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.
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 Since December, two of the commission’s five members have departed and been replaced by Newsom appointees, including new commission President Alice Reynolds, a former senior adviser to Newsom’s administration.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 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.
California regulators are about to take another crack at reforming the state’s solar net-metering policies. The proposal they unveiled in December elicited massive public backlash; it would have reduced the compensation paid to new rooftop solar owners for power they send to the grid and imposed a monthly fee on solar owners that would have been the highest such charge in the nation.
On Monday, the California Public Utilities Commission issued a ruling reopening public comment on aspects of its December net-energy-metering (NEM) proposal. The comment period will be open until June 24, after which the CPUC will revise its proposal. That pushes the timeline for the release of a new policy into July at the earliest.
But this new effort to find consensus on the state’s future rooftop solar policy must contend with opponents of the existing policy who claim that it harms the state’s poorest residents, as well as solar supporters who warn that gutting the value of rooftop PV will harm rich and poor customers alike while undermining the state’s ability to achieve its climate goals.
Initial responses to Monday’s ruling highlighted the distance that remains between the two sides in the net-metering debate. They have not come any closer to a consensus since the CPUCpostponed a decision on its initial proposal in January in the face of criticisms from Governor Gavin Newsom (D) and opposition from a majority of California residents.
Opponents of the existing net-metering policy doubled down on their criticism. “Every single day that goes by without NEM reform imposes more cost burden on non-solar customers,” Kathy Fairbanks, spokesperson for the utility-affiliated Affordable Clean Energy for All coalition, said in a Monday statement.
The group claims that utility customers without solar have subsidized wealthier solar-equipped customers to the tune of $1.8 billion over the past four months alone. That figure is based on claims from California’s three big investor-owned utilities — Pacific Gas and Electric, Southern California Edison and San Diego Gas & Electric — that net-metered solar customers are causing a “cost shift” onto customers without solar because the rooftop-solar owners don’t pay their fair share of the fixed utility costs that keep the grid up and running.
But rooftop solar supporters contend these utility cost-shift claims are vastly inflated. They say this utility argument is part of a longstanding effort to undercut rooftop solar because it reduces the amount of electricity that needs to be supplied from central power plants, solar farms, battery installations and other large-scale assets that utilities build and operate and can charge their customers for through increased electricity rates.
Solar groups also say the CPUC’s year-long process to establish a new net-metering regime has failed to account for the environmental and grid-resilience benefits of a policy that’s made California the U.S. leader in solar power. The state’s more than 1.3 million rooftop solar systems together amount to more than 11 gigawatts of generation capacity, and maintaining that growth will be vital to meeting the state’s long-term decarbonization goals, they argue.
Walker Wright, vice president of public policy for leading U.S. residential solar company Sunrun, said in a Monday interview that California’s rooftop solar fleet has saved customers of the state’s three major utilities billions of dollars in energy costs by reducing how much electricity had to be generated by ratepayer-funded sources, in much the same way that the state’s decades of energy-efficiency policies have reduced customers’ energy costs.
Wright added that California’s current rooftop solar policy is not causing the two major energy crises that were highlighted by state energy officials last week: rising utility rates and increased risk of grid-supply shortfalls.
Sharp increases in utility rates are being driven by the cost of hardening grids against wildfires and building new transmission infrastructure, not by the mere existence of distributed solar, he said. “There’s no evidence that rooftop solar is a driver [of any significance] for why rates are going up.”
Meanwhile, utilities are failing to meet deployment targets for the vast amounts of utility-scale solar and battery resources they’ve been ordered to build to forestall the risk of supply shortfalls and prevent rolling blackouts during hot summer evenings. Distributed solar and batteries, deployed by consumers tapping into private capital, can scale up more quickly than those backlogged utility-scale projects — “as long as we don’t have roadblocks put in front of us,” Wright said.
The potential value of rooftop solar accompanied by batteries was highlighted in a Monday statement from the California Solar and Storage Association (CALSSA). The trade group said the amount of rooftop solar built between 2017 and 2021 equals twice the generation capacity of the Diablo Canyon nuclear power plant, which is set to close in 2025 and leave the state with a significant shortfall in round-the-clock carbon-free energy.
More and more of that rooftop solar is being paired with batteries, with more than 800 megawatts deployed to date and more than 1 gigawatt expected by 2024, CALSSA added. That could provide several hours of energy storage capacity equivalent to the nuclear plant’s generation capacity — if the state sets regulations that encourage rather than discourage growth of solar-plus-storage installations, CALSSA said.
“Californians strongly support rooftop solar and will not accept a decision that taxes the sun or slows our state’s clean energy progress by making solar unaffordable,” CALSSA Executive Director Bernadette Del Chiaro said in a Monday statement.
What changes are on the table for net-metering policy?
Del Chiaro is concerned that Monday’s ruling from the CPUC doesn’t specifically ask for public comment on what her group considers to be the most harmful part of the December proposal: the monthly “grid-access charge” for owners of new rooftop solar systems, which CALSSA and its allies have dubbed a “solar tax.” It would be a fee of $8 per kilowatt of solar production capacity, adding up to an extra $40 to $60 per month for typical systems.
That would come on top of any reductions in what owners are paid for solar power fed into the grid. CPUC had proposed to stop paying the full retail rate for such power and instead pay a much lower “avoided-cost” rate. These changes together would have made rooftop solar uneconomic for all but the wealthiest customers, solar industry and environmental advocates say.
The CPUC’s ruling lays out the goal of achieving “a gradual transition” from today’s net-metering structure to a successor system that can balance fairness for all utility customers with the need to maintain stable growth of California’s rooftop solar industry. Those are the mandates set for the state’s next version of net-metering policy under state law AB327.
