Net Energy Metering (NEM) 2.0 Evaluation

Report Summary

This summary is adapted from the NEM 2.0 Evaluation, or “Lookback Study.”

NEM Population Overview

By the end of 2019, California customers had interconnected more than 1 million NEM generators onto the three large electric investor-owned utility (IOU) systems. About 60 percent of these were NEM 1.0 systems and about 40 percent were NEM 2.0 systems. Almost 98 percent of NEM systems interconnected during 2019 were residential.

Less than 6 percent of NEM systems interconnected during 2019 included energy storage. Residential customers with household income levels over $200,000 installed energy storage at a higher rate, 9 percent.

On average, NEM 1.0 residential customers consume significantly more energy, and NEM 2.0 customers consume slightly more energy, than average Californians. This may be partially due to these systems being installed on larger and/or more energy intensive homes than the average California home.

Residential NEM Customer Demographics

Areas with high incomes, as well as areas with high home ownership rates, had higher percentages of NEM installations relative to California’s population.

The proportion of solar PV installations in lower-income areas increased over time. For example, ZIP codes with median household incomes below $100,000 installed around 60 percent of NEM systems in 2007, and around 70 percent in 2019. While 25 percent of California’s population lives in disadvantaged communities, less than 12 percent of residential NEM systems were installed in these communities.

Cost-Effectiveness Analysis

A model was developed to calculate NEM 2.0 systems’ acquisition costs and lifetime bill impacts. The present value of these benefits and costs to different stakeholders was compared in the four tests described below. A benefit-cost ratio of 1.0 or higher indicates cost-effectiveness.  Overall, the results show that NEM 2.0 is cost-effective for NEM 2.0 participants but not for ratepayers.

• The total resource cost (TRC) test measures the net costs of NEM 2.0 based on both the participants’ and the utilities’ costs. The statewide weighted average TRC benefit-cost ratio was 0.84; at the aggregate utility level, NEM 2.0 is not cost-effective from the combined participant and utility perspective.
• The participant cost test (PCT) measures benefits and costs of NEM 2.0 to its participants. The weighted average participant benefit-cost ratio was 1.77; NEM 2.0 is cost-effective for participants. PCT ratios were highest for residential customers.
• The ratepayer impact measure (RIM) test measures effects on customer rates due to NEM 2.0-caused changes in utility costs. The weighted average RIM benefit-cost ratio was 0.37; NEM 2.0 increases rates for all customers, and increases bills for non-participating customers. (NEM participant bills do not increase due to their NEM generation.)
• The program administrator (PA) test measures the effects of NEM 2.0 on the utility. PA benefit-cost ratios were high across the board; the total avoided cost benefits greatly outweigh the NEM 2.0 implementation costs for utilities.

The report also provides these cost-effectiveness test results for a number of scenarios including the case where the federal investment tax credit is excluded.

Cost of Service Analysis

This analysis found that prior to NEM 2.0 system installation, the average residential and nonresidential NEM 2.0 customer pays more in their utility bills than the estimated cost for the utility to provide them service. Post-installation, the average residential customer pays less than the estimated cost of service, while the average nonresidential customer still pays more.

Prior to the installation of their generators, residential NEM 2.0 customers are estimated to pay bills totaling $112.5 million more than their utility’s cost to serve them. Post-installation, they are estimated to pay bills $618.6 million lower than their utility’s cost. In contrast, nonresidential customers pay an estimated $288.0 million more pre-installation, and still pay $117.5 million more post-installation.

Background Information

Pursuant to California Assembly Bill 327 (Perea, 2013), the California Public Utilities Commission (CPUC) adopted the current NEM structure, often referred to as "NEM 2.0" or the "NEM successor tariff," through the NEM 2.0 Decision (D.16-01-044) in January 2016. The Decision requires the CPUC and its Energy Division to consider adjustments to the NEM 2.0 tariff in the future.

The Decision on NEM consumer protections (D.18-09-044) authorizes ratepayer funding for a consultant to analyze the costs and benefits of customer-sited renewable resources taking service on the NEM 2.0 tariff and its variants.  The evaluation examines the effects of the tariff and assists the CPUC in its review of NEM 2.0.

For information on the new NEM Revisit Rulemaking (R.20-08-020) please visit this webpage.

Research Plan

Itron, Inc. submitted a NEM 2.0 Evaluation Draft Research Plan in November 2019. Energy Division staff hosted a workshop in December 2019 to present the draft research plan for the NEM 2.0 evaluation and to solicit feedback from interested stakeholders. Agenda | Slides

The following parties submitted informal comments on the draft research plan in December 2019:  Coalition of California Utility Employees, Joint IOUs (SCE, SDG&E, and PG&E), Public Advocates Office, SEIA, CALSSA, and Vote Solar, Solar Consumer Advisor, Solar Rights Alliance, and Sunrun.

In February 2020, a letter from Director of Energy Division approving the final research plan was sent to the R.14-07-002 service list. 

Draft Report

Verdant[1] released the draft report and hosted a webinar on it in August 2020. Slides | Recording  Later in August 2020, a revised draft model, table with batch inputs, and all load shapes that meet minimum data requirements were released. Informal comments on the draft report were due in September 2020.

Final Report

The final report was released in a January 2021 ruling in the NEM Revisit proceeding (R.20-08-020). Its workpapers are also available. Formal comments and reply comments on the report were submitted in February 2021.

California Solar Consumer Protection Guide Evaluation

As part of the NEM 2.0 evaluation, focus groups were conducted about the California Solar Consumer Protection Guide.  The focus group methods and findings are presented in this Solar Consumer Protection Guide Research Findings Memo.   

Contact Us

If you have any questions about information on this webpage, please contact the CPUC Energy Division at energy@cpuc.ca.gov.