Monday Study – California’s New Answer For Solar

What Happened: California NEM Disaster 3.0

Crystal Soo, December 3, 2022 (Project Fair)

Overview:

Electricity is a basic human need whose accessibility and affordability expands through distributed energy resources (DERs). Traditionally, energy has been produced by electric utilities, which have had a monopoly by centralizing our energy resources. In contrast, DERs are sited at the consumer level, for example, the solar on a homeowner’s rooftop. As a result, DERs provide a host of benefits, including energy resilience, energy affordability, and human and environmental health. By establishing the DER adoption framework in frontline communities – those who have systemically shouldered the burdens of our current electricity system[1] – we prove the scalability of DERs and their benefits. In other words, if the method through which we implement DERs can economically scale at the frontlines, we have established a system effective at ameliorating systemic energy injustices. In turn, DERs become a valuable, viable, and equitable solution for climate adaptation and mitigation.

A critical driver of DER adoption is net energy metering (NEM), a form of financial compensation for DERs where system owners are credited for providing the electric grid with excess electricity generated. This billing mechanism is a crucial driver of the financial feasibility for DER adoption. Shortened payback periods for DER investments can be achieved through compensation mechanisms for the electricity metered to the electric grid. Additionally, the DER can provide electricity onsite when utility electricity prices are high, lowering bills and increasing energy affordability. Net metering policy varies by state, but all should be guided by the fundamental Equity principles of transparency, access, and community engagement.

Here, I present the California Net Metering 3.0 Proceeding as a case study to explore how frontline communities play a core role in DER technology adoption and policy. I demonstrate how the NEM 3.0 discourse can follow an alternative path to Equity by utilizing no-cost and open-access data to unlock critical factors in developing a net metering policy. A methodology that centers Equity results in comprehensive, convergent decision-making that expedites clean energy adoption.

The California NEM 3.0 Proceeding

A key aim of the California NEM 3.0 Proceeding, a net metering policy for single family residential homeowners, is to improve on the cost-effectiveness of NEM 2.0 (the second version of the net metering program) before it becomes official policy. California NEM 3.0 is a rework of NEM 2.0, resulting from findings that DERs were over-compensated for their electricity exports to the grid in comparison to the cost of services provided by the grid. As a result, NEM 3.0 foregrounds DER financial compensation mechanisms for electricity exports to the grid by introducing the Avoided Cost Calculator (ACC), which was not present during NEM 2.0.

However, within both expert circles and frontline advocate groups, there is strong disagreement and inconclusiveness on the core findings of NEM 3.0. Consequently, the NEM 3.0 Proceeding has not resulted in a Final Decision, which was originally slated for February 2022. California is known as both a national and a global leader in clean energy. So, where did the NEM 3.0 Proceeding go so horribly wrong?

The key red flag in the NEM 3.0 discourse is the ACC, a calculator developed by a third party consultant without the input, engagement, and evaluation of frontline communities. Even expert energy economists within the DER community were unaware that the ACC would be central to NEM 3.0. Because the ACC model focuses on single family residential homes, it doesn’t account for communities who reside in multi-family residential units, rental apartments, or work in the agricultural sector – i.e., those without intergenerational wealth to be homeowners or those in one of the largest CO2 emitting industries. Moreover, the ACC projections do not attempt to forecast DER adoption impacts based on strategies to increase adoption, especially among these communities as well as those that are under-participating.

There is a lack of evaluation around the electricity system’s avoided costs under NEM policy that incorporates a variety of potential customers, ranging from apartment renters to the agricultural sector. The ACC – and the process whereby it was developed and implemented – is inadequate on all fronts of transparency, access, and community engagement; unsurprisingly, the result is ongoing contentiousness among frontline advocates, energy economists, and policymakers.

click to enlarge

Figure A. The Avoided Cost Calculator for California NEM 3.0

A Transparent, Accessible, and Community-Engaged Framework and Method: Centering and Characterizing the Frontline Communities

If the NEM 3.0 Proceeding is going to become a process that accelerates the clean energy transition through energy justice, then transparency, access, and community engagement must drive net metering reform. To start, a transparent and accessible method to analyze and present information must be utilized and a methodology to characterize frontline communities should be created. Where are these DER benefits most powerful and compelling?

