Various changes are taking place over the course of the next few years that will impact several of California’s most popular and lucrative solar and energy storage programs and incentives. Initial indicators suggest that these changes will likely reduce the economic benefits of solar and/or energy storage.
CalCom Energy is tracking some of these changes, summarized in this post, so that our customers may be both aware and prepared for the future of solar in California. The table below shows the various solar and energy storage programs available to customers and the way their respective benefits and degradation periods will be changing over the next few years. A more detailed description of each program and the changes proposed therein is also provided below.
For customers considering solar or solar combined with energy storage, NOW is the time to invest as 2021 is most likely the last year customers can take advantage of all three incentivized programs and receive the highest economic benefits from their installation.
Program: Net Energy Metering (NEM)
Net Energy Metering (NEM) is a billing program that applies to customers who install onsite energy generation and allows them to receive compensation from the utility when their system exports surplus energy back to the utility. For example, under the current NEM tariff, NEM 2.0, when a customer’s solar PV system produces more energy than is needed for their onsite load, the utility compensates the customer for the excess solar generation by crediting their utility bill, helping to lower energy costs. Currently, exports are compensated at the full retail rate minus a few cents/kWh for non-bypassable charges.
The California Public Utilities Commission (CPUC) opened a new proceeding last fall proposing major revisions to the program, collectively known as NEM 3.0. Experts predict NEM 3.0, scheduled for roll-out in early 2022, will contain numerous changes that will devalue solar. Some of these changes could include:
- Reduction in export credit value. Any excess generation may be credited at a lower amount than it is today, in some cases up to 50% less.
- New monthly fees. Additional monthly fees for commercial customers, preliminarily estimated at $1000 to $3400 per month for a 250 kW system.
- Shift to Monthly true-ups. The transition from annual true-up billing to monthly true-ups. True-ups are a bill that the utility sends the customer at the end of their solar billing cycle that reconciles all the cumulative energy charges, credits, and any compensation they may be entitled to for that cycle.
- Annual true-ups allow the customer to apply excess generation credits from one part of the year towards other periods of the year where they are underproducing. Currently NEM 2.0 customers carry NEM credits from one month to the next with a final end-of-the-year true-up billing statement where they are credited for excess generation in those 12 months.
- Monthly true-ups are similar but have monthly billing cycles and electricity charges and credits are reset to zero at the beginning of each cycle. This means credits do not carry over month to month and therefore do not allow customers to apply excess generation credits towards other periods of the year when they are using more energy.
- Changes to Grandfathering. Customers currently enrolled in a NEM tariff are “grandfathered” into that tariff for 20-years, meaning if the tariff changes during that time those customers are eligible to remain on their current tariff until the grandfathering date expires. NEM 3.0 proposes to eliminate or reduce the current 20-year eligibility period meaning the tariff would be open to changes at any time.
CalCom Energy Recommendation
In order to ensure customers are enrolled in the current NEM 2.0 tariff CalCom Energy recommends submitting project interconnection applications before the CPUC Final Decision, currently scheduled for November 2021.
Program: Self-Generation Incentive Program (SGIP)
CPUC’s Self-Generation Incentive Program (SGIP) offers rebates for installing onsite energy storage technology in California’s four major IOU territories (PG&E, SCE, SoCalGas, and SDG&E). The SGIP program is seperated into several budget categories and both the customer eligibility requirements and incentive rates can differ among each category amounting to hundreds of thousands of dollars of savings for a typical large energy storage system.
California energy policy experts predict SGIP funds may only last for another year (through the end of 2021) as no other funds have been allocated at this time to continue the program. Just last month PG&E transitioned to Step 4 after being in Step 3 for three years and the incentive levels dropped from $250/kWh to $220/kWh for systems that take the solar investment tax credit (ITC).
CalCom Energy Recommendations
Depending on the customer’s current and future renewable energy goals we recommend the following. For both scenarios CalCom Energy recommends submitting SGIP applications before 2022 to ensure funds are available.
Customers interested in installing solar should also consider the benefits of adding an integrated energy storage system alongside their solar PV system. Depending on customer usage profile and utility rates, the added utility bill savings provided by the battery alongside the benefits of an SGIP rebate can provide similar if not better economics than stand-alone solar.
Customers with existing solar may also be eligible to take advantage of the SGIP rebate when integrating a battery with their existing system.
Program: Investment Tax Credit (ITC)
The Federal solar Investment Tax Credit (ITC) enables for-profit entities to deduct a percentage of the cost of installing solar, and energy storage systems tied to a solar PV system, from their federal taxes. The current ITC rate is 26%.
Starting in 2023 the ITC drops from the current 26% to 22%, then in 2024 it is scheduled to drop permanently to 10%.
CalCom Energy Recommendations
Customers with a tax appetite who are interested in installing solar or solar and energy storage are encouraged to begin the site analysis and design process now to achieve utility permission to operate (PTO) before end of year 2023. Depending on the size of the project, the difference in savings from 26% to 22% can be thousands to tens of thousands of dollars, and the drop from 26% to 10% can mean a difference of hundreds of thousands of dollars off the initial cost of the system.
Interested in taking advantage of the current favorable solar climate? Reach out to firstname.lastname@example.org with your inquiry and we will guide you towards an incentive-smart solution for your operation.