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New California rooftop-solar plan drops solar tax,’ but fears remain

California regulators want to promote equity and boost batteries to shore up the grid. Critics on both sides say the latest net-metering plan misses the mark.
By Jeff St. John

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A condo with solar panels on its roof in the foreground. In the background are other houses on a residential street
(Ann Johansson/Corbis/Getty Images)

California is taking a second crack at reforming its rooftop solar net-metering policies — and this time around, there’s no dreaded solar tax” involved.

But pro-solar groups warn that Thursday’s proposed decision from the California Public Utilities Commission could still undercut the value of distributed solar for customers. That, in turn, could discourage them from adding the batteries to solar systems that are needed to store power and feed it to the grid when the state needs it most.

Industry groups and advocates have been waiting for nearly a year for the CPUC to issue a revised decision to replace its much-maligned net-metering plan unveiled late last year. That proposal would have forced solar-equipped customers to pay monthly charges — dubbed a solar tax” by solar industry and environmental justice groups who warned it could deal a potentially fatal blow to rooftop solar economics in the state. The plan was withdrawn after criticism from a wide swath of the public and politicians including U.S. Senator Dianne Feinstein and Governor Gavin Newsom.

The new proposal drops those monthly charges, providing some relief for solar industry groups that feared California could be on the verge of shifting from one of the country’s most favorable markets for rooftop solar to one of its most fee-laden and expensive.

But solar advocates were still wary that the proposal, which now faces a round of hearings and comments at the CPUC, could harm rooftop solar economics. That’s because its structure for charging solar-equipped customers for the electricity they use from the grid and paying them for the solar power they export to the grid would significantly reduce the lifetime earning potential of rooftop solar systems compared to what they can earn today.

The CPUC rightly rejected proposals to impose unprecedented grid access fees on new solar and storage customers,” Abigail Ross Hopper, president and CEO of the Solar Energy Industries Association, said in a Thursday statement. However, additional work is needed to ensure a more gradual transition to net billing so that all Californians, including schools, farms and low-income residents can adopt solar and storage.”

Bernadette Del Chiaro, executive director of the California Solar & Storage Association, went further in a Thursday statement, saying that the new proposal needs more work or it will replace the solar tax with a steep…decline” in rooftop solar deployments in the state. Her group estimates that the proposal’s changes could cut the value of rooftop solar exported to the grid by 75 percent compared to today’s structure, an approach that she contends does not support a growing solar market in California.”

It’s not just renewables advocates who feel the CPUC proposal falls short — pro-utility factions expressed disappointment as well, albeit for different reasons. Affordable Clean Energy for All, a group backed by the state’s three biggest investor-owned utilities, Pacific Gas & Electric, Southern California Edison and San Diego Gas & Electric, said in a Thursday statement that the existing net-metering structure is pushing the increasing costs of maintaining the state’s grid onto the majority of customers that don’t have rooftop solar.

Californians with rooftop solar are not contributing their fair share toward the electric grid, wildfire mitigation, energy efficiency and other public purpose programs that benefit us all,” said Kathy Fairbanks, the group’s executive director. Unless the CPUC increases charges on solar-equipped customers, she said, low-income families and all customers without solar will continue to pay a hidden tax on their electricity bills to subsidize rooftop solar for mostly wealthier Californians.”

These arguments between net-metering supporters and opponents have raged for years in California and in other states, with each side accusing the other of misrepresenting the underlying data to support their own agendas. The CPUC’s proposal will be subjected to intense scrutiny on these matters as it moves through public comment, including oral arguments scheduled for next week.

The proposed structure would go into effect four months after the CPUC votes to approve it. The CPUC could vote on the proposed decision as early as December 15, which could put the new structure into effect as soon as April 152023.

How the CPUC’s new net-metering proposal would work

The CPUC’s proposal is built around two key changes to how net-metered solar is valued today for customers of the state’s three big investor-owned utilities. 

First, it would require customers who install solar to move to electrification rates,” which will charge much more for power used during the peak” hours of late afternoon and early evening when the state’s grid faces peak demand, and much less during midday hours when solar power is plentiful and overnight hours when grid demand is low.

Second, it would replace today’s system of paying customers for the solar power they export to the grid — the concept of spinning the meter backward” — from their existing full retail electricity rate to an avoided-cost” rate. In most hours of the year, that avoided-cost rate will be significantly lower than the old retail rate, but in a handful of hours it could be higher — a structure meant to distinguish when that power is more or less valuable for supporting the grid and reducing carbon emissions.

Both of these changes would substantially reduce the value of rooftop solar that generates and exports power consistently throughout the day. That’s a deliberate policy choice by the CPUC, which is trying to align the value of rooftop solar for customers with the time periods when the state needs more clean power the most.

