What’s The Effect of California’s Net Metering Rules on Business Customers?

Solar panels on top of house and roofs in California.

(Credit: Canva Pro)

by | Sep 5, 2023

Solar panels on top of house and roofs in California.

(Credit: Canva Pro)

How California’s businesses and consumers get compensated for the amount of solar electricity they return to the grid is causing the interest groups to huddle in their corners. The California Public Utilities Commission changed the rules, impacting up to 1.6 million solar customers in the state.

That prompted three environmental groups to sue the commission, asking California’s Court of Appeals to reverse the decision or send it back to commissioners for reconsideration. The lawsuit focuses on the so-called net energy metering rules that govern solar rooftop use — a ruling that now says customers will get credit for the “actual avoided costs” and not the retail rates. Separately, the utility commission refused to reconsider its decision in July, saying it had not committed any “legal error.”

“Despite its public benefits, net energy metering has been a target of investor-owned utilities across the country, the vast majority of which operate as regulated monopolies,” the lawsuit said. “Their investors are guaranteed a return on capital investments, including spending on transmission and distribution infrastructure. By shifting generation closer to customers, net energy metering has decreased the need for utility transmission infrastructure and threatens utilities’ profits.”

Net energy metering measures how much utilities should pay distributed energy customers. Utilities, generally, offer the wholesale rate, while solar customers want the retail rate. Further, companies collect fees to pay for the upkeep of the distribution system — wires that all customers use, even those who power their homes with solar panels. Utilities must provide electricity over their networks under any set of circumstances.

The Protect Our Communities Foundation, the Center for Biological Diversity, and the Environmental Working Group filed the suit. It targets the utility commission and the state’s three major power companies: San Diego Gas & Electric, Southern California Edison, and Pacific Gas & Electric.

The California Solar & Storage Association estimates that the difference is as much as 75%, making the ownership cost more. The San Diego Union Tribune reports that the group figures the compensation rate would drop from 30 cents per kilowatt-hour to 8 cents. However, the commission and the utilities say the determination is fair and won’t deter solar deployments.

Does the rule motivate more battery storage?

The rule change occurred in April, and it is the third iteration in net metering standards. As more businesses and customers turn to rooftop solar, utilities maintain that fewer customers must pay for upgrades and maintenance of the grid. Lower-income residents need help with paying for things like substations and transformers. The commission agreed with the utilities.

The utility commission says the goal is to cut carbon emissions. The most significant electricity demand comes after work when the sun has set. Because that energy source is unavailable, natural gas units kick on to firm up the solar plants — problematic if the aim is to cut emissions. Hence, the incentives for battery storage.

“All of this is to say there will be some measure of decrease after this decision that is absolutely to be expected,” Commission John Reynolds said, as reported in the San Diego paper. “But it will not signal the death of the industry or the rooftop solar market.”

The new “net-metering” rules could deter a solar rollout, threatening the state’s climate neutrality objectives by 2045. But the commission maintains that carbon reductions occur during peak energy consumption when the sun sets. Therefore, the emphasis must be on deploying energy storage.

Consulting firm Wood MacKenzie says that the residential solar market could shrink by 36% in 2024 due to the changes, adding that many solar companies won’t survive. The payback on such systems will extend from about 6 years to 15. Distributed solar generation provides 13,000 megawatts to Californians, adds the California Solar & Storage Association. But the state needs five times that number to hit its net-zero goals.

Installing 20 solar panels on top of a 2,000-square-foot home would cost about $18,000; after the federal tax credit, it would be $13,000. If homeowners or businesses used battery storage, it would add $15,000. The six-year payback is contingent on customers getting the retail rate for the power they provide.

“The Decision exaggerates the effects of the net energy metering tariff on non-participants by underestimating the benefits of distributed generation and overstating its costs,” the lawsuit said.

Existing customers — those who installed solar panels in 2018 or earlier — get paid the retail rates until 2038. At that point, it changes to the “avoided costs.”

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