But the specific issues the ruling asks for public comment on — how to create a “glide path” for gradual reductions in net-metered solar compensation, how to address certain utility charges as part of net-metered customers’ bills, and how to incorporate community solar and batteries into the policy — do not include the grid-access charge. This indicates that “the solar tax is still on the table,” Del Chiaro said.
It’s unclear whether the scope of the CPUC’s review of net-metering policy will be restricted to the specific issues cited in Monday’s ruling or expand beyond them. Since the initial proposal in December, the CPUC commissioner presiding over net-metering policy, Martha Guzman Aceves, has retired, and the proceeding has been reassigned to newly appointed commission President Alice Reynolds.
But rooftop-solar backers fear that even a scaled-down grid-access charge or “solar tax” could remain high enough to irreparably harm rooftop solar economics. “What looks like a negotiation in the compromise could still be one of the highest discriminatory fees in the country,” Walker warned.
California regulators are under growing pressure to expand a class of clean energy that’s been notably missing from what’s otherwise a very solar-friendly state: community solar.
For years, solar developers have complained that California’s mishmash of programs and policies has failed to support community solar projects, which make solar power accessible to people who for one reason or another can’t put panels on their own roofs.
Some roofs aren’t suited for solar panels because they’re shaded by trees or other buildings. Some building owners lack high enough credit scores to get approved for financing for rooftop solar. And about half of the population lives in rented houses or apartments, where landlords often don’t have any incentive to go solar.
Community solar projects can be financed and built on cheap and sunny plots of land by utilities or independent developers. Customers can sign up as subscribers to that lower-cost solar power, paying a monthly fee and then earning credits on their electrical bills; in most well-designed programs, subscribers come out ahead financially, although details differ from program to program and state to state.
Community solar has been taking off in other states, but it has languished in the Golden State — a fact that many advocates blame on poor program design on the part of utilities and the California Public Utilities Commission.
Now is the time for a change, according to proponents of community solar. The CPUC is currently weighing a major decision on reforming net-metering policy for rooftop solar, and it would make sense to reform rules for community solar projects as part of the same process, they argue. Solar industry, environmental and community groups have flooded the CPUC with multiple proposals to strengthen existing community solar programs — or to create brand-new ones.
One such proposal that’s getting a lot of traction would promote community solar projects that are paired with batteries. The concept comes from the Coalition for Community Solar Access (CCSA), an alliance of businesses and nonprofits that advocates for community solar projects.
Unlike most solar policy proposals in play in California, this one has garnered support from both sides of the contentious debate over net-metering reform, including both pro-rooftop-solar groups and state lawmakers, as well as groups that believe the state’s current net-metering policies are driving up electricity costs for customers who can’t afford rooftop solar, such as The Utility Reform Network, the Coalition of California Utility Employees and the Natural Resources Defense Council.
CCSA’s proposal would pay a lot more than typical utility rates for electricity that’s exported to the grid from community solar farms in late afternoon and evening hours during the state’s hottest months, when solar power fades away and California’s grid faces the greatest stress. Conversely, it would pay a lot less for power exported during other times of the day and year.
That would give project developers a strong incentive to pair solar with batteries that can store solar power when the grid has more than enough and inject it onto the grid when it’s needed the most. Indeed, critics of the current net-metering regime are asking the CPUC to incorporate similar storage incentives into all of the state’s solar policies.
Homebuilders join the call for better community solar programs
CCSA’s community solar proposal has another key ally: the California Building Industry Association.
As of 2020, California’s building codes require newly built single-family homes to include solar panels; the requirement will also apply to many new multifamily and commercial buildings starting in 2023. Homebuilders are worried that the CPUC’s current net-metering proposal, which will reduce the value of solar power exported to the grid and add steep monthly charges to the bills of solar-equipped customers, will burden owners of new homes with increased costs.
The California Energy Commission, which sets state building codes, allows builders to develop community solar projects as an alternative to installing rooftop solar panels on individual homes. But according to the California Building Industry Association, the state’s current community solar programs “suffer from serious deficiencies that undermine their use as a compliance pathway for builders.”
The trade group has asked the CPUC to fast-track its consideration of CCSA’s community solar proposal, in hopes that it could be approved in time to build projects that leverage the rate category as early as next year.
If the CPUC fails to take quick steps to create a “viable community solar program,” that could add undue “complexity and uncertainty to the building process,” the group contends in a January filing with the CPUC, which could have the effect of “undermining energy efficiency goals and driving up costs for builders.” The group fears that these costs ultimately will be “passed on in home prices[,] which exacerbates California’s housing crisis.”
So far, the CPUC hasn’t fast-tracked community solar as part of its already-controversial net-metering reform process. Its December net-metering proposal characterized such a move as “premature,” pointing out that the state’s three big investor-owned utilities are required to file community solar plans in August 2022, which could serve as an opportunity for considering changes to the state’s existing programs.
But Charlie Coggeshall, CCSA’s director of policy and regulatory affairs, thinks the CPUC should act more quickly to “finalize our proposal into a tariff that could be ready in 2023.”
“We have a strong proposal for reaching these unreachable parts of the market,” he said in an interview. Community solar is needed to “fill a market gap for buildings that don’t have a rooftop solar option,” which includes roughly half of all U.S. buildings, according to research from the U.S. National Renewable Energy Laboratory.
Why California’s existing community solar programs have fallen flat
The trick is designing community solar programs that can do two things at once. First, they must entice developers and financiers with a long-term opportunity to build projects that offer predictable returns on their investment. Second, they must offer customers low-cost, low-risk and low-complexity ways to participate.
California’s existing community solar programs fall flat on both fronts, according to critics. Many developers have moved on to pursue far more lucrative and compelling opportunities in other states.
That’s largely because they’re structured in a way that saddles Californians who sign up with higher overall electric bills, Coggeshall said. As community solar developer Solstice points out in its review of the state’s existing programs, most people just aren’t willing to pay more for solar power.
