California Supreme Court To Hear Home Solar Rate Case And It’s A Mess – Forbes

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The California Supreme Court has agreed to hear an appeal to a challenge of the new financial structure for people with solar panels on their homes known as “NEM 3,” which went into effect in 2023. Compared to the old NEM 2 rules, solar panels became much less financially lucrative for homeowners, which has significantly curtailed demand and been catastrophic for many home solar installers. The new rules, though, are more fair to the utilities that want them, but they don’t mesh with the state’s desire to boost solar. All agree an answer lies in storage, so possibly a solution can come from creative approaches to get the growing fleet of electric vehicles to charge with all this new solar.

Short summary: People with home solar power sometimes use their own power, sometimes they need extra from the grid, and sometimes they feed surplus back to the grid—this is essential to efficient operation. Under the older NEM 2 rules, homeowners paid only on their net usage over a whole year, which effectively means they got credits at retail price for any surplus they sold to the grid. They could put energy into the grid in the morning when demand and prices are low, and take it back later when demand and prices are high. Utilities hated that, so they got the Public Utilities Commission to change the rules so that surplus power would be bought not at the retail price, but at the much lower wholesale price at the time the power came.

The old system was much more favorable for homeowners. They could use the grid as a giant free battery, and “bank” their excess power financially and take it back when they needed. I purchased my own solar panels just in time to get in under the old rules, like many other people. Utilities argue they should not have to pay their full retail price for power from home solar systems. The utility price is actually mostly delivery charges, and a smaller amount for the actual energy, and the home solar array only gives them generated energy they now must deliver. In addition, while homeowners pay a flat rate for energy, or perhaps 3 different tiered rates based on the time of day, the real price of energy constantly fluctuates, and energy delivered at noon (when solar panels are on full) is much less valuable than energy at 7pm (when they are all off.)

It’s a huge difference. On NEM2 you effectively sell your surplus power for prices ranging from 36 to 54 cents/kWh. On NEM3 it’s estimated to be around 5-6 cents. No small difference.

The utilities have a point. Power isn’t really a commodity, it’s a service, and most of what we pay is about the service level and time of delivery, not just when it comes. The other types of energy we buy—gasoline and natural gas—don’t cost 10 or even 100 times as much in the evening as in the morning. But the solar industry and environmentalists also have a point: California wants to encourage lots more solar, and this change wiped out many of the economics.

The answer is storage. At present, the message is that those with the new NEM3 rule should be motivated to get a battery system for their home, and store their surplus power in that battery to use later, rather than selling it at a low price. Batteries are expensive, but this is still a win. You can also sell a small part of your surplus power from your battery on rare summer early evenings for the fat $1/kWh price sometimes found.

That works, but as noted, battery storage systems are expensive, and using them wear them out. But every EV driver has already purchased a very large battery which can perform some of the same function. Today, it can’t power your home or the grid, and it may never do so, but this sort of “V2G” system isn’t necessary. A lot can be done by arranging to charge your car when you have surplus solar. It makes immediate economic sense—rather than be paid 6 cents to sell the surplus to the grid and buy it back for 35 cents, use it directly.

Right now, though, people like to charge their cars at night, when there is no solar. It’s by far the most convenient time, and also the cheapest time on the current grid. Even in the future, when noon (with tons of solar) is the cheapest time, night will still be the most convenient, as the car is always home and you’re asleep. There are smart controllers sold which monitor the solar power and tell the car to charge when there is solar surplus, and people use them, but there is an issue. To use this, you must not charge your car at night, to make sure its battery has room to put the solar surplus in the day. People don’t like waking up to a low-battery car, and of course many commute and their car isn’t home during the day. Indeed, the best place to charge cars that commute with solar is the office or commuter lots, not homes.

Local Virtual Power Plants

The answer to this may lie in virtual power plants. A VPP is not a real power plant, but rather a computerized aggregation of either small energy producers (like solar panels) but also loads which can be commanded to stop drawing power. A single entity controls these as a group and sells their power to the grid. That’s not hard to understand, but the reverse is more complex. When the grid is under heavy load and needs more power, it can ask a power plant to turn on and get it. But it can also ask some of the load to shut off and get the same effect, and will pay for that. Most loads don’t want to shut off. Factories don’t want to shut down, buildings don’t want to turn off air conditioners. Even so, those happen, but even easier is asking cars to stop charging and pools to stop filtering because those things can be easily just done later.

