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Why Commercial Solar Projects Need Energy Storage Under NEM 3.0

April 6, 2023 Empower Energies

This year, April 15 is not just a tax deadline. After April 14 at 11:59 p.m., California’s popular NEM 2.0 (Net Energy Metering 2.0) solar program will officially come to an end. There is no doubt that NEM 3.0’s reduced incentives will have a substantial impact on renewable energy growth in California. Residents are rushing to submit NEM 2.0 applications before the deadline, and utilities are overwhelmed with interconnection requests.

For businesses however, there remains an enormous potential under NEM 3.0 to achieve ROI by adding energy storage to solar projects. In this blog post, we will discuss why energy storage is now an essential addition to any commercial solar project in California.

Background on NEM 2.0 vs NEM 3.0 in California

NEM 2.0 allowed solar owners to earn full retail credit for the value of the energy they exported back to the grid, a generous policy that enabled 1.6 million homes and businesses go solar. Unfortunately, utilities claimed that the low energy bills that were the hallmark of NEM 2.0 were financially unsustainable for them.

On December 15, 2022, the California Public Utilities Commission released NEM 3.0, a successor program to NEM 2.0 that unfortunately does not offer the same level of incentives to residents and businesses. Instead of net metering, which provided the full retail credit value of energy exported back to the grid, the new program uses net billing to calculate energy costs.

Previously, we covered the crucial differences between NEM 2.0 and NEM 3.0 for commercial solar projects. The new cost structure for NEM 3.0 uses a “time of use calculator” that provides different energy rates based on the season and time of day. Under this structure, the average exported cost of energy is on average far lower than NEM 2.0. However, when examining the pricing by time of day, we see a clear picture for the value of energy storage.

The Benefits of Energy Storage for Businesses Under NEM 3.0

Energy Arbitrage and NEM 3.0

Businesses can utilize energy storage to achieve a variety of goals, but NEM 3.0’s time of use cost structure provides an ample use-case for energy arbitrage. Energy arbitrage is the process of buying or generating electricity during off-peak periods when prices are low, and then selling stored energy back to the grid when energy export prices are high to maximize revenue. The time of use graph below that California utilities are using to calculate the import and export prices for energy showcases the opportunity NEM 3.0 creates for energy storage.

TOU pricing graph
Image: NEM 3.0 Proposal

In the graph, you can see that in the evening hours, the export price back to the grid is high. In the evening, more people are in their homes and using electricity, which increases the demand on the grid. By the laws of supply and demand, utilities will pay a higher energy export cost to residents and businesses that can supply them with energy during these critical demand hours.

How Businesses Use Energy Arbitrage

So what does that mean for businesses? Let’s use the example of an office building with solar panels on its roof. During the day, the energy the solar panels generate is deployed to power the offices while employees are working on site. Without a battery, any excess energy the solar panels produce that goes unused is automatically exported back to the grid. Under NEM 3.0 the exported energy cost during off-peak hours would only produce $.04 per watt in revenue.

Santa Rosa, CA solar project
50 kW roof-mount Empower Energies installed for a Fortune 500 client in Santa Rosa, CA

On the other hand, connecting a battery to their solar system would allow the office building to store any energy that it does not use during working hours. Businesses can then sell that unused energy back to the grid at peak hours in the evening, earning up to $.31 per watt. Compare that to NEM 2.0’s average export cost of $.27 per watt, and NEM 3.0 actually comes out ahead when you add a battery energy storage system.

Combining NEM 3.0 and the Investment Tax Credit Incentives for Energy Storage

When it comes to incentives, the value of energy storage is increasing at a federal level as well. Passed in August 2022, the Inflation Reduction Act introduced a 6-30% energy storage credit to the Investment Tax Credit (ITC). In order to qualify for the full 30% credit, the energy storage project must meet the following requirements:

Renewable energy developers, including Empower Energies, are passionate about meeting these prevailing wage and apprenticeship requirements to ensure the maximum credit output for businesses. Stacking the maximum federal and state level incentives can massively reduce the payback period of a renewable energy project.

Maximizing your ROI on Commercial Solar and Storage Projects

Navigating county, state, and federal level incentives can be tricky when assessing both the cost and ROI of commercial solar and storage projects. While on the surface NEM 3.0 might seem like a harbinger of doom to renewable energy in California, scratch the surface and you will find a means to save and accelerate the payback of commercial solar and storage projects in the state.

Empower Energies has dedicated in-house policy and finance teams to assess incentive opportunities for any C&I solar or storage project. Get in touch with an Empower representative today to start the process.