Even if that rate imbalance were to be corrected, the programs have other limits that make developers leery of focusing on them instead of pursuing more lucrative alternatives, Coggeshall said. First, the programs come with hard caps on how many megawatts can be built, which could lead to a collapsing market once those caps are reached, as has happened with community solar programs in other states like Illinois.
Second, community solar programs are not open to customers who participate in “community choice aggregation” programs, an alternative to traditional utilities that are expanding in California. This leaves would-be community solar developers with a shrinking pool of potential subscribers.
But the latter programs are bogged down by some of the same limitations that have hindered uptake of California’s general-market community solar programs, Coggeshall said. There are hard caps on how many megawatts can be built in the territories of different utilities and community choice aggregators, as well as on how big individual projects can be. And the programs aimed at disadvantaged communities restrict potential subscribers to people living within 5 miles of a project, limiting growth in rural areas.
The community solar programs managed by utilities also have an “overburdensome” application and administrative process that’s “shutting out many communities,” according to the California Environmental Justice Alliance, a group of nonprofits including The Greenlining Institute and Communities for a Better Environment.
These factors have limited the total size of California’s community solar market to about 300 megawatts to date, almost all of it built by utilities rather than independent developers. That’s less than 1 percent of the state’s total solar capacity from utility-scale and rooftop solar systems. It’s also far from the amount of community solar development that the California Building Industry Association says would be necessary to help builders meet the state’s solar mandates for new buildings; the association is forecasting a need for 250 to 450 megawatts of new community solar capacity to be added every year.
Combining storage with community solar to shore up California’s grid
What’s needed, Coggeshall said, is a new structure for community solar, one with a funding pool that won’t dry up when program caps are reached or force projects to navigate complicated and lengthy utility-administered application processes.
The group’s proposed rate could do just that, he said, by establishing a common rate structure for the power generated by projects and allowing developers to seek out and finance projects they believe can make enough money at low enough cost to offer customers enticing subscription rates.
“We don’t propose having some sort of cap,” he said. That’s because the rate structure is designed to support projects that not only help subscribers save money by going solar but also provide positive benefits to the grid at large.
In this aspect, CCSA’s proposed rate matches the CPUC’s proposed structure for compensating rooftop solar systems for the power they export to the grid. Instead of the power from community solar projects earning the full retail rate, it would earn an “avoided-cost” rate that reflects both the value of that energy at the time and place it’s injected into the grid and the costs it helps the whole energy system avoid.
Specifically, CCSA has designed an “export credit rate” (ECR) that it proposes should be applied to community solar projects. The rate takes into account the hour-to-hour energy prices on the wholesale energy markets of California grid operator CAISO, as well as a set of capacity, grid and greenhouse-gas-reduction values determined by the CPUC’s avoided-cost calculator.
Some solar industry groups and consumer advocates worry that using this kind of method to set rates for net metering could undermine rooftop solar economics in the state, replacing a stable, predictable value for exported solar with a complicated and ever-evolving formula that homeowners, solar installers and their financial backers won’t be able to predict with any certainty.
CCSA hopes to reduce that risk by locking in a 25-year term for the hour-by-hour avoided-cost values that community solar projects with storage would receive, Coggeshall said.
A handful of states are building community-solar-and-battery projects based on similar rate structures, he noted. New York state’s value of distributed energy resources rate tier is one of the furthest along, and it has supported the development of nearly 1 gigawatt of community solar to date.
To make money under this structure, owners of community solar projects in California would need to provide as much power as possible to the grid during the key period of 5 p.m. to 9 p.m. in July, August and September. Those are the only times when the export credit rate would shift from low “off-peak” rates to significantly higher “peak” rates, as this chart shows.
The vast majority of California’s rooftop solar has been installed on single-family, owner-occupied homes. But Dover Janis, CEO of San Diego, California–based startup Ivy Energy, sees apartment buildings as the state’s rooftop-solar future — if the right combination of technology, policy and business models can align to make it happen. The prospects depend in part on how California utility regulators decide to reform the state’s net-metering system for rooftop solar.
“There are over 1 million homes with solar in California,” Janis said in an interview. But “less than 1 percent of apartments or even single-family rental homes have solar energy.”
That’s largely because the interests of renters and property owners are not traditionally aligned when it comes to rooftop solar, a situation known as the split-incentive problem. Tenants are responsible for paying the electricity bill in many rental housing units, so they benefit from on-site solar production that helps reduce those bills. But property owners, who must pay to install the solar systems, stand to see little benefit beyond cutting electricity bills for common facilities like lobbies and elevators. This has led to low solar uptake on rental housing across the country.
Ivy Energy has spent the past four years building a software platform geared to solve that split-incentive problem. Last fall it partnered with Bright Power, a New York–based provider of energy management services to multifamily buildings with projects across the country, to “help renting communities have access to on-site clean energy — hopefully with storage — at large scale,” Janis said.
Ivy Energy’s vehicle for doing that in its target market of California is virtual net energy metering, or VNEM, one of the state’s longest-running programs aimed at solving the split-incentive problem. In standard net-metering programs, a homeowner with solar panels feeds excess electricity to the grid and earns credits on their electric bills. Under virtual net-metering programs, landlords can craft agreements to share those credits with tenants.
This is similar in structure to the community solar programs that have sprung up across the country. Many of these use some form of “virtual allocation” of a solar system’s generation capacity, as do VNEM programs.
Why multifamily solar is a tricky prospect
But virtual net metering has garnered relatively little participation in the more than a decade it’s been available in California, at least compared to the standard net-metering system that has facilitated the state’s booming single-family rooftop solar market.
VNEM was authorized for low-income housing in California in 2008, and the programs created to enable it since then offer significant incentives for both landlords and tenants. Still, as of 2021, just under 60 megawatts of solar have been deployed and another 80 megawatts were planned to be built under these programs. VNEM’s use in the general market outside the domain of low-income housing, authorized in 2011, has been even lower, with just under 30 megawatts of projects built since then.
