The Promise & Implications of California’s Evolving Solar Policy

California continues to be at the forefront of renewable energy adoption, but is struggling with reliability, rate issues, and interconnection roadblocks, while still trying to meet decarbonization goals. Policy makers are attempting to respond to these challenges with new dockets and programs to emphasize procurement and resource adequacy, accessibility to community solar, and structuring incentives to balance the grid.

In our recent webinar panel, “The Promise & Implications of California’s Evolving Solar Policy,” our very own Head of Policy, Pari Kasotia, chatted with Rick Umoff, CA Director and Counsel at Solar Energy Industries Association (SEIA); Frank Teng, Head of Business Development at OnSwitch; and Stephanie Dolye, California Director at Vote Solar to discuss the pending clean energy initiatives and policies that will impact California’s solar energy landscape in the near future.

Panelists covered a wide array of topics, from the recently enacted NEM 3.0, to the impacts and promise of the IRA. If you didn’t get the chance to tune in, here’s a recap of key discussion points.

NEM 3.0 and the value of solar

NEM 3.0, also known as the Net Billing Tariff or the Solar Billing Plan, is set to significantly reduce the value of solar that is exported back to the grid from customers. From Frank Teng’s commercial EPC perspective, the most important consideration for NEM 3.0 is helping customers understand the impacts and how the solar they don’t use will impact the viability of projects: “The key to that is that there is going to be a finer grain analysis during your solar evaluation phase for commercial customers as to what is exactly this solar going to do in offsetting my usage for the next 20 years.”

It’s important to factor in the rate changes compared to your level of export rate, and how to mitigate the impacts on your projects overall value. Two ways customers can mitigate the lost export value is to either reduce the system size to lower the amount exported, or add battery storage to hold on to more of what’s produced, enabling you to manage demand charges and export to the grid when it is more valuable to do so. Leveraging time of use rates, exporting energy during peak demand hours, such as the evening, will receive higher compensation.

Adding to the complexity, panelists discussed how NEM 3.0 utilizes the Avoided Costs Calculator, a seasonal and temporal tool that is used to evaluate different value streams and avoided costs that the solar and energy storage systems should be compensated for, such as energy capacity, avoided emissions, avoided transmission and distribution costs, etc. The California Public Utilities Commission (CPUC) is already going through the process of updating and refining the tool, which it will do every few years to ensure relevant value streams are accounted for.

Getting customers to understand how this tool works is essential. As Stephanie shared, “It’s a really complicated mechanism. It uses 576 values versus 6 under NEM 2.0 for the year, and just helping people understand what their savings are going to look like and how to take advantage of their solar and storage systems is going to be really important.”

Leveraging Storage

With NEM 3.0’s reduction in exported solar value, customers look to storage as a mechanism to recoup lost value. “The state is essentially moving to a value-based export framework, as imperfect as it is, in an attempt to start to send a different price signal to solar customers, and very strongly a signal that says ‘you should do storage’,” said Rick.

Commercial and industrial (C&I) customers need to do an analysis of their system and look at the tradeoffs of adding storage. Storage creates more complexity in the evaluation process, and those with limited capital will have a harder time integrating it, unless included in financed arrangements like a power purchase agreement (PPA) where it’s more cost effective. Storage is not as readily available as the industry would like it to be, and the costs are still high. It will take time for the proper financing mechanisms to be in place for the C&I industry to more widely adopt this technology.

Frank emphasized that storage doesn’t make sense for everyone – certain customers might be space constrained, or they might be using more energy onsite than they can offset with solar, so their export back to the grid is already minimal. There are also local jurisdictional and permitting requirements that need to be considered with implementing storage assets, and the supply chain hurdles the industry is facing continue to be a challenge.

Community Solar

California currently lags behind when it comes to community solar, with 22 states plus Washington D.C. offering active and robust programs. “California’s community solar equivalent programs – the green tariff programs – just haven’t been very successful,” said Stephanie. Last year a bill passed to open the door for California to create a new community solar program that requires 51% of capacity to serve low-income residents.

The CPUC currently has a docket open to discuss a potential new program and revise the existing utility green tariff programs, which will open up opportunities for renters and multi-family homes that may have very limited options. Currently, renters are only able to access solar through virtual net energy metering, which is largely reliant on landlords to make the decision to implement it. The program would fill this gap, providing renters with the ability to subscribe to the benefits of solar and storage without it being installed on their property. “45% of Californians are renters,” said Stephanie, “So it just provides a whole new opportunity for folks who really want to get the benefits.”

The program’s structure would consist of smaller, locally sited projects that would likely be paired with storage to increase value. Not many community solar programs include storage,

putting California at the forefront of what a community solar-plus-storage would look like. Rick added that the program will fill “an important sort of missing gap here of projects that can be deployed quickly, can provide clean energy, and can provide reliability, at a local level, which the state desperately needs right now.”

The Inflation Reduction Act

On a federal level, the benefits and incentives of the IRA will have their mark on California, as well as the rest of the nation. The IRA has been slow to roll out, with guidance not expected to be finalized until later this year, which creates a period of uncertainty for commercial developers and EPCs, making it more difficult to plan projects and set expectations with customers.

On the other hand, it opens up more opportunities. With the newly proposed 30% ITC, and an ample amount of low income and energy community adders, “projects that maybe didn’t have great economics before will now really have a strong leg up,” stated Frank.

Even with all of the promise the IRA provides, there are still challenges that stand in the way of solar and storage. Major limitations remain, such as ample workforce, interconnection roadblocks, and persistent supply chain issues. “The IRA is just absolutely supercharging the demand for our product, and with that is going to come a lot of work that’s going to be needed to make sure we can actually get the job done,” said Rick.

Because of the greater emphasis that the IRA’s incentives will put on the solar industry, Stephanie advised that developers, “lean into community engagement and to think about partnerships with community based organizations and local groups that can not only help communities understand projects better, but also speed up some of the barriers to permitting or people pushing back on projects.”

With the growing demand for solar, California – along with the rest of the nation – will continue to face more challenges and constraints with distributing clean energy resources. Policies and programs will play a key role in shaping what’s next for California, and for developers, commercial EPCs, and even residents, understanding and navigating these changes will be critical to optimizing the clean energy transition.