I used publicly available, no-cost, and open-access data from the federal CEJST tool, to demonstrate accelerated adoption of DERs by embedding energy justice into the development of NEM 3.0. Through the CEJST tool, I identified the California counties of San Joaquin, Fresno, and Merced as frontline communities who stand to benefit most from DER adoption and NEM participation. In these communities, we see that energy burden (the ratio of energy expenses to income) and PM2.5 (an air pollutant that causes asthma) are remarkable. Fresno County has 40% of its population at or above the 70th percentile of energy burden in the United States, the greatest percentage of the three frontline communities. At the 70th percentile of energy burden, all three counties are heavily impacted by air pollution, ranging from 97th to 99th percentile of PM2.5 exposure in the United States. By characterizing communities based on energy affordability and air quality metrics using open-access data, we are guided by accessible knowledge through transparency.

Looking beyond percentiles to the wider social context of these regions, each county’s economy relies heavily on agriculture as a key economic driver. However, there is currently no pathway for agricultural participation under the current ACC and California NEM design. The NEM design should be inclusive of the various customer classes that exist in California, rather than solely single family residential homeowners, to include renters and farmers. Then, as the result of inclusive net metering, the avoided costs should be calculated and forecasted to reflect policy that condones equitable participation. Accessible data empowers communities, elevates their voices, and opens decision-making beyond esoteric groups, bringing the historically marginalized to the table where decisions are made while engaging them throughout the policy process.

click to enlarge

Figure B. Infographic containing CEJST tool data and mock survey results to demonstrate a potential community engagement strategy.

Applying the Solution

The proposed NEM 3.0 includes a $600 million Equity Fund* with the aim of scaling up low-income access to distributed clean energy. The allocation of its funds for technologies including distributed storage and community solar will be determined through a stakeholder engagement process.

Building on the foundation for frontline community characterization, the next step is creating a framework and method for the crucial roles that they play in the clean energy transition and to account for the disproportionate health and economic burdens they have systemically and historically shouldered. In the context of the NEM 3.0 proceeding, this means leveraging the $600M Equity Fund in the counties of San Joaquin, Fresno, and Merced to study the scalability of DER adoption in these communities and the metrics that would inform equitable NEM rate design more broadly.

Successful DER adoption requires that NEM policy be demonstrative of customer access and empowerment. Successful customer access and empowerment can be demonstrated through an investment framework that should:

1. Streamline, standardize, and accelerate the DER adoption process, including engineering, permitting, and interconnection, in frontline communities.

2. Continuously evaluate the project development process in frontline communities for project phase durations.

3. In tandem with (2), proactively identify areas for project development process optimization while leveraging relevant funds, services, and software technologies in the market.

4. In tandem with (2), proactively identify market players relevant to project development process optimization.

*Update: After one year of delaying the NEM3 Final Decision, the latest version removes the $600M Equity Fund and externalizes the funding to a separate policy decision. This is yet another example of failure to understand and operationalize Equity, pushing Equity to the periphery and delaying justice. This has a direct negative impact on the deployment of clean energy that reaches our climate goals.

Conclusion:

The current NEM 3.0 proceeding fails to meet clean energy and Equity expectations.

The introduction of the ACC in NEM 3.0 further gatekeeps distributed energy resources, centralizes infrastructure, and breaks down communication between policymakers and the communities they serve. Simultaneously, these proceedings cannot be repeated elsewhere, because it is untenable for the climate, the energy industry, and communities to wait when we need an accelerated clean energy transition that reverses the historic trends of climate, energy, and social injustice. Equity must be the fundamental through which we deploy clean energy, whether through the utility or DERs. The techno-heroic approach to climate centers the next latest and greatest technology as the driving force solving our most pertinent challenges – this has not and will not work for solving the climate crisis. In order for technology to drive a sustainable and just future, it must be part of an orchestrated effort to distribute that technology to those who stand to benefit most – and seek their engagement from the beginning.