The fight over the future of rooftop solar in California
- Is there hope of finding middle ground on California’s rooftop solar policy?
- California heads back to drawing board on solar net-metering policy
- Will California finally fix its community solar programs?
- Adding solar to California apartments could get easier — if regulators go along
- Debate on how to fix rooftop solar policy in California: Video and transcript
- California net-metering proposal would decimate rooftop solar market, industry says
- California’s Gov. Newsom says ‘changes need to be made’ to the state’s polarizing net-metering proposal
- The avoided-cost calculator: The controversial metric at the center of California’s solar net-metering fight
- The controversies at the heart of California’s solar net-metering fight
- It’s a solar showdown, live!
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 Since December, two of the commission’s five members have departed and been replaced by Newsom appointees, including new commission President Alice Reynolds, a former senior adviser to Newsom’s administration.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.
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 CPUC postponed 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 long-standing 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 AB 327.
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.
California’s first community solar programs were introduced in 2013. But they have struggled to spur anything close to the total amount of solar they were intended to generate.
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.
More community solar options exist for lower-income customers, including incentives to help owners of multifamily housing units add solar and incentives and bill savings for participants in community solar projects serving designated disadvantaged communities.
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:
Debate topic: Is the California Public Utilities Commission’s current proposal for changing the state’s rooftop solar net-metering policy headed in the right direction or the wrong direction?
Ahmad Faruqui, energy economist
Severin Borenstein, Energy Institute at Haas, UC Berkeley
Jeff St. John, Canary Media’s director of news and special projects
This debate took place on January 26, 2022. Watch it:
Here’s an edited transcript of the conversation:
Jeff St. John: Last month, the California Public Utilities Commission issued a proposed decision for replacing the net metering structure that’s governed the value of rooftop solar in the state for more than 20 years with a very different structure that would significantly alter the economics of customer-owned solar systems.
It’s a very complicated proposal, but we can summarize its three main changes. First, it would reduce how much money is paid for rooftop solar energy exported to the grid. Second, it would impose a monthly fee on rooftop solar owners based on the size of their solar systems, a fee that’s higher than any similar fee elsewhere in the country. And third, it would create various credits to ease the financial impact of these changes for a few years and offer various incentives to encourage adding batteries to solar systems and to boost the value of solar for lower-income customers.
So what should California do about rooftop solar?
We’re joined today by two gentlemen who are among the most knowledgeable we could hope to find on the subject, even if they may disagree on what the right course of action is.
Severin Borenstein is a professor at UC Berkeley’s Haas School of Business and Faculty Director of the Energy Institute at Haas, and he has published extensively on electricity markets and renewable energy and advised agencies on energy and climate policy, including the California Energy Commission. He’s on the board of the California Independent System Operator.
Ahmad Faruqui is an energy economist who works on rate design and energy efficiency issues. He advises clients around the world and has co-authored numerous papers and books on electricity pricing and other topics. He comes to you today as a resident of the state of California and EV driver.
It’s important to note that amid the firestorm surrounding this decision, California is fully committed to decarbonization. This net-metering debate is part of a broader debate over how best to achieve that goal.
St. John: Can you summarize your views of the proposed decision? Tell us which parts of it you support? Which parts do you oppose, and which parts do you think ought to be changed?
Ahmad Faruqui: I was really surprised at this decision when it came out. What I was expecting was that the proposed decision would tread the middle ground, not merely the views of a few parties who had given their proposals earlier last year. There are some features that I like about the proposed decision. I believe the time has come to end net metering and to move to net billing. Imports should be priced separately from exports. I support the need to pair batteries with solar panels. I also support the need for lowering export compensation. Finally, I support the notion of allowing solar panels to be oversized to allow for the electrification of homes and vehicles.
However, I don’t support the notion of imposing a grid-access charge. It is totally at odds with the California solar mandate for new homes. An average solar customer today has 7 kilowatts in their panels and they pay $57 a month. The solar tax will double their monthly bill and stretch the payback period to something like 20 years. Who would install solar with that payback period? And without solar, who will install batteries?
