as the deadline approaches, PG&E may see an increase in the submission of hastily prepared projects, bloating the workload of the utility and delaying the date of NEM 1.0 expiration.

The data provides evidence for both trends. The approval rate for 2016 thus far has been 15% greater than for 2015, reaching a high of 2.2 MW per day in mid-June. The daily average dropped to around 1.5 MW through July, but in recent weeks has shown several spikes, including one in early August that saw 5 MW of projects approved in a single day. Based on the average daily approval rate from the summer of 2016, the expected date of expiration is December 14, 2016. This is significantly sooner than January 13, 2017, which is the anticipated cap date based on the average approval rate of 1.5 MW per day observed over the 580 days that have passed since we began tracking the program in January of 2015.

Figure 4: Average Daily MW Approved (since July): This graph shows the average daily approval rate for July 1 through August 11 for 2016. Since PG&E releases data about once per week, we found the average daily approval rate by dividing the MW approved since the last entry by the number of days since the last entry.

Figure 4: Average Daily MW Approved (since July): This graph shows the average daily approval rate for July 1 through August 11 for 2016. Since PG&E releases data about once per week, we found the average daily approval rate by dividing the MW approved since the last entry by the number of days since the last entry.

The narrative becomes even more complicated when considering the rate at which PG&E’s approval rate is changing, or the acceleration of approval. Of the data kept by Alta Energy, roughly 75% of entries show incrementally small positive accelerations, but 25% show that approval, while still positive, is slowing down. For example, one week in late June of this year observed a negative approval rate, where PG&E posted data suggesting that they had repealed a number of prior-approved projects – this anomaly is reflected in Figure 5 below. While anomalies exist, the general trend is of acceleration, and when we model the program cap date using the average daily approval rate and average acceleration from the summer of 2016, the predicted date of expiration is much earlier: estimated at November 4, 2016.

Figure 5: Observed Weekly Approval Rate and Acceleration: The green dots correspond to the left y-axis, and they represent the capacity approved for each weekly entry in July and August of 2016. The line, plotted on the secondary axis, shows the changes in average daily approval rate from week to week for the summer of 2016. This is calculated by dividing the difference in approval rate by the number of days between two back-to-back entries, resulting in the per-day change in average daily approval rate for the week of entry.

Figure 5: Observed Weekly Approval Rate and Acceleration: The green dots correspond to the left y-axis, and they represent the capacity approved for each weekly entry in July and August of 2016. The line, plotted on the secondary axis, shows the changes in average daily approval rate from week to week for the summer of 2016. This is calculated by dividing the difference in approval rate by the number of days between two back-to-back entries, resulting in the per-day change in average daily approval rate for the week of entry.

The day-to-day and week-to-week variability in approval rate observed throughout the period that we have tracked the NEM 1.0 program make it very difficult to state with certainty when the cap will be met. It should be noted that a number of other organizations have been keeping tabs on PG&E’s NEM 1.0 program as well. CALSEIA, Cenergy’s The Solar Report, and GreenTech Media are among the major trade associations and media that report regularly on the topic. Each group has a different take on when the cap may be met, but the consensus is clear – PG&E’s NEM 1.0 will soon run out of space, and future solar customers will be adopted under a new, revised NEM tariff – one that has been dubbed NEM 2.0.

In January of 2016, California lawmakers approved the successor program to allow net metering to continue past 2017. The program for C&I customers under NEM 2.0, the tariff set to succeed NEM 1.0, will consist of the same basic structure as the previous system, save a few key changes. Energy will no longer be credited back to a system owner’s bill at full retail value, and the utility will be able to levy higher fixed charges for customers subscribed under NEM 2.02. These changes will mean that future solar investments in PG&E’s distribution network may see a marginal decline in benefit, likely in the range of 1 to 2 cents per kwh.

Alta Energy is currently assessing the specific impacts that NEM 2.0 will have for our clients and other businesses operating in the PG&E zone. In our next post, we’ll take a deeper dive into NEM 2.0, what changes to expect and how to best adopt your renewable energy deployment strategy to reflect and capitalize on these changes. In the meantime, if you act soon you may be able to squeeze an application through the approval process before the NEM 1.0 cap is met .

A better bet is to take advantage of this knowledge to develop an effective strategy for NEM 2.0, because even the successor program will be around only temporarily. The CPUC is set to review NEM 2.0 in 2019 and will be poised to make changes to future net metering programs as seen fit. As more home and building owners adopt solar energy, it will be harder for utilities to balance load with variable, intermittent renewable resources. Already displeased with the terms of NEM 2.0, the utilities will be vying hard for higher fixed and transmission charges when the time comes for NEM 3.0, and beyond. With this in mind, we at Alta advise: now is the time to make the business case for solar.

Conclusion

In short, we expect the expiration of PG&E’s NEM 1.0 program will occur sometime near the end of 2016. The successor tariff will not be quite as lucrative as the current system, but ultimately will continue to encourage the growth of distributed renewable energy in California. Stay tuned for our next blog post on the developments related to NEM 2.0 and the effects the successor tariff will have on the economics of commercial solar projects in the state of CA.

 

Sources:

  1. “Tracking the NEM Program.” August 11, 2016 2016. Web. <https://www.pge.com/en_US/residential/solar-and-vehicles/green-energy-incentives/solar-and-renewable-metering-and-billing/net-energy-metering-program-tracking/net-energy-metering-and-tracking-faq.page>.
  2. Successor tariff full text: < http://docs.cpuc.ca.gov/PublishedDocs/Published/G000/M158/K181/158181678.pdf >

 

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