Is there hope of finding middle ground on California’s rooftop solar policy?

The battle over how to update the policies on compensation for rooftop solar systems in California has only grown more heated in recent weeks. A few groups have proposed new compromises, but the two camps are still far from agreement. Meanwhile, California regulators have postponed their decision on the issue, so the debate will rage on for the time being.

The California Public Utilities Commission’s proposal last month to slash the value of energy exported to the power grid from future rooftop solar systems and impose monthly fees on customers who install them has sparked a massive public and political backlash.

Thousands of people have joined protests organized by the solar industry to demonstrate against the proposal over the past month, and polling indicates a hefty majority of California residents oppose it. Major political figures including U.S. Senator Dianne Feinstein (D) and former California Governor Arnold Schwarzenegger (R) have publicly blasted the plan, painting it as a threat to the state’s push to decarbonize its electricity supply. Actors Edward Norton and Mark Ruffalo have joined the fray on Twitter.

California Governor Gavin Newsom (D) said earlier this month that ​“changes need to be made” to the current CPUC proposal, but he didn’t offer specific fixes and said he won’t interfere in the commission’s decision-making process. Since December, two of the commission’s five members have departed and been replaced by Newsom appointees, including new commission President Alice Reynolds, a former senior adviser to Newsom’s administration.

Recently, the commission quietly removed the net-metering proposal from its Jan. 27 meeting agenda. Now the earliest it could put the issue to a vote would be at its next scheduled meeting on Feb. 10. The CPUC has the option of either amending December’s proposal or crafting an alternative proposal to bring to a vote.

While Newsom said he won’t interfere with the CPUC’s decision, the fact that he has weighed in on the topic, even obliquely, matters, said Seth Hilton, a partner at law firm Stoel Rives whose practice is focused on the California energy sector. Newsom ​“has now been public about the fact that he thinks the current decision isn’t going in the right direction,” Hilton said. ​“I think that’s going to carry a lot of weight with the commissioners who were just appointed.”

The battle lines 

The CPUC faces a starkly divided set of stakeholder views on what form its revamp of net-metering policy should take.

The state’s three big investor-owned utilities — Pacific Gas & Electric, Southern California Edison and San Diego Gas & Electric — say that today’s net-metering regime, which pays full retail rates for solar exported to the grid, is causing a ​“cost shift” that unfairly transfers the financial burden from those who have rooftop solar onto the majority of customers who don’t. This view is backed by consumer advocates at The Utility Reform Network (TURN) and the CPUC’s Public Advocates Office as well as the Natural Resources Defense Council, a major national environmental group.

Unless this cost shift is halted, they say, the growth of rooftop solar will continue to force rising electricity costs on all other customers. That will further encumber lower-income households and make it even more expensive for people to switch from fossil-fueled to electric vehicles and heating — a change that many Californians will need to make if the state is to meet its ambitious and rapidly approaching zero-carbon energy targets.

“Electricity rate trends are alarming. We’re seeing substantial rate increases year over year for all three” of the state’s major utilities, said Matthew Freedman, staff attorney with TURN. ​“The current net-metering policy is a significant contributor. We’ve never said it’s the only contributor, but it’s one of them.” Other major drivers of cost increases include the gargantuan cost outlays needed to harden power grids against wildfires and expanding the transmission system to accommodate the state’s growing utility-scale solar and battery resources.

But rooftop-solar supporters insist that the sector is key to meeting the state’s targets for mitigating climate change. They also contend that the CPUC’s proposed changes would decimate the solar industry and destroy jobs.

Estimates of the harm the proposed decision could do to the state’s rooftop solar industry vary widely. If the new proposal is imposed in its current form, Bank of America Global Research forecasts a 20 percent drop in new rooftop systems in California next year, while analysis firm Wood Mackenzie predicts a halving of the market by 2024.

But California solar groups believe the impact will be much worse. Bernadette Del Chiaro, executive director of the California Solar and Storage Association (CALSSA) trade group, says the policy could lead to an 80 percent drop in rooftop solar installations. She predicts that all but the wealthiest homeowners would stop installing solar systems because the proposed monthly fees and reduced export values would render it impossible to earn back the cost of an investment in rooftop solar in less than 15 to 20 years, compared to an estimated payback period of about five to seven years under today’s system.

Claims that rooftop solar has been adopted mainly by rich homeowners are contradicted by data showing increased installations among lower-income residents, she added. Data from Lawrence Berkeley National Laboratory shows that households earning less than $50,000 a year made up 13 percent of solar adopters in 2019, and those earning less than $100,000 a year made up 42 percent.

That’s not to say that solar groups are dead set against any changes being made to the current net-metering structure, which pays customers the full retail electricity rate for the power they export to the grid, Del Chiarro said. Groups including CALSSA, the Solar Energy Industries Association and nonprofit advocacy groups Vote Solar and the Sierra Club have proposed gradually ramping down the compensation solar customers receive for exporting power to the grid.

That kind of phased approach would slowly bring the value of solar exports in line with what’s called the ​“avoided-cost” rate — a rate that more closely aligns payments with the overall value that rooftop solar brings to the grid — while avoiding an immediate drop-off in compensation that could disrupt the market, they say.

But these groups are united in their opposition to the proposed grid access charge of $8 per kilowatt of system size, which would amount to a monthly charge of about $54 for an average-sized rooftop solar system. This would be much higher than any other similar charge imposed anywhere in the country. The lowest-income customers would be exempted from the charge under the CPUC’s current proposal, but it would hit moderate-income and wealthy households alike.