I do support gradually lowering the price of exports, but not by 80%. And I don’t support applying these charges retroactively to 15 years from the time the system was installed. That retroactive change has never been seen anywhere else, and it’s too drastic. The way they’re proposing to make those changes is very dramatic, very drastic and totally opposed to California’s goals.
Severin Borenstein: I have to say that I am on the board of governors of the California Independent System Operator, but nothing I say today reflects their views. I’m presenting my personal views. I also want to say that I hope this discussion will help turn down the temperature a little bit on this whole issue. There’s been a lot of vitriol after four years of Trump. I have to say that I really think it’s important to distinguish between people who share the basic goal of fighting climate change but may differ on the means, and people who don’t.
Having said that, let me start by saying that I think there are two different issues that get mixed together here.
One is what role rooftop solar should play in a decarbonized grid. I think that’s largely separate from the question of what [level of] compensation for rooftop solar in California is appropriate.
I think we should primarily focus on the second issue. When we talk about this second issue, we’re really looking at the payment that rooftop solar households get versus the value they bring to the grid. My view is that, like all renewables, rooftop solar should be compensated at the full value it brings to the grid. That’s not just the electricity. It’s the avoided investments and distribution and transmission. It’s the avoided environmental impact to the extent that additional rooftop solar avoids running fossil fuel plants.
I would argue that when you put all that together and we have put out research saying this, the value of rooftop solar is well below 10 cents per kilowatt-hour. In contrast, NEM, net energy metering, is rewarding rooftop solar in PG&E territory at around 26 cents per kilowatt-hour.
That gap is a huge gap, and I think it’s really inappropriate. I do support reducing the export price, and I would support moving to an avoided-cost [rate]. The monthly grid charge is a ham-handed way of trying to make up for the cost shift from the part that isn’t exported. I prefer other approaches. The phase-in is political and I think that’s what you have to do. Finally, I think that the emphasis on pairing with battery storage and grid connection is really good.
Faruqui: I’m very encouraged by Severin’s answer. We could end the debate at this point, but there are a few nuances. I totally agree that the export price should not be the retail rate. It should be something approximating the value of solar. And we can have discussions on whether it’s 10 cents or 5 cents, but it’s certainly not 30 cents or 26 cents. I think we are both on the same page there.
The question is how quickly and how to gradually bring it about and whether or not to do it retroactively to the customers who signed on thinking that they would be on solar with a certain arrangement for 20 years as opposed to the 15 years the proposed decision is talking about. I do have some thoughts on how to deal with the cost shift on the import side of the equation.
Borenstein: Ahmad raised the issue of the retroactive change to 15 years. On the one hand, we are going to cut off, under the proposed position, customers who have had solar for a while. On the other hand, we aren’t going to immediately change the compensation for going forward. We are going to phase in this compensation.
Maybe Ahmad and I can reach an agreement. Say that we extend the compensation for people who have already put in solar but we shorten the runway for implementing this for new solar. I understand the commitment argument of people who already put in solar, though they have fully recouped their investment at this point. But I don’t see the argument for saying that will lead to a gold rush of people going forward.
St. John: Let’s turn to the issue of the cost shift for the second question. Severin, you’ve argued that paying the full retail rate for rooftop solar that’s exported to the grid constitutes a significant cost shift. That is the cost borne not by rooftop solar owners but by people who don’t have solar on their roofs. And Ahmad, you’ve issued a fairly extensive critique of the cost-shift argument. Can you both summarize your positions for us?
Borenstein: The price people are paying is about 26 cents a kilowatt-hour (I’ll just use PG&E figures) and the avoided cost is below 10 cents. What’s in that difference is all of the fixed costs that are in our volumetric rates: the subsidies for low-income [households]; the subsidies for rooftop solar; energy-efficiency programs; vegetation management (which we are ramping up with all of the wildfire issues); wildfire liabilities; grid hardening, early investments in nascent renewables — these are all great ideas. Plus the fixed costs of transmission and distribution.
All of that is not avoided when somebody puts in their rooftop solar. When they stop paying for it, somebody else has to, and those costs get shifted onto other customers.
What our research showed is essentially you can think of that as a tax on the consumption of electricity to pay for all these nonmarginal costs. What we’ve shown is that it is a very regressive tax. It is more regressive when you look at the income levels of people paying for it. It is more regressive than a gas tax, it is more regressive than a sales tax, and it is far, far more regressive than an income tax.