There are many reasons for this, said Ben Airth, senior distributed-generation policy manager for the Center for Sustainable Energy, the nonprofit that works with other community groups to administer California’s low-income VNEM programs.
Landlords tend to prefer low-risk investments that yield predictable and well-defined returns, he said. Virtual net-metered solar projects don’t necessarily fit that description, which is why the majority of projects built to date have been those backed by state incentives that sweeten the financial terms.
VNEM projects are also complicated to manage. “At the end of the day, time is money for these apartment owners,” Airth said.
To make a project pencil out economically, landlords and their project development partners have to determine how much solar to install, based on how many individual tenants can be expected to agree to participate. “You have lots of people who are part of the decision-making process,” he said. The fact that tenants can move in and out adds uncertainty to the outcomes.
Landlords also have to manage VNEM’s virtual allocations with their utility and make sure that month-to-month billing and crediting structures are leading to payments for all participants on a steady basis, Airth said. “If we could get those things aligned, it could help streamline the process — make it easier to finance…[and] install.”
What Ivy Energy does to make virtual net metering work
Ivy Energy’s software is designed to “operationalize” these complexities, Janis said. The first steps are helping property owners assess the payback potential of different solar options, analyze and apply for the mix of incentives, tax credits and other resources available to reduce the upfront cost, and line up bids from project developers.
The next step is a “resident onboarding and rollout” platform that calculates how much tenants can expect to save on energy and makes that information available to tenants and the property managers trying to sign them up for the program.
Once the solar system is up and running, Ivy Energy’s software tracks the financial data involved with sharing solar credits among all participants. Janis called it a “baseline accounting record of value for the community” — a single source of data for managing and verifying who’s owed how much money, “instead of tons of different financial records per utility account.”
The software also monitors and analyzes how tenants are using energy. Calculating the value of net-metered solar credits is a complicated task, requiring data on the hourly mix of utility-supplied power and on-site-generated solar by individual tenants and the property as a whole.
“Running your dishwasher at 2 p.m. may have more benefits than running it at 8 p.m.” since California’s grid is under greater stress in late evenings when solar power fades, he said. Informing and rewarding tenants’ power-usage decisions requires tapping into the systems that make data from utility smart meters available to customers and authorized third-party companies like Ivy Energy. This is “a pain point,” Janis acknowledged, “but it’s always solvable.”
All that behind-the-scenes work yields detailed records that show tenants and owners alike how they’re “getting a piece of the benefit” of the solar system, he said. The sample statement below indicates how much data is involved:
California regulators have proposed a dramatic overhaul of the state’s net-metering program for rooftop solar. The new plan would reduce payments for solar power fed into the grid and impose the highest fixed fees in the nation on rooftop systems installed in the future. Solar industry groups warn that the policy could turn the country’s leading market into the country’s costliest for new adopters of rooftop solar, potentially decimating a thriving sector and undermining the state’s clean energy goals.
Monday’s proposed decision from the California Public Utilities Commission would be far more damaging to rooftop solar economics than most industry analysts had predicted. In fact, industry groups contended on Monday that its impacts would be so severe that they see little chance of it being approved by the CPUC next month in its current form.
It’s possible that the CPUC’s appointed commissioners could issue an alternative proposal that differs significantly from Monday’s proposal, which was written by CPUC Administrative Law Judge Kelly A. Hymes. The commission has opted for a similar approach with other controversial policy decisions in the past.
With the threat of a major disruption to the market looming, solar groups have vowed to press California Governor Gavin Newsom (D) and the commissioners to put forward an alternative decision in the next 30 days. Monday’s proposal, as well as any alternative proposals that emerge, could be voted on by the CPUC’s five commissioners as early as January 27, 2022.
It’s not clear if that process will include Martha Guzman Aceves, the CPUC commissioner who has managed the net-metering proceeding over the past year. The CPUCannounced last week that she will depart her post at the agency on Dec. 20 to become administrator of the U.S. Environmental Protection Agency’s Region 9.
“We’re calling on the other four commissioners and the governor to correct the ship,” Bernadette Del Chiaro, executive director of the California Solar and Storage Association trade group, said in a Monday interview. “It’s devastating to the industry to have this even proposed.”
Meghan Nutting, executive vice president of regulatory and government affairs for residential solar company Sunnova, said in a Monday interview, “I think there’s a zero percent chance this passes as written.” At the same time, she said, “It sets out a framework that I worry will become the basis of the ultimately adopted decision.”
Cost-shift debates in the country’s biggest rooftop solar market
The proposal largely embraces the arguments made by the state’s three big investor-owned utilities, Pacific Gas & Electric, Southern California Edison and San Diego Gas & Electric, along with a handful of allied advocacy groups. Those arguments hold that California’s existing net-metering program unfairly burdens utility customers who can’t afford rooftop solar with excessive costs in order to support wealthier customers who can afford it.
Similar “cost-shift” arguments have played a role in net-metering policy battles across the country. They hinge on the fact that solar-equipped customers feeding electricity to the grid can reduce their monthly bills to little or nothing. This leaves unpaid their share of the fixed costs that utilities bundle into the per-kilowatt-hour charges they assess on customers. Those fixed costs include maintaining and building new grid infrastructure and paying for power plants and solar farms built or contracted by utilities in previous years.
As the number of customers with rooftop systems increases, this imbalance could grow to a point that forces utilities to raise rates on all customers to make up the difference, leading to an unfair burden on nonsolar customers and an unsustainable utility system.
Utility-allied groups have accused the rooftop solar industry of profiting on the backs of lower-income residents. Kathy Fairbanks, spokesperson for the utility-allied Affordable Clean Energy for All coalition, praised the CPUC’s proposal in a Monday statement, saying that it would “modernize a policy that has forced nonsolar customers to bear an unfair burden of the expenses associated with the electric grid and mandated public policy programs.”