In a debate hosted by Canary Media last week, two policy experts with largely opposing views on net metering, Ahmad Faruqui and Severin Borenstein, agreed that the CPUC’s proposed grid-access charge was a ​“ham-handed” attempt to extract from solar-equipped customers the share of utility fixed costs that can be lost when their rooftop systems reduce their electric bills.

Seeking a compromise solution

Areas of agreement like this have been rare in California’s acrimonious net-metering debate, where each side has accused the other of misusing the facts to support their desired outcome — or of getting the facts wrong entirely.

Solar groups and their supporters say the CPUC’s proposal is based on incorrect data on the cost of rooftop solar systems, the value that distributed solar brings to the grid, and the broader cost shifts it imposes on customers at large. Their opponents, in turn, charge the rooftop solar industry with using questionable data to support their assertions.

But despite the antagonism on both sides, a few efforts to forge compromise plans have emerged since December’s proposed decision was released. The Sierra Club filed a proposal with the CPUC in early January that asks to replace the grid-access charge, which it calls an ​“illegal, discriminatory” fee against a certain class of customers, with a set of lower fixed monthly charges that would help recover a greater portion of utility costs than does today’s net-metering system.

The Sierra Club’s new compromise proposal also addresses the issue of the roughly 1.3 million customers who already have rooftop solar. Current policy allows these customers to remain on their preexisting net-metering rates — both the original net-metering regime and the ​“NEM 2.0” regime put in place in 2016 — for 20 years after they installed their systems.

But the CPUC’s proposal would cut that exemption period to 15 years — a move that’s drawn fire from pro-solar groups as constituting a betrayal of prior promises. 

The Sierra Club’s proposal would force the CPUC to ​“honor its commitment” to the 20-year exemption period. But it also proposes that five years after a new rooftop system is connected to the grid, its owners would be shifted to a different underlying rate structure — one that varies according to time of day, called an ​“electrification rate” because it aims to incentivize people to shift to electric-powered cars and heating systems.

The state’s three big utilities, PG&E, SCE and SDG&E, have in recent years been moving customers to time-of-use rate regimes that charge more for electricity during the evening hours when California’s grid faces the most stress and less during the midday hours when ample solar power is flooding the state’s grid. They’ve also created electrification rates that are based on the same idea but have significantly steeper price differences between ​“on-peak” and ​“off-peak” hours.

These newer rates align with the state’s broader policy push to encourage customers to switch to EVs and electric heating systems, technologies that tend to draw more power from the grid during off-peak times.

Shifting rooftop-solar owners to these types of rates would also give them a strong economic incentive to add batteries to their systems, another key policy priority in a state where midday solar production is becoming less and less valuable to a grid that faces the greatest stress in the late afternoon and evening. Residents with batteries can store their own solar power to use after sunset or participate in virtual power plant programs that draw on large fleets of home and commercial batteries to feed power to the grid when it’s most valuable.

Moving customers who’ve already installed solar to these rates would be ​“much more climate-forward,” said Matt Vespa, a senior attorney with Earthjustice, which is representing the Sierra Club in its CPUC dealings. ​“You’re getting a strong price signal to reduce…energy use” at times when the grid is under stress.

To be sure, customers who fail to adjust their usage patterns to match these daily price changes may not see the benefits and will likely be hit with appreciable bill hikes. But those who adopt electric heat pumps and EVs and take advantage of the price differences will save more money than if they stayed on a standard rate, he said — and reduce their carbon emissions in the bargain.

Looking beyond utility rates to promote distributed solar

TURN’s Freedman said that his group could potentially move toward supporting some of Sierra Club’s proposals, such as the early switch to higher time-of-use rates. TURN has expressed partial support for replacing the CPUC’s proposed grid-access charge with another set of charges, known as ​“non-bypassable charges,” that help offset costs for things like utility wildfire mitigation costs, closing down the state’s last nuclear power plants, and funding energy-efficiency and low-income assistance programs, he added.

But Freedman pushed back against the way pro-rooftop-solar groups have characterized the larger debate as one of ​“greedy utilities versus virtuous solar companies.”

“My organization fights utilities every day,” he said. ​“We’re not taking our positions to help utilities. If we thought utilities could be forced to pay for the benefits of rooftop solar out of shareholder profits, we’d be first” in line to advocate for that approach.

But California’s regulatory structure does not allow utilities’ earnings to be based on how much electricity they sell, a policy formally known as ​“decoupling.” Instead, ​“when a bunch of customers don’t pay [their fair share], that cost just gets shifted to other customers.”

That’s why TURN believes that rooftop solar should be supported in a different way. ​“If we want to find a way to boost subsidies for rooftop solar, we should find sources of funding that don’t involve [increasing] electricity rates,” he said. ​“A way out of the current debate would be for the governor and the legislature to find funding from the state’s general fund to subsidize customers who want to adopt solar over the coming years.”

This view has been echoed by other groups calling for net-metering benefits to be reduced, such as the Natural Resources Defense Council. Others have called for a major change in electricity rate structure, as Borenstein did with a proposal last year to tie utility bills to customers’ incomes.

But the CPUC does not have the authority to make those kinds of major changes. Instead, it faces a mandate, set forth in state law, to craft a new net-metering policy that supports the continued growth of the state’s rooftop solar industry, fairly shares costs and benefits across all customers, and encourages more solar access for low-income and disadvantaged communities. Just how it will manage to thread that needle remains to be seen.