Essentially, we have taken the most regressive tax possible in order to finance this. Some people argue that somehow the utilities are going to pay for it. But that’s not who is going to end up paying for this.
It’s the ratepayers who are going to end up paying for this. We know that it gets shifted to other ratepayers, and it’s a big cost shift. A reasonable estimate these days is about $3 billion a year that’s being moved onto other ratepayers. Essentially, that’s a $3-billion-a-year tax, and it is the most regressive way we could collect that money.
Faruqui: What I’m going to do is try to put the cost shift in perspective. Rate design is [rife] with cost shifts, particularly for residential customers. Let me give you just a few examples: Large customers subsidize small customers; customers with central air-conditioning systems subsidize those without central air conditioning; urban customers subsidize rural customers.
California spends $1.5 billion a year on energy efficiency. Some customers avail themselves of this subsidy, and some get thousands of dollars to do a whole-house upgrade. They’re being subsidized by other customers who are not availing themselves of any energy-efficiency funding.
Then, of course, comes the cost shift that energy efficiency induces once the energy-efficient customers have lowered their consumption. Some are lowering it dramatically, like 20%, 30%, even 50%. Of course, there is this…rate that we have in California where low-income customers get a break of 35% on their monthly electric bills. Who do you think is paying that cost shift? It’s all of the other customers. Which cost shift is good? Which cost shift is bad? That’s an ethical question. I’m not going to get into that.
I do realize, as I mentioned earlier, that NEM 2.0 also creates a cost shift. So my solution is let’s institute a minimum bill of, let’s say, $35 a month, which by the way, right now is $10 a month for solar customers, and move all new solar customers to a sharply differentiated time-varying rate, preferably with a dynamic element to promote load flexibility.
I see no reason at all to institute a grid-access charge. It is, as Severin put it, ham-fisted. It is discriminatory, and it has no cost basis. After all, customers who have solar are customers like any other customer. Why should we do something differently for them on the consumption side? Let’s focus on the export side. Yes, they’re also producers. So let’s price their product based on the value that solar provides to society as a whole.
St. John: Why is there so much dispute over what the cost shift of net metering is today, and what variables are at issue in that dispute?
Borenstein: There isn’t that much dispute, I think, among most people who are taking this seriously and not just talking about “Freedom!” but who are really saying, “What is the difference?” There is some difference of opinion about what the marginal cost saved is and what the avoided cost is. But it’s not that large. And I haven’t seen anybody come up with a number that’s anywhere near 26 cents per kilowatt-hour as the avoided cost.
There’s always going to be a difference in how much transmission and distribution it saves, etc. I do want to address the cost-shift issue, and there are lots of cost shifts, but this one’s different. First, this is a cost shift that is clearly from wealthier individuals to poorer individuals, and just overwhelmingly so. Less so than maybe a few years ago, but still overwhelmingly, and second, people don’t choose to be poor or don’t choose to live in rural areas in response to incentives from electricity rates. People are choosing to install solar in response to these incentives. It is the cost shift that is driving a lot of the solar installation. It’s not just an ethical issue. It actually is an efficiency issue when we offer subsidies that are being paid by other people, and it results in people taking an action that really isn’t the cost-effective way to reduce our greenhouse gas emissions.
Faruqui: A lot of these solar customers usually are larger customers who have overpaid for their fixed costs over decades. Not just years, but decades. Their bills went through the roof every time PG&E has a rate case. My rates have gone up by 12% in just 10 months, and more is expected: $5 billion and $11 billion, then perhaps $20 billion. That is just staggering. That is the biggest cost shift — from the customers to the utility shareholders. That’s the one I’m really concerned about.
St. John: Sammy Roth, a reporter with the L.A. Times, has described a “stark philosophical divide” between the two sides of the net-metering debate — divided over the best way to build solar as fast as possible to combat climate change. One side sees distributed solar and batteries as the better way. And the other side sees utility-scale solar and energy storage as the better way — far more cost-effective on straight cents-per-kilowatt-hour terms. What do you make of this divide? What do you see as the proper balance that we should seek to achieve between these two in terms of the fastest, most cost-effective and equitable way to build out solar capacity?
