The Duck Curve, NEM 3, and YOU - Part 2
- Jeff Jorgenson
- Mar 2
- 7 min read
Updated: Apr 4
In part 1 we covered NEM 3, its effects and history.
While I was writing this series the SF Chronicle published this very approachable article by Chase DiFeliciantonio, These homeowners’ PG&E bills reveal California’s dramatic shift on solar.
One of the story lines he provides is Adrian Macneil from San Anselmo, a CEO of a software startup. “My PG&E bills were going crazy during the pandemic,” Macneil said, sometimes touching $700 per month. He figures that even with the cost of a battery, the system will pay for itself in the next six to seven years — maybe faster given how quickly electric rates are going up. “It’s much better to control your own destiny,” he said.”
“Novato’s SolarCraft, for instance, said it is now installing batteries along with panels on just about every job, including on the side of Macneil’s San Anselmo home. That increases project costs by 30% to 40% for homeowners, said CEO Phil Alwitt, which he conceded can make solar less attractive to install and lengthen the time it takes to pay off.”
This is exactly what we are going to look at in part 2. My home 2025 project is installing Solar and Battery Storage in my new house - so I’ll share how the numbers work for me. (Well it’s not a new house otherwise it would already have solar as all new houses in California are required to have solar since 2020. It’s new to my wife and me.). I feel strongly that solar plus storage is the only way to go.
I followed a process that starts with the simple ROI calculation:
(Total System Cost – Value of Incentives) ÷ Cost of Electricity ÷ Annual Electricity Usage = Payback Period
Part of the Total System Cost would be financing if needed. Rates currently run from 5.5% to 8% depending on your credit rating. I am going to use 6.25% for me as that’s what the quotes I received via EnergySage offered.
Value of incentives. For now, everyone qualifies for the Federal Income Tax Credit (ITC). The ITC allows 30% of the installation costs to be applied to your taxes and can be rolled over year-to-year. (IRS Form 5695).
Included in the Cost of Electricity we’re going to add in a Utility Rate Inflation factor to account for rate increases during the payoff period. Most ROI calculators don’t include this but Mr. Macneil mentions it and he’s right. Besides lowering my bill, electrifying our house, preparing for an EV, a big selling point for me shielding ourselves from the substantial rise in rate increases that we’ve seen in recent years.
Take a look: The alarming Utility Rate Inflation trends…
According to High Country News: Across the West, electricity rates rose an average of 17% between 2018 and 2023, amid record-breaking wildfires, storms and extreme heat. Late last year, thousands of ratepayers wrote to the Wyoming Mountain public service commission, protesting a nearly 30% rate hike proposed by Rocky Power.
Oregon Capital Chronicle reports that customers of Oregon’s largest investor-owned electric utility pay more than 40% more for their electricity today than they did just four years ago. Portland General Electric, raised rates, on average, by 11% in 2022, 7% in 2023, and 18% in 2024. In February of this year PGE asked the Oregon Public Utilities Commission for a 7.4% rate hike that would go into effect next year. Then in August the utility upped the ante by requesting approval to instead raise its rates by 10.9% for 2025. Thus drawing the ire of Oregon’s US Senator Ron Wyden who demanded an explanation. “After 41%, it’s time to take a timeout and give a break to the ratepayer.”
Bill Gurgol of Solar Bill Review pulls no punches as he tracks California’s PG&E’s rate hikes. 10 years ago he learned that Pacific Gas and Electric had an average increase of “6.8% per year over decades”, within the last 10 years average rate increases have been closer to 10% yearly (confirmed by the Public Advocates Office). He declares “there is NO middle ground, batteries are the future!”.
All quite alarming.
From the Energy Toolbase White Paper - Electric Bill Inflation in California I learned of the worrisome recent trend of accelerated California rates of 13.6%, 16.9% and 15.4% from 2020 to 2023. However going back further they meticulously tracked California utility prices from 2014-2023 and came up with an inflation rate of 5.3% across all 3 California investor owned utilities.
There’s a growing concern that home owners will end up paying for the increased infrastructure that Data Centers are starting to demand. “A lot of governors and local political leaders who wanted economic growth and vitality from these data centers are now realizing it can come at a cost of increased consumer bills,” Neil Chatterjee, former chair of the Federal Energy Regulatory Commission told the Washington Post. We’ll dedicate another article to Data Center demand soon.
