California derailed its booming rooftop solar buildout. Can it be fixed?

California state Senator Josh Becker is worried that the Golden State is undermining a pillar of its clean energy transition: distributed solar power.

Though California has more large-scale solar and battery projects than just about any other state, smaller-scale energy — primarily rooftop solar — has contributed nearly as much to its energy transition to date. But over the past year, a string of utility-backed decisions from the California Public Utilities Commission have come ​“dangerously close to discouraging much-needed distributed energy in this state,” Becker, a Democrat, said.

That’s why he — and a growing number of California politicians — are proposing legislation to reverse that trend.

The first blow to distributed solar was the CPUC’s decision to alter California’s decades-old net-metering regime in ways that have slashed the value of rooftop solar for single-family homes and commercial properties. Two bills introduced this year are taking aim at that policy, which has decimated the state’s once-thriving rooftop solar industry since it went into effect a year ago today. And beyond legislative fixes, a lawsuit seeking to reverse the decision was just granted review by the California Supreme Court.

But even more harmful decisions have followed, Becker said. In November, the CPUC ordered changes that will derail the economics of shared-solar programs used by apartment buildings, schools, farms, municipalities and shared commercial properties, he said — a policy he hopes to reverse with legislation he introduced last month.

And then, in March, the CPUC proposed policies that would undermine a community solar plan backed by environmental justice organizations, consumer advocates, labor unions and the state’s homebuilding industry. That plan was seen by many solar industry groups as a last chance for California to throw a lifeline to its distributed solar sector, which accounts for nearly half of the state’s nation-leading solar capacity.

Taken together, these decisions appear to be leading to a regulatory regime that will prevent distributed solar from continuing to play a role in meeting the state’s clean-energy goals, Becker said in an April interview.

“We should be clear, that’s the message we’re sending right now,” he said. ​“With a community-solar ruling that’s contrary to what 22 other states are doing, with a ruling that discourages schools and municipalities from being able to self-consume their own solar that they generate — I really think we have to take a step back and say, what are our goals here?”

Becker is not the only one asking that question. Solar industry groups, environmental justice organizations, state and local elected officials and other entities are throwing their support behind the various legislative and legal efforts to put the state’s distributed-solar industry back on track.

The stakes are high, not only because California emits more planet-warming carbon dioxide than most countries, but also because of its position as the nation’s climate leader. It’s common for California climate policy to be exported to other states and even the federal level.

California’s new distributed-solar regulations have also made life more difficult for the rooftop solar industry writ large. They’ve crimped sales for nationwide rooftop solar providers such as Sunrun, Sunnova and SunPower in what’s been by far the country’s biggest rooftop solar market. And they’ve caused even more hardship for the larger number of smaller solar installers in the state.

“We’ve heard from a lot of our customers across the industry in California,” said Fox Swim, policy researcher at solar software company Aurora Solar, which tracked a significant hit from the CPUC’s decision in its recently released report on 2023 nationwide solar installation data. ​“There are just a lot of companies hurting, a lot of companies having to cut back on staff, and having to make a lot of hard choices.”

The policy push to get California rooftop solar back on track 

In February, the first bill to try and right the listing ship of California distributed solar was introduced: AB 2619. The legislation would ​“ensure that incentives are restored for residents who generate clean power for the grid,” according to a statement from Assemblymember Damon Connolly (D), the bill’s author. It would repeal the ​“damaging” decision — commonly known as ​“NEM 3.0” to distinguish it from the state’s two previous net-energy-metering (NEM) regimes — and force the CPUC to create new rules aimed at keeping rooftop solar growth on the trajectory needed to meet California’s long-range climate goals.

Connolly cited the necessity of reversing the economic fallout from the CPUC’s new rules and highlighted the importance of distributed solar in ​“achieving 100 percent carbon-free energy by 2045,” the goal set by the state’s landmark clean energy law SB 100.

A separate bill, AB 2256, would order the CPUC to restructure its policies by running an independent cost-benefit analysis of the role rooftop and distributed solar can play in achieving the state’s clean energy goals.

Authored by Assemblymember Laura Friedman (D) and supported by nonprofit groups including Environment California, the Center for Biological Diversity and Environmental Working Group, AB 2256 would require that the CPUC consider a number of values these groups say were left out of its net-metering analysis, including improved local air and water quality, avoided land-use impacts and other ​“non-economic” benefits.

