Final VNEM Application Window is Closing Soon - Act Now.
Virtual Net Metering in California may soon be ending, and now is a great time to lock in favorable, long-term solar economics on multifamily solar projects in California.
Last December, the CPUC voted on the introduction of the new Net Billing Tariff (NBT), often referred to as “NEM 3.0” by solar industry insiders. For single electricity meter projects, such as single family homes, the NBT has been in full effect since April.
That said, the CPUC stated in their December decision that they needed more time to develop the next Virtual Net Metering (VNEM) 3.0 tariff that applies to multimeter projects such as multifamily apartment buildings.
At Glow Energy, we call this interim period the VNEM “2.5” window, and it’s likely closing in the next few months as the CPUC nears its Final Decision and vote. This post will dive into why now is the time to act to lock in favorable solar and EV charging economics at your multifamily properties in California.
VNEM and the difference between 2.0 and 2.5
The VNEM tariff applies to properties served by one of the three California Investor Owned Utilities (IOUs) - Pacific Gas & Electric, Southern California Edison, and San Diego Gas & Electric.
The structure of the tariff is that all solar production is exported through a net new generation meter, the system owner is credited for the production at time-of-use retail values, and then the credits are distributed by the utility to Benefiting Accounts throughout a building. The result is that multiple Benefitting Accounts realize savings from a single solar system, and the solar system owner benefits from lower capital expenditures for a single large system to serve the entire building.
With VNEM 2.0, the value of the solar credits is guaranteed for 20 years after the system is installed and active with the utility. With 20 years of predictable revenue stream, project investors, whether a building owner or third party investor, can meet the return thresholds required to proceed with a project.
In April, VNEM 2.5 went into effect. The only change was that the duration of the retail rate export period was reduced from 20 years to 9 years.
The Final Decision for VNEM 3.0 and its compensation structure is still unknown. However, the CPUC has made it clear that export rates will be dramatically reduced, and system owners will be incentivized to store and consumer power during peak evening hours when the sun is down, which is in line with the NBT.
Although it’s too early to compare VNEM 2.5 vs 3.0 project economics side-by-side in detail, it’s safe to say that VNEM 2.5 projects will financially outperform their 3.0 successors.
VNEM 2.5 solar projects are excellent investments
There are a number of variables that make multifamily solar projects in California lucrative investments. The key drivers are:
1. Tax incentives - The Inflation Reduction Act of 2022 created a new pool of tax credits that can subsidize multifamily solar projects by up to 60%.
2. Rising utility rates - Electricity rates in California are outpacing inflation which directly correlates to the value of each kWh produced by an on-site solar system.
3. Increasing electricity load with EV charging - Domestic electricity demand is set to grow by nearly 40% by 2035 as gasoline-powered vehicles are replaced with EVs. The majority of charging occurs at home, meaning apartment buildings will become the new fueling stations for their residents.
For apartment building owners that can monetize tax credits, they may see a payback period as early as two years after putting a system in production, while increasing NOI by more than $700/unit per year. If utility rates continue to rise as projected, NOI will rise year-over-year.
Partner with professional solar investors
You don’t have to take our word for it that VNEM 2.5 results in seriously profitable solar projects. That’s because professional solar developers and investors are deploying hundreds of millions of dollars into multifamily solar projects through dedicated funds.
These professional investors will absorb the project development, financing, and ongoing operations risk, so real estate investors don’t have to worry about getting stuck in due diligence on an energy infrastructure asset class that’s outside their core wheelhouse.
In fact, the value proposition can be distilled into a long-term “roof” lease and guaranteed energy savings for building residents. The roof lease payments go straight to NOI and increase resale property values. It’s truly a win-win.
Lock-in your option to participate in VNEM 2.5
At Glow Energy, we know that property owners need time to properly analyze and perform due diligence before committing to an on-site solar project.
Fortunately, there is a path to "buying" more time by securing a property's access to the VNEM 2.5 tariff before committing to construction and/or financing. Property owners across the state are locking in this option now, as it extends their decision window to up to three years for minimal costs.
Glow Energy can help
If you’ve been on the fence about solar on your multifamily apartment building or are just learning about the potential benefits now, Glow Energy is here to help. We, along with our expert construction and financing partners, can advise you in determining if your property is a good fit for solar. We can also help you secure your property's option to participate in the VNEM 2.5 tariff as the sunset period nears.
If it turns out that your multifamily property is a great candidate for solar, Glow Energy’s compliant solar billing software solution makes administration of a clean energy program a breeze for property managers and residents alike.
Final VNEM Application Window is Closing Soon - Act Now.
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