California already has about 12 gigawatts of rooftop solar deployed, but almost all of that is powering the homes and businesses it’s connected to or feeding back to the grid when the state is already generating plenty of solar power, sometimes more than it can use. But during late afternoon and evening hours, when solar fades away, but demand for grid power remains high, California relies on fossil gas power plants or electricity imported from other states — and sometimes, there isn’t enough of that to meet the state’s needs.

These conditions have led to a series of summer grid emergencies during heat waves over the past few years, including two days of brief rolling blackouts in 2020 and a close call for the grid this September, averted only by a last-minute statewide emergency alert imploring residents to conserve power.

That’s why the CPUC’s proposal is designed explicitly to incentivize adoption of combined solar and storage systems.” Batteries in solar-equipped homes and businesses can store solar power generated at midday and discharge it during evening peaks, much as the large-scale battery installations being built alongside solar farms in the state are meant to do, but at a much more distributed scale.

Can net metering drive a growing market for solar-plus-battery systems? 

Many pro-solar groups support the idea of policies that make solar-plus-battery systems more cost-effective. But they worry that the complexity of the electrification rates and avoided-cost structures the CPUC is proposing could make it harder, not easier, for customers to justify the extra cost of adding a battery to their rooftop solar system.

Take the electrification rates, which are designed to reward customers who own electric vehicles and electric home heating systems and appliances for using power when it’s plentiful rather than when it’s scarce. To do that, these rates charge much more for on-peak” grid power and quite a bit less for off-peak” power, compared to the time-of-use rates that are now standard for residential customers of the state’s big three utilities.

Experts say that instituting starkly varying differences in on-peak and off-peak prices is an effective way to drive customers to actively shift when they use power, or to encourage them to install equipment that can automatically adjust to save money. Hawaii has recently instituted a solar rate that charges three times as much for on-peak power than off-peak power, for example. But the same structure can harm customers who can’t or won’t intervene in how their homes use power to avoid the most expensive hours.

The avoided-cost compensation for solar power exported to the grid brings even more complication to a solar-and-battery project’s economic calculations. That’s because it replaces a well-understood retail rate value for how much a customer will be paid for every kilowatt-hour of power their solar system generates in excess of their consumption with an hour-by-hour value determined by a complex formula that will change over the years.

One chief concern for solar advocates is how quickly customers can earn back the cost of installing a net-metered solar or solar-battery system. Under today’s net-metering regime, average payback” times are in the five- to seven-year range. Last year’s CPUC proposal could have pushed those payback times out to 15 to 20 years, which would have put solar systems out of reach for all but the wealthiest customers, solar industry groups said.

CPUC’s new proposal was designed to ensure that all new net-metered solar systems can pay back their costs within nine years or less. To cushion against the risk that the new avoided-cost payment structure doesn’t meet those payback periods, the CPUC has proposed a glide path” structure that will add several cents per kilowatt-hour to the net-metering rate for the first nine years of the system’s operation.

The CPUC proposal also offers an additional payment on top of that adder for lower-income residents who install solar and batteries, an important part of California’s energy equity goals. The proposal also notes that legislation passed this year would direct $900 million to assist families in financing solar-battery systems, with $630 million of that set aside for low-income customers.

But nonprofit groups Vote Solar and the Center for Biological Diversity warned in Thursday statements that the levels of assistance being offered to low-income customers likely aren’t enough to outweigh the loss in solar value from the proposal’s new rate structures.

The biggest thing I see that we’re still not grappling with is access for low-income and disadvantaged communities,” Sachu Constantine, Vote Solar’s executive director, said in a Thursday interview.

Unlike last year’s proposal, the CPUC’s new proposal would make existing net-metered customers exempt from the new net-metering structure. In other words, the new rules would apply only to customers who install rooftop solar in the future, not those who already have it. That offers certainty for existing systems that might not make economic sense under the new rules. But it doesn’t tackle the issue of how to encourage more people to install rooftop solar so that the industry can continue to grow, which the CPUC is required under state law to consider as part of its net-metering policymaking.

One major question for solar companies is whether this new structure will provide enough certainty for that growth to continue. Being able to accurately predict how much customers will save over time and when they’ll be able to start earning money on their investment is important not just for prospective solar buyers but also for solar vendors and installers trying to explain those values to customers and to lenders financing those systems.

The California Solar & Storage Association’s Del Chiaro warned that these uncertainties could significantly slow sales of solar-plus-battery systems. That, in turn, could hold back the state’s carbon-reduction goals, since distributed solar will play an important role, along with large-scale renewable energy, in reaching those targets.

If we want to bring storage to scale the way we did solar, our measuring stick needs to be calibrated to whether or not storage will be more affordable tomorrow” under the proposed structure, she said. If the answer is no — and considerably so — then it is hard to say this proposed decision is pro-storage.” 

Jeff St. John is director of news and special projects at Canary Media. He covers innovative grid technologies, rooftop solar and batteries, clean hydrogen, EV charging and more.