California’s big three investor-owned utilities, Pacific Gas & Electric, Southern California Edison and San Diego Gas & Electric, are the primary opponents of these bills. But the legislation also faces pushback from utility ratepayer representatives and some energy policy experts, which back the CPUC’s rooftop solar decision.

These groups say that California’s previous policies shifted service costs from customers who had rooftop solar (and therefore much lower monthly bills) to those who didn’t. That’s a major problem, they say, since customers of these utilities already pay some of the highest electricity rates in the country and those rates are set to increase even further.

These groups also dispute the solar industry’s claims that the CPUC’s decision is to blame for the drop in solar installations over the past year — or that the industry’s previous pace of growth was healthy for the state’s long-term energy equity and climate goals. They point to large-scale solar, which costs less to build than rooftop solar, as a preferable option.

“The rooftop solar market isn’t dying,” Severin Borenstein, head of the Energy Institute at the University of California, Berkeley’s Haas School of Business, wrote in an April blog post. ​“It is coming down from the 2021-2023 sugar rush when net metering policies combined with rapidly climbing electricity rates, recent power shutoffs and the impending switch from NEM 2.0 to NEM 3.0 to produce growth that simply couldn’t be maintained.”

Borenstein argues that, instead, the new policy has simply ​“stepped us back from the recent exponential growth in new systems,” which have led to ​“exponential growth in cost shifts onto other ratepayers.”

The dreaded ​“cost shift” argument 

Borenstein’s case that California’s previous net-metering rules lead to harmful ​“cost shifts” represents one side of a hotly contested debate that has been raging in regulatory battles across the country.

On the other side of the debate, environmental groups, community advocates and energy analysts have argued that utilities have misrepresented the underlying data to counter a set of policies they oppose for other reasons — mostly that utilities can’t make money on rooftop solar.

In California, utilities have cited findings from the CPUC’s Public Advocates Office, an independent group tasked with protecting utility customers, that the CPUC’s previous net-metering policies have led to billions of dollars of costs being shifted from solar to non-solar customers.

But these cost-shift calculations are flawed, critics say. They argue that CPUC has overestimated the costs that rooftop solar imposes on utility operations and undercounted the societal benefits, as highlighted by Friedman’s recently proposed bill.

Not to mention, utility rates already shift costs between different types of customers in ways that regulators don’t take issue with, said Ahmad Faruqui, an energy economist and utility-rate expert who opposes the CPUC’s rooftop-solar decision.

That’s because utility rates are designed to spread the cost of a panoply of projects across the entire customer base, he said. Those include the cost of maintaining and expanding utility power grids, paying for energy-efficiency programs, providing rate relief to low-income customers, and other outlays that don’t precisely match up with how much electricity each customer consumes.

These ​“fixed costs” make up roughly half of the electricity rates charged by California’s three big utilities — and in case after case, some customers could argue that they pay more than their ​“fair share,” he said. The cost of building and maintaining power grids to serve dispersed rural customers is higher than the cost of serving urban customers, for example, he said.

What matters, Faruqui argued, is not whether cost shifts are occurring, but why customers are being asked to bear them. Policymakers and regulators have decided that it’s important to provide power to rural customers, encourage customers to invest in energy efficiency and support lower-income customers struggling to pay their power bills.

But in crafting its NEM 3.0 decision, the CPUC has failed to value the full array of social and environmental benefits of rooftop solar, he said. ​“Some utility analysts insist they were including them. But the values next to them were essentially zero.”

Sachu Constantine, executive director of nonprofit group Vote Solar, argued that the CPUC’s analysis also fails to capture the value of ​“consumers’ ability to make investments in the state’s climate future and their own economic future” at the same time.

That includes the benefit of operating hundreds or thousands of solar and battery-equipped homes and businesses as virtual power plants, which could harness gigawatts of fast-responding, clean batteries to reduce stress on California’s grid. A recent report from engineering firm Brattle Group and energy analysis firm GridLab found that virtual power plants could save utilities and consumers $750 million per year in traditional power system investments by 2035, mostly by shifting solar power from when it’s oversupplied to when it’s needed.

That’s particularly important for a state like California, where solar power is sometimes generated in excess of demand at midday, making it essentially worthless during those hours. In its NEM 3.0 decision, the CPUC reduced the compensation customers receive for solar power sent back to the grid, except for a handful of late afternoon and evening hours during August and September, when California’s grid is facing increasingly dire shortfalls in electricity supply.