“Currently, Californians who don’t have solar panels are paying about $245 more each year in electric bills to cover the costs for those who do have rooftop solar,” she said, a burden that could grow to $555 per year by 2030.
But solar industry groups dispute those estimates. They and their allies say utilities have dramatically overstated the scope of the cost shift from net-metered solar and the impact it has had on increasing utility rates. They note that the costs of building new transmission lines and hardening the state’s grid against wildfires are increasing utility bills by a considerable margin.
Solar groups also warn that harming the economics of net-metered solar could undermine the state’s progress in reducing its carbon emissions by 70 percent by 2030 and achieving zero carbon emissions by 2045, as required by the 2018 law SB100. CPUC modeling indicates that meeting these targets will require continuing to add about a gigawatt of rooftop solar installations annually, which is on pace with trends over the past few years.
State law requires the CPUC to rework net-metering rules in a way that both reduces the burden on nonsolar customers and also maintains “sustainable growth” in the state’s rooftop solar market.
The proposed decision states its intent to maintain this balance, but it also says that “the growth of the market should not come at the undue and burdensome financial expense of nonparticipant ratepayers.”
Solar groups, however, say that the CPUC’s proposal assigns far too much blame to rooftop solar for rising electricity rates and that its proposed remedies would leave the state’s rooftop solar industry in a shambles.
“This brings the marketplace to a screeching halt,” Del Chiaro said.
Major fixed costs, lower and less predictable revenue
Out of a host of policies included in the proposal, the one that garnered the harshest criticisms from solar groups is the “grid participation charge.” That’s the new name for the “grid-benefits charge” proposed by California’s big three investor-owned utilities. Few industry observers had predicted that the CPUC would include it in the proposal.
It would add a monthly charge of $8 per kilowatt of solar production capacity onto bills for owners of new rooftop solar systems, totaling an extra $40 to $50 per month in fees for typical systems.
“We’ve been through many of these cases in many states across the country in the last 10 years,” Walker Wright, vice president of public policy at leading U.S. residential solar provider Sunrun, said in a Monday interview. “We don’t think there are rooftop solar markets anywhere in the world that have this level of punitive fees.”
That’s certainly true in the United States, according to analysis from EQ Research. It found that only 2 percent of U.S. investor-owned utilities had imposed fixed charges that apply solely to solar-equipped customers. The highest in the country — $5.41 per kilowatt from Alabama Power, which serves a state with almost no rooftop solar market — is well below the fee CPUC is proposing.
The following chart shows the country’s highest existing or planned charges on solar customers in gray. In yellow it shows charges that would be adopted by California’s big three utilities under a proposal from CPUC’s Public Advocates Office and the Natural Resources Defense Council. Monday’s proposed decision from CPUC would include fees roughly in line with the yellow bars.
California Governor Gavin Newsom (D) said Monday that he believes “changes need to be made” to the state’s controversial proposal to slash financial incentives and add fees for new home rooftop solar systems — but he added that he doesn’t intend to interfere in the process.
“We have work to do,” Newsom told reporters asking about the net-metering proposal at a presentation of his state budget plan. “Do I think that changes need to be made? Yes, I do.”
Yet Newsom also said that he won’t intervene with new California Public Utilities Commission President Alice Reynolds, whom he appointed late last year, or with other CPUC commissioners as they decide whether to approve the plan, amend it or propose an alternative. The CPUC could vote on the matter as early as January 27.
Newsom said he has tasked Reynolds, a former senior energy adviser for both his administration and that of former Governor Jerry Brown (D), to “use her best judgment in all deliberations” at the CPUC. “Beyond that, nothing more. I don’t require litmus tests. […] I appoint people on the basis of their character and values.”
The comments, Newsom’s first on the topic since the net-metering proposal was unveiled last month, have raised the hopes of the rooftop solar industry and some environmental groups that he will push the CPUC to prevent the enactment of a new regime they fear could crush the state’s distributed solar industry.
For new owners of rooftop solar systems, the proposal would reduce payments they receive for power fed into the grid to roughly a quarter of what current solar owners earn. It would also impose fixed monthly fees on new solar-equipped customers that would be the highest such charges in the nation.
“We urge the governor to use his bully pulpit to push regulators to start from scratch and take no action to curb rooftop solar until they fully examine the real reason why working-class families and communities are paying so much for power and how they can be put at the forefront of the rooftop solar and storage revolution,” Ken Cook, president of the nonprofit Environmental Working Group, said in a Tuesday statement.
Rooftop solar markets under threat
Cook’s comments highlight the core challenge the CPUC faces in its net-metering decision: how to balance the sustainable growth of its nation-leading rooftop solar industry with the need to fairly divide costs between customers who have rooftop solar and those who don’t.
The CPUC’s proposal has triggered an outcry from the rooftop solar industry, a number of environmental groups and a coalition of hundreds of cities, environmental justice organizations and community groups. They contend that it would destroy the economic case for customers to install solar. That, in turn, would set back the state’s clean energy progress, weaken the case for customers to switch to electric vehicles and electric heating systems, and undermine efforts to supply battery-backed solar systems to communities facing the threat of wildfires and blackouts, these stakeholders contend.
Under the current proposal, lower-income customers would be exempt from the monthly fees and eligible to receive incentives for solar systems paired with batteries. Still, the end result could wind up harming lower-income communities, according to the Sierra Club, the advocacy group Vote Solar, and Grid Alternatives, an organization that supports solar installations and job training in low-income communities. In a joint filing submitted to the CPUC this month, the three groups argue that the commission’s current proposal could “cause major solar market contractions that will make it difficult for companies to provide customer-sited clean energy to low-income customers.”
