written 8 January 2023
published 15 January 2023
In 1975, solar panels cost about $100/watt, and grid tied residential usage was extremely limited. But peak oil in the US, and the rise of OPEC, stimulated increased popularity of such systems. When excess electricity was produced, the power was pushed back onto the grid, spinning the meter backward, allowing homeowners to "store" their excess power on the grid. But in reality, nothing was stored, only credited, as all electricity is used in the moment it is created. Utilities began demanding a more formalized relationship, and Net Energy Metering (NEM) regulations were eventually established.
California introducing NEM 1.0 in 1996. Solar panel cost had dropped to about $7.50/watt, but solar still provided virtually no significant power to the grid. The goal was to stimulate solar growth with credit of $0.25 per kilowatt-hour for selling excess energy back to the grid. Total amount of net metered solar was capped at a modest level in each utility districts.
Plenty of sunshine, high electricity rates, and favorable net metering policies helped California become one of the nation’s leading solar markets. By 2017, solar panel prices had plummeted to $0.75/watt, and solar, producing about 1 percent of the national electricity, was growing in popularity and recognized as a reliable energy source throughout the world. In addition, the three California investor-owned utilities hit their net metering “cap” between 2016 and 2017.
This prompted the California Public Utilities Commission to create NEM 2.0, their next generation net metering regulations. The rate paid for excess electricity was about the same, maintaining the major benefit of allowing customers to sell electricity back to the grid at retail rates. Industry caps were removed, but some fees were increased and all solar customers transitioned to time-of-use rates, reflecting that variations in power availability affects real prices. In Ukiah, the real cost of power the City pays can vary by more than a factor of 5 over the course of the day, with evenings being much more expensive than the middle of the day. Although NEM 2.0 was less beneficial compared to its predecessor, it still focused primarily on the fiscal value of solar and treated "credit" as "storage".
Today, solar production is increasingly rapidly. Panels cost $0.31/watt. Solar produces almost 3 percent of our electricity, and is expected to grow by 60 percent in 2023 alone. While corporate utilities are still trying to curtain solar, we have bigger problems.
Regionally, all solar produces at about the same time, increasingly stressing the grid during peak production. Increased consumption occasionally saturates the grid capacity, and addressing the climate crisis demands a huge increase in electric consumption. Further, there was still no recognition that excess power is not really being "stored". In December 2022, the California Public Utility Commission released the new NEM 3.0 policy, which shifts thinking about solar from fiscal gain to providing power as needed.
Excess power from existing solar systems will be paid at the rates in place when they were installed, but the new policy applies to systems installed after April, 2023. All power consumed onsite will be free, but excess power pushed onto the grid will be credited at a reduced rate of "avoided costs", plus a small margin, reflecting the actual wholesale value of the power when it is sold to the grid, like any other power producer. There are no monthly connection fees. All this reflects the increased maturity of solar power, acknowledges the load limitations of the grid, and stimulates the goal of increasing the installation of distributed storage.
Solar systems are fixed costs, producing power for at least 25 years, and more likely 50 years, some of the least expensive power installed today. As we shift to collecting power when it is available, rather than when we want it, we have to recognize the value of the power changes over time with availability, and the midday solar production peak is some of the least valuable of the day. By adding battery storage to any solar system, this cheap power can be stored and consumed later instead of more expensive power, or sold into the market reaping the increased value. While the payback period for a solar-plus-storage system may still be longer under NEM 3.0 than it is under NEM 2.0, it’ll be better than if you install solar alone, and your system will be more versatile and robust.
