How to Model a NEM 2.0 Project
We’ve been getting a lot of questions on how to model Net Metering version 2 (NEM 2.0) projects, so we figured it was time for blog. A lot of the recent inquiries are coming from our California users, where the Net Metering caps are expected to hit capacity soon. As of March, the PG&E and SDG&E service territories are over 80% of the way towards reaching their cap. While California has been getting most of the attention recently, the mechanics of modeling NEM 2.0 scenarios are fundamentally the same regardless of the state or utility territory.
What is NEM 2.0?
Traditional Net Metering (NEM 1.0) assumes full-retail value compensation on “solar exports” or energy sent back to grid. So NEM 2.0 implies that solar exports get valued at less than the full-retail rate of energy. In other words, a kilowatt-hour generated from a solar system and back-fed to the grid is worth less than a kilowatt-hour delivered by the utility.
What’s the “haircut” mean?
The trickiest part of modeling a NEM 2.0 project is quantifying the reduction in dollar savings as a result of the reduced export rate. That reduction in dollar savings is what we call the “haircut”. The haircut is calculated by multiplying the solar exports by the price differential between the “retail rate” and “export rate”. This price differential obviously varies, depending on the NEM 2.0 rules of the utility and particular rate schedule a customer is on.
For example in Nevada the price differential is wide. Under the recently approved NEM 2.0 rates in Southern Nevada the “export rate” will ultimately drop to under 3 cents per kilowatt hour, compared to the current (full-retail value) export rate of 11 cents per kilowatt hour. In California, the differential is pretty small, somewhere between 2 and 3 cents per kilowatt-hour depending on the utility rate schedule. We published an earlier blog that explains the California price difference is effectively just the sum of the non-bypassable charges (NBC’s).
Steps to (manually) model a NEM 2.0 project:
It’s important to review each step separately to understand how the haircut gets calculated.
- Get interval meter data: a Green Button Data file contains information on when a user consumes, which is required to determine how much energy gets exported back to the grid. If you can’t get interval data for a customer you’ll need to baseline a load profile, which basically just creates an estimated representative load profile. We published a resource guide, which explains the value of interval meter data in solar project analysis.
- Generate solar production profile: using a solar production calculator the user will define the equipment (panels, inverters) and design specifications (tilt, azimuth, shading) of their project to get a production yield estimate. All of the leading solar production modeling tools, like HelioScope, PVWatts, PVsyst, or PVComplete will output an 8760 file, which contains 365-days of 1-hour solar production data.
- Determine exports: overlaying the solar production file on top of the gross usage file will determine intervals when energy is being exported back to the grid. Summing all of those negative intervals will determine the exports or instances where solar is being back-fed.
- Determine the haircut: the haircut is calculated by multiplying the exports by the price differential between the “retail rate” and “export rate” of energy.
- Present the analysis: after calculating the final “avoided cost” or dollar savings a project will achieve, the solar salesperson needs to clearly present how that value was arrived at. For a NEM 2.0 project this will likely break out and show the haircut component.
Regardless of if you’re modeling a NEM 2.0 project in Hawaii, California, or Nevada the methodology for calculating the haircut is fundamentally the same. You simply need to determine how much energy is being exported, and then discount those exports by the price differential. All of the other utility-territory-specific NEM 2.0 rules, like interconnection fees, fixed charges, or forced time-of-use switching can be done separately, and layered into the final avoided cost value.
If you’re using the Energy Toolbase platform to run NEM 2.0 analysis you can follow these step-by-step instructions or watch this video. In our next software release, which we expect to go live on very soon we’ll calculate all this math automatically for the user.
Video: How to use Energy Toolbase to (manually) model a NEM 2.0 project in California
Blog: Is California’s Net Metering v2.0 really “Full Retail Credit”?
Resource Guide: The Value of Interval Data in Solar Project Analysis