That view was backed up by a survey released earlier this month by SolarReviews, a solar-installer review platform. Of more than 4,000 respondents considering the purchase of a solar system, 95 percent said they would no longer be interested in installing solar if two key components of the CPUC’s proposal were put in place: lower compensation for solar power fed into the grid and new monthly fees being imposed upon owners of solar systems. Even without the monthly fees, the reduced compensation alone would deter 68 percent of potential buyers.
“It is incomprehensible to think that people will spend $15,000 to $20,000 of their own hard-earned money to buy something that will now not only have a much longer payback period but will also expose them to a new monthly tax,” Andrew Sendy, SolarReviews president and co-founder, wrote in a Monday blog post.
Concerns over unfair cost shifts run deep
But the argument that net-metering changes will decimate the rooftop solar industry is being countered by an equally adamant argument that net-metering as it exists today forces higher electricity rates onto people who can’t afford to go solar.
The state’s three big investor-owned utilities contend that existing net-metering rules allow solar-equipped customers to avoid paying their fair share of fixed utility costs such as building and maintaining the power grid and paying for the construction and maintenance of power plants and solar and battery farms. To make up for those unpaid fixed costs, utilities will be forced to raise rates for customers at large, they say.
That view is also supported by some utility customer watchdog groups and the Natural Resources Defense Council. They warn that this net-metering “cost shift” disproportionately harms lower-income and disadvantaged communities that can’t afford solar. In fact, some of those groups are asking the CPUC to reduce even further the payments for rooftop solar power fed into the grid in an attempt to rectify the cost shift.
The CPUC’s Public Advocates Office, the agency’s internal customer watchdog group, argued in a filing this month that the proposed reforms “do not go far enough” to restore the balance between solar and non-solar customers. For example, the CPUC proposes shifting solar customers whose systems have been in place for 15 years onto the new, less-lucrative system, but the Public Advocates Office calls for shortening that time period to eight years.
The proposal to accelerate the switch of existing customers to the new rates is already facing pushback from groups that say it will undermine the economics of existing solar installations, which were promised a 20-year “legacy period” in the CPUC’s last round of net-metering reforms back in 2016.
But for those who say that net-metering allows wealthier solar system owners to shift the costs of maintaining and building the state’s electricity infrastructure to others, arguments based on protecting homeowners’ solar investments or the continued growth of the rooftop solar industry fall flat.
Severin Borenstein, director of the Energy Institute at UC Berkeley’s Haas School of Business, has been an outspoken critic of existing net-metering policy on equity grounds. In a Monday blog post, he argues that current net-metering policies are not only “costing non-solar households boatloads of money” but also failing to drive distributed-energy investments that could help the state meet its aggressive carbon-reduction goals.
“The goal should be equitably saving the planet, not growing one industry,” Borenstein writes. Arguments centered on maintaining a healthy market for rooftop solar installers should take a back seat to broader equity and environmental concerns, he contends:
[I]nstead of a debate about the appropriate role of residential solar in addressing greenhouse gas emissions in California and beyond, the reactions have largely been about how much subsidy rooftop solar companies in California need in order to stay in business. If that sounds to you like climate policy is taking a back seat to political horse-trading, you aren’t alone.
A tough decision for the CPUC
The disputes between these two camps have only grown more intense in the year since the CPUC started working on reforms to its net-metering policies. Each coalition has accused the other of misusing data on the costs and benefits of rooftop solar and of misrepresenting potential impacts on the state’s low-income and disadvantaged residents.
The CPUC could now take action to amend the existing proposal before it comes up for a vote, or it could issue an alternative decision to consider alongside the existing proposed decision.
The CPUC is also in the midst of replacing two of its five commissioners. Reynolds, the newly appointed CPUC president, is replacing former President Marybel Batjer, who in November announced her departure from the commission to lead a state Department of Motor Vehicles task force. Meanwhile, Martha Guzman Aceves, the CPUC commissioner who managed the net-metering proceeding over the past year, is departing to become administrator of the U.S. Environmental Protection Agency’s Region 9. She is being replaced by John Reynolds (no relation to Alice Reynolds), an attorney and former chief of staff, adviser and public utilities counsel at the CPUC.
“As the new head of the CPUC, President Reynolds will be the key decider on changes to rooftop solar policy,” said Susannah Churchill, Vote Solar’s Western senior director. “It’s up to her to craft a more balanced approach than the disastrous December 13 proposal.”
The CPUC now faces a tough choice — and it will almost certainly be lambasted no matter what course it takes.
Welcome to the first installment of Down to the Wire, my new column for Canary Media that will tackle the more complicated challenges of decarbonizing our energy systems. Clean energy journalism can’t just focus on technological breakthroughs; it must also dig deep into the details of utility regulation, energy markets, and politics and policy from the local up to national and international levels.
Every few weeks, we’ll hack our way into the weeds on what it will take to build a clean power grid and electrify transport, heating and industry. How can we achieve breakneck growth of wind and solar power and energy storage at gigawatt scale? How can we balance distributed solar and storage, electric vehicles and grid-interactive buildings? And how well do theoretical concepts work out when put to the test in the real world?
I’m looking forward to your feedback and suggestions — contribute comments below, tweet at me or send me an old-fashioned email (jstjohn at canarymedia dot com). Let’s get started.
California’s net-metering regime has helped the state become the undisputed leader in rooftop solar in the U.S. over the past decade. Now state regulators are on the verge of deciding what the future of net-metered rooftop solar in the state will look like for the coming decade.
The debate over “net metering 3.0,” as California’s latest iteration of this key clean energy policy is known, has pitted two sides against each other in a bitter battle. For background on this fight, read our piece from earlier this year on NEM3.0 (NEM = net energy metering).
In one camp: the state’s biggest utilities and a roster of allies both expected and unexpected. In the other camp: the rooftop solar industry, plus its own array of various supporters.