Rising prices led Enverus Intelligence Research to predict that while the NEM changes and high interest rates have currently slowed installations, rising prices will see residential solar installation to start to accelerate again. From Utility Dive Kevin Kang energy transition analyst at Enverus states: “Enverus expects 13% of U.S. households to install solar panels by 2030. By 2040 that number jumps to 29%, and nearly half of U.S. homes could have rooftop panels by 2050”.
Which brings me to the Utility Death Spiral.
Edison Electric Institute, David Roberts, McKinsey, Navigant, RMI and others have been writing about the Utility Death Spiral for years.
In 2013 David Roberts said this “one can imagine a day when battery storage technology or micro turbines could allow customers to be electric grid independent.”
In 2017 for writing for Vox citing McKinsey’s report Roberts stated; “…partial grid defection enabled by solar+storage will spread like a virus, starting in sunnier and more expensive areas and spreading from there. And it’s likely to happen within a decade.”
Also in 2017 a paper published in Applied Energy (Applied Energy Volume 185, Part 1, 1 January 2017, Pages 627-641 - Elsevier) by Nicholas D. Laws, Brenden P. Epps, Steven O. Peterson, Mark S. Laser and G. Kamau Wanjiru concluded: “Results indicate that a utility death spiral requires a perfect storm of high intrinsic adoption rates, rising utility costs, and favorable customer financials.
Interestingly, the model indicates that pricing structures that reduce distributed generation compensation support grid defection, whereas pricing structures that reward distributed generation (such as net metering) also reduce grid defection and the risk of a death spiral.”
In a very recent paper in another Elsevier publication, Solar Energy, Seyyed Ali Sadat and Joshua M. Pearce (University of Western Ottawa) explain: “As utility rate structures shift away from net metering, increase unavoidable costs or restrict grid access, solar prosumers have an increasingly economic path to grid defection…”
Sadat and Pearce further state: “According to results, Hawaii, California and Massachusetts, Connecticut and New Hampshire are five favorable states in the U.S. for grid defection. These states exhibit extremely high electricity rates.” “If consumers feel that inflation will remain high for a long period of time they may use off-grid PV systems as an economic hedge.” They just described me.
In other words the CPUC’s NEM3 move is exactly in the wrong direction. Or is it? Let’s look at the numbers for my house and we’ll come back to that question in Part 6:
Our Annual Electricity Usage was 6,125 kWh/year. We have plans for a heat pump, electric dryer and an EV in the near future.
According to Enphase “A home that adds one or more EVs and a heat pump will likely more than double its average daily electric consumption.” That puts us at 12,250 KWh/year. So let’s round up to 13,000 kWh.
Every vendor quoted me a single Tesla Powerwall 3 at $12,255 for 13 kWh. The installers even had software that showed me that in the dead of winter I can only expect it to get to 70% charged.
I have been saving up and I have $25K in cash to spend on this. So I will need to borrow the rest at 6.25%.
I reviewed my PG&E bill for the last 12 months and my previous year’s cost of electricity was .441¢/kWh. Enphase estimates California’s average price is .467¢/kWh. We’ll use the lower number.
I went with the Energy Toolbase inflation rate of 5.3% and I am trying to be finished in 5 years.
So plugging in my average EnergySage quote from local installers, here’s what I came up with:
But even if I needed to finance the whole thing (for one thing I’d get a better rate - 5.5%) I’m still breaking even in just under 8 years:
The CPUC Decision document set a payback target of 9 years for Solar and Storage.
So our numbers are pretty good and the fully financed model is still viable. We’re working on a tool that will let you plug in your own numbers.
One thing you’ll notice is, a full solar system with storage is expensive. A legitimate major investment. Even with incentives available for disadvantaged communities I don’t see how adding solar and storage would be a prioritized expense for families of low or even moderate income. We’ve added an addendum of programs and rebates that help ease the burden if you qualify in Part 3.
One incentive to move soon is the Active Solar Energy System Exclusion. From the California Board of Equalization: When an active solar energy system is installed, it is not assessed, meaning that the existing assessment will not increase. The statute is now scheduled to sunset on January 1, 2027. Of course you need to be home owner.
Again from the fine Chronicle article ”Matthew Freedman, staff attorney at the consumer advocacy nonprofit The Utility Reform Network (TURN), “How do I maximize the amount of solar consumed on site? With a battery,” Freedman said. The NEM 3.0 shift “is a feature, not a bug,” he said. “It’s not a secret agenda.”
After putting together the addendum I would add - “for those who can afford it.” Mr. Freedman makes over $200K/year, so I’d put him in that category. Take a look at the addendum and see if you agree, then meet me in Part 4.
