Thought Leadership

California's NEM plan calls for innovative payment mechanisms


By Stephanie Wang

January 14, 2016

Will the transition for net energy metering be smooth or rocky?

California regulators’ proposed net metering decision is not about protecting the status quo – it’s a plan to transition to innovative payment mechanisms. The question is whether this transition will be smooth or rocky.

Across the country, policymakers and stakeholders have been watching the regulatory battle in California to determine the future of net energy metering (NEM) as distributed solar transforms from a niche market to a major portion of the state’s electric resources. The California Public Utilities Commission’s (CPUC’s) proposed decision on NEM reaffirmed its commitment to both maintain sustainable growth of distributed generation in the near term, and catalyze innovations in how consumers will be paid for providing grid benefits from distributed resources like rooftop solar, energy storage, advanced inverters and automated appliances. Whether this approach results in stable industry growth or creates another crisis in 2019 depends on how quickly California regulators and stakeholders work together on payment reform.

In a September 2015 decision on integrating distributed resources, the CPUC challenged stakeholders to propose new payment mechanisms that encourage the clean energy market to offer new products that combine clean technologies to provide greater benefits to the electric system. This is a major departure from net metering tariffs across the country, which have not incentivized rooftop solar customers to adopt additional clean energy solutions like energy storage or electric vehicles.

The CPUC’s proposed NEM decision echoed the Center for Sustainable Energy’s (CSE) calls for NEM policy to create a bridge between current and future payment mechanisms, which are part of the larger payment reform effort. The decision states:

“Given the choice between making a large change from existing NEM now and waiting for what promises to be much better tools for grounding that choice, we choose to base the successor tariff on current NEM, with changes that will better align the responsibilities of NEM customers with those of other customers in their class, looking toward the time when a more comprehensive reform of residential rates is completed and information from the DRP [Distribution Resources Plan] and IDER [Integration of Distributed Energy Resources] proceedings is available.”

This is not the time to rest on our laurels. The CPUC’s approach has great potential to provide a smooth transition that supports sustainable growth of distributed resources adoption. Setting 2019 as the time for review of the NEM successor tariff gives industry enough time to develop new business models. However, regulators and stakeholders must move quickly on payment reform so that industry has the certainty it needs to continue to invest in California through 2018 and beyond.

Read about CSE’s insights into integration and innovative payment mechanisms at Harmonizing Benefits of Distributed Energy Resources.

Stephanie Wang

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