At issue is how much solar-equipped homes should be paid for the electricity they export to the grid, and how much they should be required to pay to support the broader utility system they rely on when they’re not generating their own power.
A year-long policy discussion has been accompanied by a political and public-relations battle. Democrats allied with utilities and utility workers unions got a vote this summer in the state legislature on a bill that would have dramatically reduced the value of net metering, but it failed in the face of opposition from solar, environmental and community groups. Each side accuses the other of harming the state’s low-income and disadvantaged residents to pursue their own financial interests.
Now the endgame is approaching. The California Public Utilities Commission is expected to publish a proposed decision next week. That decision may be followed by publication of an alternative proposal, a step the CPUC sometimes takes with particularly controversial decisions. Then the commission will vote to decide on a final policy as early as January.
“It’s time for this incentive to move into its next phase,” said Rob Rains, an analyst with Washington Analysis who’s researched how various net-metering proposals before the CPUC could affect rooftop solar companies such as Sunnova, SunPower, Sunrun and Tesla. “What does its next phase look like? How do we properly compensate for the value that rooftop solar will continue to provide, while also accommodating the shifting requirements of the electric grid in 2022 and beyond?”
California has long been a U.S. vanguard for rooftop solar and distributed energy, and it remains the most important market for solar companies. That makes the CPUC’s decision important not just for the state’s residents, but for the U.S. solar industry as a whole.
The opposing camps
In this battle, Camp A, as we’ll call it, is pushing for substantial changes to today’s net-metering rules.
At its heart are the state’s three major utilities: Pacific Gas & Electric, Southern California Edison and San Diego Gas & Electric. They argue that the current regime rewards those who can afford rooftop solar systems with increasingly low electricity bills, but pushes fixed costs and rate increases onto everyone else, including, crucially, those who can least afford it. They contend that this “cost shift” is unfair and unsustainable.
The utilities are supported to various extents by utility workers unions; consumer advocates at the CPUC’s Public Advocates Office and The Utility Reform Network; the Natural Resources Defense Council, an influential national environmental group; and a collection of community groups, many of them recipients of utility contributions.
The parties within Camp A have a number of proposals for net-metering reform that they’ve submitted to the CPUC, which differ in many ways, but they share some key goals. Their proposals would markedly lower rates paid to homeowners for solar sent back to the grid and charge upfront fees to people who install new solar systems, moves they say can counteract the cost shift that benefits wealthier solar adopters at the expense of other Californians. While some of the proposals would exempt existing net-metered solar systems from changes, grandfathering them into current, more lucrative net-metering rates, the Public Advocates Office’s proposal would make them retroactive to existing customers.
Camp B is calling for much less dramatic changes to the net-metering scheme.
It includes solar industry groups; environmental groups including the Sierra Club; supporters of solar for low-income customers such as Grid Alternatives; and a coalition of hundreds of cities, environmental justice organizations and community groups.
This camp argues that making big cuts to the value of net-metered solar will crash the market for rooftop systems, potentially dooming California’s plans to decarbonize its grid over the next two decades. They also say that utilities have undercounted the positive impacts that rooftop solar brings to the state as a whole.
And they contend that utilities have vastly overstated the cost-shift impact of net-metered solar on lower-income residents. They say rooftop solar needs to be expanded to serve more low-income customers, not made even less affordable.
The groups in Camp B have submitted their own variety of proposals to the CPUC. They acknowledge that California’s net-metering policy must be updated and that the rates paid for rooftop solar power sent to the grid will have to go down to some extent, though they propose that rates would change only for new systems, not existing ones. Their proposals would bring rates for exported solar down gradually over the next five to seven years — a “glide path” that would avoid shocking the market.
This approach, they say, would balance the need to adjust net-metering values with the need to maintain a healthy and growing market not just for rooftop solar, but for the batteries, electric vehicles and all-electric appliances needed to reach California’s broader carbon-reduction goals. The Camp B contingent also flatly rejects calls for upfront fees on new rooftop solar systems.
The stakes for California and its climate goals
The CPUC is charged with balancing these competing views as it crafts a new net-metering regime that will both be fair to all customers and maintain sustainable growth of the rooftop solar industry in the state. Those mandates are set by AB327, the 2013 law that originally established the state’s net-metering policies. But the picture has grown much more complicated since the CPUC’s last net-metering decision in 2016, known as NEM2.0, which kept in place a policy that pays solar homeowners the full retail rate for power they export to the grid.
California now has extremely aggressive climate goals and must deploy massive amounts of clean energy to meet them. A 2018 law, SB100, set the state on a path toward 60 percent renewable energy by 2030 and 100 percent carbon-free energy by 2045. Not only does California need massive and unprecedented growth in utility-scale solar, wind, batteries and other carbon-free resources; it also needs to continue recent trends of adding about a gigawatt of distributed solar per year.
Additionally, the state needs homes and commercial buildings that have rooftop solar to add many more batteries to store and shift their energy from when it’s produced in excess of grid demand to when it’s needed to cover evening demand peaks, like those that have caused grid instability and even led to rolling blackouts during a 2020 summer heat wave.
And as California seeks to shift to electricity to power vehicles and heat buildings, regulators must keep electricity rates in check while also giving customers a cost-effective way to install solar and batteries to cover their increasing electricity needs.
Cost shifts and payback periods: The nuts and bolts of net-metering compensation
Today, solar-equipped residential customers in California earn full retail rates for the power they send to the grid, meaning the price customers pay for consuming a kilowatt-hour of electricity is the same price they can earn by selling a kilowatt-hour back. While the amount of rooftop solar that ends up flowing back to the grid rather than being consumed on-site varies according to the size of the solar system and the underlying loads, on average about 50 to 60 percent is exported to the grid.
Forty-one other states also have net-metering structures of one kind or another. These allow owners of rooftop solar systems to not just reduce their energy bills but also earn money that can help them pay back the costs of their solar systems more quickly than they’d otherwise be able to do.
