Data Not Drama: Evaluating the Benefits and Costs of Net Energy Metering Presented to the NARUC 2013 Winter Meeting Tom Beach, Principal Consultant Crossborder Energy February 5, 2013 2560 Ninth St., Suite 213A, Berkeley, CA 94710 - 510-549-6922 - tomb@crossborderenergy.com

Key Concepts Net energy metering (NEM) is a simple billing arrangement for power exported to the grid from renewable distributed generation (DG). “Running the meter backward” Simple for the DG customer Without NEM, customers have rights under PURPA: To interconnect, To offset their own load, and To be compensated for exports to the grid at an avoided cost price. Most of the output of renewable DG never touches the grid.

Evaluating the Costs and Benefits of NEM Cost-benefit evaluations of demand-side resources are common. The California Standard Practice Manual tests for energy efficiency. NEM cost-benefit analyses are ratepayer impact tests. Need to define NEM clearly as a billing arrangement for exported DG. Not a total resource cost or “societal” test of the DG resource. Arguably, standby and interconnection costs are beyond the scope of a cost/benefit analysis focusing on NEM exports. Ratepayer impact evaluations of DG resources can be performed, but should be characterized as such, not as analyses of NEM. States place different emphasis on ratepayer impact tests versus total resource cost tests.

Scoping a Cost/Benefit Analysis of NEM Focus on the power exported to the grid. Typically, this power immediately serves nearby loads. Displaces power that would have been delivered from more remote sources. Focus on DG as a long-term resource. Costs: Utility loses revenues, from running the meter backward. Incremental billing and administrative costs. Benefits: Costs that the utility avoids as a result of exports to the grid from NEM customers. Avoided generation costs, including environmental and RPS costs. Avoided delivery (T&D) costs, including avoided line losses and avoided T&D investment costs.

A New Cost-Benefit Analysis of NEM in California Why is a new NEM Cost-Benefit study needed? CA 2009 NEM Study (E3) found a modest cost shift from NEM equal to 0.4% of utility revenues at CSI completion (2,150 MW of solar DG). California’s cap on NEM systems has been raised to 5,300 MW. In the 2009 study, 87% of the net cost shift from NEM was in the residential market, with two-thirds of this cost shift in the PG&E market. Rates have changed since 2009, and will change further. Lower expected rate escalation: 2.7% per year vs. 4.5% per year. NEM exports reduce utility RPS needs and increase the market share of renewables on the grid, because 100% renewable exports displace 20% to 33% renewable grid power. DG RECs are not used for RPS.

Crossborder NEM Study Results - Residential

Crossborder NEM Study Results – C&I Market

Crossborder NEM Study Results Annual Impacts at 5% NEM Cap (millions, 2012$) Note: 5% NEM cap = 5,300 MW of DG IOU 2011 revenues ≈ $25 billion Market PG&E SCE SDG&E IOU Total Residential 6 (4) (2) C&I (25) (49) (16) (90) Total (18) (53) (21) (92)

Key Conclusions Study is available at www.votesolar.org. NEM is cost-effective in California. A small net cost in the PG&E residential market is outweighed by… …small net benefits in the SCE and SDG&E residential markets. C&I NEM produces significant benefits. Rate design has significant impacts on NEM economics. A move to greater use of existing TOU rates would increase NEM benefits for non-participating ratepayers. Simpler TOU rate designs have larger benefits than more complex designs. C&I rates that lower demand charges will reduce cost shifts from solar customers to non-participating ratepayers. Study is available at www.votesolar.org.