All this is done. Unfortunately, a virtual power plant is only paid the wholesale rate for its power, so it doesn’t help the NEM3 solar home. Management of car charging is already done today.

A new option, not explored, would be a VPP that sold power from home solar rooftops directly to their immediate neighbors. If I have solar and my neighbour does not, my surplus energy can flow into her house with minimal use of grid infrastructure—in some cases it doesn’t even go through the transformer. (It should be noted this is a poor description of the physics of electricity flow, as it’s all one big grid which combines electric potential from multiple sources, but for the purposes of a virtual power plant you can imagine it’s like there is a direct flow.) In particular, a virtual power plant is more about money flow and contracts and constraints.

Indeed, I could run a physical wire to my neighbor if I wanted to pay for that so the power would flow behind the meter and the utility would not even be involved. That’s cumbersome and there’s no need, if we make use of a tiny portion of the utility’s infrastructure—for which they should be paid, but only a modest amount.

Today, when I buy electricity, I might pay 53 cents for an on-peak kWh. But I pay only 18 cents for the energy, and 35 cents for the delivery by PG&E, the utility. (No wonder I bought solar panels, which will cost me less than 10 cents, delivered, but I have to pay it all up front. Even the former president of the PUC thinks rates have been allowed to go far too high.) But it’s likely my neighbors would be very happy to pay me 25 cents for my power, plus some reasonable fee like 5 cents for use of the wires up and down the pole. They pay 30 cents instead of 53, and I receive 25 instead of 6. Not as good as NEM2 but a lot better than NEM3. (The VPP would of course also take a commission on this, but mostly they just move bits so it’s profitable.)

The utility’s delivery fee would vary based on how far it is to the neighbor and how much of their gear it uses. If it goes very far—effectively into the big transformers and the general grid—then I would end up with that 6 cent general wholesale price. Or, and this is a big or, I could be asked to not transmit that extra power, to just discard it or put it into a battery. Unlike many other power sources, most solar systems can be told to scale back their power delivery. This neighborhood VPP would need special software in people’s solar controllers to support that. In most cases though, the utilities would agree to take all the power at a low price, avoiding the need, until such time as there is too much solar power and they need to limit it. With non-solar power plants (including wind, nuclear and combined-cycle fossil) which can’t be turned off instantly, they sometimes have to actually pay people to take their surplus power so they won’t overload the grid. When that happens, utilities will rather the solar just turns off. Done right, it means the power flow is controlled and the utilities don’t need to build new infrastructure to handle all that solar—it all gets used locally or is shut off if it can’t be handled.

Utilities won’t like this, of course, unless their distribution fees are high. They would much rather pay a homeowner 6 cents for a kWh and sell it to their next door neighbour for 53 cents, which is what’s happening right now under NEM3. But that’s killing the solar industry. They have a monopoly on those local wires, so it makes sense to require them to sell their use at a fair price. And sadly, for now they seem to convince the PUC that if they lose money somewhere, they just get to increase prices to ratepayers.

In this world, most electric cars would charge in the daytime at offices and commuter lots, powered by the solar panels on the building an on the homes surrounding the parking lots. Minor changes in grid infrastructure are needed. Charging cars is the perfect use for solar. Solar is the cheapest type of new power to build, but it only comes in the day. Cars in office parking lots want power only in the day. The cars will stop charging at 3pm when all the air conditioners turn off, and the solar panels will run them—until the sun goes down. Also during the day, the surplus solar above what the cars need can be used by the air conditioners to freeze ice, which then cools the buildings once the sun sets.

So it may make sense for the court to send this back to the PUC, and tell them to get more creative in the economics of electricity so the utilities can make money and use their existing infrastructure, but homeowners can get return on solar for themselves and their neighbors to support a thriving solar transition with thriving solar companies.

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