But as the number of net-metered customers in California has grown to more than 1.3 million over the past decade, the balance between promoting rooftop solar and covering broader utility costs has begun to shift, say opponents of the current net-metering regime.
The arguments over how to rebalance the system are complex and driven by different approaches to collecting and analyzing the underlying data. But they are focused primarily on two factors. These are payback periods, or how quickly owners of rooftop solar should be able to pay off their installation costs, and what’s called the cost shift, or how much of the total cost of maintaining California’s power grid and energy generation mix should be borne by the rest of a utility’s customers.
The charts that follow show how 10 different NEM3.0 proposals would affect payback periods and cost shifts, as assessed by E3, a consultant hired by the CPUC to analyze the differences between the proposals. While the precise calculations reflected in the charts are under dispute by some groups, the fundamental trends are clear: Utilities and their net-metering allies, whose proposals are represented in the top half of the two charts, want lower cost shifts and are willing to accept longer payback periods. Rooftop solar industry groups and their supporters, represented in the lower half of the charts, want shorter payback periods to keep rooftop solar economically viable.
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We’re coming up on judgment day for the nation’s most contentious and impactful solar battle. That would be a fight in California over how much to pare back compensation for rooftop solar. Regulators had been expected to vote later this week on a proposal to curb that compensation dramatically.
Even those of you beyond the boundaries of the sun-washed Golden State have a stake in this battle. California has built the nation’s biggest market for rooftop solar by far. A negative outcome for the rooftop solar industry would hit national installation numbers and send companies scrambling. It could also spawn copycat policies in states with more nascent rooftop markets.
Given the stakes, Canary Media is hosting a live debate Wednesday, January 26 between two leading commentators on the policy at issue, known as net energy metering or NEM. Register for free right here.
Severin Borenstein, a professor at UC Berkeley’s Haas School of Business, has chronicled what he sees as a status quo that unnecessarily favors rooftop solar, channeling public support to a relatively expensive form of clean energy that directly benefits only a small slice of the population. He called the state’s proposed decision “a bold step toward a more rational climate policy.”
Ahmad Faruqui, a veteran expert in utility regulatory proceedings, has written that he’s never seen a proposed regulation “as regressive and out-of-touch with reality as this one.” His 10-point rebuttal of the proposed policy change even earned a shoutout in actor Edward Norton’s recent Twitter thread in defense of rooftop solar.
Canary Media’s Jeff St. John, who’s been reporting on this saga for months, will moderate the live debate between these two at 1 p.m. Pacific on Wednesday.
This is our first live event directly responding to events as they unfold. I hope you can join us, and please let us know what you think about the debate.
Three ways to equitably expand access to solar power
One of the most contentious aspects of the solar net-metering proposal is that California could slap a fixed monthly fee on households that install solar panels in the name of fairness to less-affluent people. Lower-income customers would be exempt from the new fee.
Of course, if the goal is really to expand solar access across the income spectrum, imposing a new fee on some people’s solar systems doesn’t do the trick. Nor does waiving the fee for the subset of lower-income people who can find a way to put solar on their roofs.
Democratizing the benefits of clean energy takes a concerted effort — and an increasing number of people and companies are making that effort, outside of the regulatory realm. Here are three ways to broaden solar access that Canary Media has recently covered.
1) Build solar for people who can’t put it on their roofs
Impact investor Lafayette Square pledged last week to invest up to $550 million over the next three years to build community solar projects for low- to moderate-income customers. The partnership with renewable developer Invenergy is called Reactivate.
Community solar projects offer the bill savings of solar to people who can’t put it on their own roofs due to financial constraints, not owning the building, or living in a multi-family structure.
Reactivate will sign up customers, then buy or build solar projects to produce the electricity.
Customers will get credits on their energy bills for the solar power produced by these community projects — a boon that would be especially helpful for energy-burdened families that pay a high portion of their earnings to keep the lights on.
Brooklyn-based startup NineDot is working on community-level battery projects in the New York City area. This model, like community solar, would allow individuals to subscribe to a project and see the benefit on their bills, even if they can’t install a battery where they live.
Private equity firm Carlyle Groupinvested $100 million last week in NineDot’s projects, which just might be enough to help projects navigate the Big Apple’s notoriously complex and lengthy permitting process for batteries.
2) Offer rooftop solar regardless of FICO score
Louisiana-based PosiGen leases solar to lower-income people regardless of their credit scores. By packaging solar with home-efficiency upgrades, it delivers substantial enough energy bill savings that PosiGen doesn’t worry about customers having enough cash to pay for the service.
That unconventional model scared off plenty of investors early on. But with 11 years of operations and 19,000 customers to its name, that’s changed. PosiGen just raised $100 million in equity financing to expand its business in Mississippi and Pennsylvania and enter new markets in Illinois, Massachusetts, Missouri and Washington, D.C.
It’s a proof of concept that solar economics can work for lower-income families if solar companies muster sufficient creativity and discipline.
3) Put solar on apartment buildings
If you rent an apartment unit, you can’t just stick solar panels on the building roof. It’s not your roof. And the landlord typically won’t go out of their way to lower your utility bill.
The startup pays landlords for the right to install solar and batteries, then uses the equipment to supply power to the tenants. Like PosiGen, PearlX doesn’t want to restrict its services to people with high credit scores. Instead, it looks at occupancy rates: If a sufficient proportion of units are occupied, the company will earn enough revenue to pay for the solar installation. PearlX can supplement what it earns from tenant payments by participating in wholesale power markets.
PearlX has directed $50 million toward turning this idea into reality, and it’s starting with a single apartment building in Houston, Texas, where the competitive ERCOT electricity market offers companies many ways to earn an extra buck. But the $50 million should support up to 3,000 apartment units getting solar and batteries.