That change has made it far more worthwhile for customers to add batteries to their rooftop solar systems, since those batteries can store excess solar power and use it when it’s more valuable. Nearly half of the rooftop solar being installed in California since NEM 3.0 went into effect is being combined with batteries, according to a February report from online solar marketplace EnergySage.

But the trend of adding batteries to solar systems won’t make much difference in the long run if the overall amount of rooftop solar being installed remains as low as it has been since the NEM 3.0 decision went into effect, Aurora Solar’s Swim noted. So far this year, distributed solar growth has almost completely stalled out, according to the latest state data.

“Right now, we’re seeing two different visions of the future of energy production in California, and across the United States,” she said. ​“One is a distributed, climate-resilient grid infrastructure that serves the needs of the communities that it’s in, with a greater degree of flexibility.” The other, which relies on utilities to the exclusion of other economic actors, is ​“essentially business as usual.”

An uphill climb for distributed solar bills 

Bills proposing to alter the CPUC’s treatment of distributed solar are likely to face a tough hurdle in this year’s legislative session. To pass, they’d eventually have to move through the state Senate’s Energy, Utilities and Communications Committee — and the chair of that committee, Senator Steven Bradford (D), has made clear that he doesn’t think much of net metering.

Bradford, a former public affairs manager for Southern California Edison, has described California’s previous net-metering regimes as ​“rooftop solar subsidies for wealthy Californians,” largely echoing utility talking points. In a February interview with Politico, he called net metering ​“the biggest farce going,” stating that it ​“makes absolutely no sense to pay someone a retail rate for a wholesale commodity.” He also questioned the wisdom of altering the century-old model of utilities operating central power plants that deliver power to customers, saying that ​“we’ve got legislators who want to make radical changes to something that has worked for over 100 years quite reliably.”

Bradford’s office didn’t respond to multiple requests for comment.

Becker said that his bill to restore shared-solar billing for multi-metered customers has been delayed for ​“further discussion” until an April 22 hearing in the committee that Bradford chairs. That delay came after California’s three big utilities and ratepayer advocacy group The Utility Reform Network sent opposition letters to Bradford that underscored the cost-shift argument.

But focusing on cost-shift issues to the exclusion of broader policy issues — like climate and equity goals — may be missing the mark, according to Becker and other groups trying to reset the state’s stance on distributed solar. That’s because the logic of cost-shift arguments appears to tip the scales against anything except utility-scale clean energy projects — and it’s not clear that those large-scale projects alone can be built fast enough for the state to achieve its climate goals.

California will need both utility-scale and distributed solar and batteries, Becker said. ​“But the reality is that it’s difficult to build new transmission in this state, and that we’re capacity constrained.”

Schools, municipalities, farms and other multi-metered customers, meanwhile, are eager to install solar to offset rising utility costs, Becker noted. That energy could help meet the state’s climate goals — if only the CPUC hadn’t undermined the economics of doing so.

Becker sees a similar overreaction from the CPUC on the community-solar front. California lags well behind many other states in supporting these kinds of multi-megawatt solar projects, which are structured to allow individual customers to subscribe to the clean power generated at costs lower than utility rates. In total, they’ve led to more than 6 gigawatts of solar being built in 22 states.

A broad coalition of groups, including many that supported the CPUC’s NEM 3.0 decision, have spent the past three years coalescing behind a proposal that would reward community solar-and-battery projects in California using the same export compensation that the CPUC approved for rooftop solar customers. But a March proposed decision from the CPUC rejected that plan, agreeing with California’s three big utilities that it would violate federal law and cause an undue cost shift onto other customers.

In this case, the CPUC’s proposed decision — which has yet to be approved by the commission — contradicts the intent of AB 2316, a state law passed in 2022. A September letter from 20 lawmakers involved in crafting the law told the CPUC that the proposal from the coalition of solar industry groups, consumer advocates, environmental-justice organizations, labor unions and the state’s homebuilding industry ​“most closely aligns with the intentions” of AB 2316, but the agency appears to have disregarded this guidance.

To Becker, this latest CPUC decision provides yet more evidence that ​“the cost-shift argument has just gotten way out of control. And if you follow that to its logical conclusion, we shouldn’t have any distributed generation at all.” 

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