NEM 4.0 Proposal: True “Value of Power” (VOP) Tariff. Why a NEM 4.0 Is Needed Now

 

  

NEM 4.0 Proposal: True “Value of Power” (VOP) Tariff
California Energy Blueprint – April 2026

(Note, this is my recommendation, not the current proposal)

Introduction: Why NEM 4.0 , True “Value of Power” (VOP) Tariff, Is Needed Now for California

NEM 3.0 (also known as the Net Billing Tariff or NBT), which took effect for new solar customers in April 2023, was a necessary correction to the overly generous NEM 2.0 framework. NEM 2.0 provided near full retail credits for exported energy and allowed the grid to function essentially as a free battery for solar owners. This structure created real cost shifts onto non-solar customers and failed to align incentives with actual grid needs, especially as solar penetration grew and the “duck curve” became more pronounced.

However, NEM 3.0 went too far in the opposite direction. It drastically reduced export credits to the CPUC’s Avoided Cost Calculator rates — often just 3–8 ¢/kWh, with many daytime hours near 3–6 ¢/kWh — while full retail rates sit at 33–41 ¢/kWh. In doing so, it failed to fully recognize the genuine benefits that well-designed distributed rooftop and canopy solar delivers to the grid and all ratepayers.

Key benefits of true distributed solar that NEM 3.0 undervalues include:

• Avoided transmission and distribution (T&D) upgrades and line losses — Locally generated power reduces the need for expensive new lines, transformers, and substation capacity, especially on congested feeders. These savings can be substantial and locational.
• Renewable sourcing and GHG reduction value — Distributed solar directly contributes to RPS compliance and displaces gas-fired generation without relying on out-of-state RECs or long-distance transmission.
• Reduced peak demand and system reliability — Solar production often aligns with daytime loads, helping flatten peaks and lowering the need for costly peaker plants or overbuilt infrastructure.
• Minimal land-use impact and faster deployment — Rooftop and parking-lot systems avoid converting farmland or sensitive habitats and can be installed more quickly than utility-scale projects.
• Local ownership and resilience — Power is generated and consumed closer to the point of use, providing voltage support and reducing outage risks in high-fire or constrained areas.

A fair recompense rate, such as the proposed Value of Power (VOP) tariff, corrects this imbalance. It also helps offset the recent loss of the federal Investment Tax Credit (ITC) for residential solar systems, which expired at the end of 2025. Without the 30% federal subsidy that previously lowered upfront costs, a more accurate valuation of exported energy becomes even more important to maintain reasonable payback periods for homeowners and small businesses who invest in owner-controlled solar.

NEM 4.0 replaces the flawed NBT export credits with a transparent, indexed VOP that reflects these real benefits while enforcing true distributed-scale limits. It restores economic viability for modular, locally-owned solar without returning to the cost-shift problems of the past.

Core Formula – Automatic Indexing to Retail Rates

VOP credit per exported kWh = 45% × Customer’s full retail volumetric rate (generation + delivery + all charges).

• Self-consumed solar kWh continues to offset 100% of retail.
• Only true exports receive the VOP credit.
• The 45% multiplier is fixed in statute. If retail rates rise, the VOP credit rises automatically. If rates fall due to efficiency gains, the VOP falls automatically. This creates natural alignment between customer incentives and system-wide cost control.

Example at current April 2026 rates:

• PG&E ~41 ¢/kWh retail → VOP ≈ 18.5 ¢/kWh
• SCE ~34 ¢/kWh retail → VOP ≈ 15.3 ¢/kWh

Size Limits – Enforcing True Distributed Generation

• Standard limit: 32 kW AC nameplate per customer meter (covers most residential and small-business needs).
• Enhanced limit: Up to 100 kW AC allowed only within a specific grid block (feeder or substation area) that the utility confirms can absorb the addition without any line or transformer upgrades. Pre-approval required through a fast online portal (target: ≤30 days).

Systems larger than 100 kW or in constrained grid blocks fall back to standard export rules or must pursue separate utility-scale procurement. This keeps the focus on genuine distributed, owner-controlled solar and prevents hidden infrastructure costs from shifting to other ratepayers.

Additional Features

• Optional storage bonus: +5% VOP adder (total 50%) for systems paired with modest behind-the-meter storage that shifts exports to higher-value evening hours.
• Streamlined process: Permitting target of under 45 days for qualifying systems ≤32 kW, plus property-tax abatements or low-interest financing options.
• Distributed-first policy: Utilities must demonstrate that no cost-effective distributed capacity exists before approving new utility-scale solar on farmland.

How NEM 4.0 Fits the Broader Energy Blueprint

This tariff directly supports a pragmatic, resilient portfolio: distributed rooftop and owner-owned solar as the primary daytime resource, long-duration gravity/pumped hydro storage, flexible natural gas, and nuclear (including SMRs) for firm baseload power.

By making distributed solar economically viable again, NEM 4.0 reduces pressure on the grid, defers expensive T&D upgrades where possible, and lowers overall system costs for all ratepayers. It pairs naturally with inverse-profit reforms that reward utilities for delivering lower-cost power.

Implementation Recommendation

Introduce NEM 4.0 via legislation in the 2026 session. Target effective date: January 1, 2028 for all new applications. Existing NEM 2.0 and 3.0 systems remain grandfathered.

Public reporting should include average VOP credits paid and total distributed solar capacity added each year for full transparency.

This approach returns California to its historic strengths: pragmatic, results-oriented policy that rewards efficiency, local ownership, and long-term system reliability instead of ideology and capital bloat. It delivers abundant, affordable, and resilient energy without strangling the economy.

Comments and refinements welcome—especially on the exact percentage (40–50% range) or ways to streamline grid-block approvals. Let’s build the blueprint that actually works.

Sources and References

• California residential electricity rates (April 2026 data): PG&E bundled residential average ~41.46 ¢/kWh (January 2026 filing, with subsequent adjustments); SCE average ~33–35 ¢/kWh; statewide average ~33.75 ¢/kWh. Sources include PG&E rate advisories and independent trackers.
• NEM 3.0 / Net Billing Tariff export credits: Typically 5–8 ¢/kWh average under the CPUC Avoided Cost Calculator (ACC), with many daytime hours at 3–6 ¢/kWh — representing a ~75% reduction from NEM 2.0 retail-level credits. CPUC decision D.22-12-056 and utility implementations (PG&E, SCE).
• NEM 2.0 context and duck curve / cost-shift issues: CPUC analyses and independent reviews noting cost shifts and grid impacts under prior full retail netting.
• Federal Investment Tax Credit (ITC) expiration: Residential solar ITC (Section 25D) ended for systems placed in service after December 31, 2025.
• Distributed solar benefits (T&D deferral, line losses, renewable value, etc.): Supported by multiple Value of Solar / Value of Distributed Generation studies, including avoided T&D capacity, reduced losses (5–10%+), and locational grid support. General frameworks from CPUC proceedings, Lawrence Berkeley National Lab, and independent analyses.

All rate figures are approximate and can vary by utility, rate schedule, season, and time-of-use period. This proposal uses publicly available data as of April 2026 and is intended as a pragmatic policy discussion.

Curtis Anthony Neil/Grok 4.0/ LibreOffice. April  20th. 2026 AD.

Bakersfield, California, USA, North America, Planet Earth (Terra), the third planet from the Sun (Sol), Solar System, Orion Arm, Milky Way Galaxy