Faruqui: I do believe there is a very sharp philosophical divide. But unfortunately, it is not just philosophical; it is also ideological now. It’s very difficult to move people from the position that they have locked themselves into. It’s very unfortunate, but what I’m seeing more and more is that people who are investing in solar are being vilified and demonized as being wealthy stealing money from the poor. I don’t think that is anyone’s intention.
What we have is one side that is only supporting the installation of large-scale solar and the associated transmission lines. Why is that? Well, because that generates profits and goes into the rate base. We are told that large-scale solar costs just three pennies per kilowatt-hour. So what good is that for customers paying 30 cents per kilowatt-hour? How does large-scale solar provide resilience to the customer?
I installed solar panels and paired them with a battery in December 2019. Since then, I’ve had several outages on perfectly clear days. Nice weather, no peak-load issues, just a terrible distribution system — which is underground in my area. One time, when it happened twice in 24 hours, I went out and talked to the crew, and they said the transformer had a fire in it. I said, “How come it caught fire?” They said, “It’s almost 100 years old.”
Why am I paying these high bills when the distribution grid is in terrible shape? What good does it do for me to have large-scale solar way out there at [a cost of] three pennies? What works for me as a customer is that by installing solar and pairing it with a battery, I get resilience for my five essential circuits. That’s what more and more people are doing.
There is another issue that arises, which is if we have those high retail rates, how do we electrify homes by installing heat pumps? And how do we encourage people to buy an electric car when electricity is so expensive? We have to find a way to lower the cost of electricity at the customer level. And currently, the best option for doing that is either energy efficiency or solar or possibly both.
And then comes the issue that we saw in California in August 2020 when we had those large-scale power outages. Since then, there has been a lot of interest in having virtual power plants. Those are all structured around the idea of having solar paired with a battery. I do believe we need large-scale solar. I’m not saying we don’t. I believe we need both. We need large-scale as well as small-scale [solar]. I do not believe in having a fight between those two. I think that’s counterproductive.
Borenstein: I’m not saying that wealthy people are stealing from the poor. I’m saying the system is shifting money from the poor to wealthy people. I don’t think they’re doing it to steal money. In fact, I don’t think most of them understand that they are getting a huge subsidy.
I do have to respond to this idea that this is a cost shift that utility shareholders are getting somehow. Utility shareholders do benefit from building transmission. But when we talk about the cost shift from rooftop solar, that is a cost shift that is going to other ratepayers. That is not something that affects utility profits.
Secondly, yes, utilities are big advocates of grid-scale solar. But when we talk about this proposed decision and this disagreement, the [Natural Resources Defense Council], the Utility Reform Network, the CPUC’s Public Advocate office — these are not friends of the utilities, and they are also saying that we need this sort of major change. This is not just a utility issue.
Now, as far as this divide that Sammy [Roth] pointed out, I’m not sure I agree that’s a fair characterization. I’m neutral on technology. I want to get the most cost-effective, equitable solution. But right now, we don’t have a level playing field between rooftop solar and all the other technologies — rooftop solar is getting massively larger subsidies.
I think we shouldn’t be subsidizing it. We have created huge subsidies that have gone up as rates have gone up, and the industry and the people who benefit from it want to keep those subsidies and it looks a lot, frankly, like ethanol and biofuels, where we have locked in subsidies and it turned out the technology has not become as cost-effective and environmentally effective as we had hoped.
As a result, we now are stuck with these very large subsidies every year to ethanol producers.
I just want to rebalance the subsidies. And then whichever technology wins, wins, and…if rooftop tiles become a great technology, that’ll be fabulous, and I’ll be all for it. Last thing on resilience: Resilience is great, but it’s a private value when Ahmad gets to keep his air conditioning and television on. Good for him. And I have no problem with that. But let’s not confuse that with the value that rooftop solar produces for the grid. That’s not a value for the grid. If anything, the “dumb” solar we’re putting on, which is most of the solar without batteries, is actually helping to increase the duck curve and make it harder to balance the grid.
Faruqui: I do see more and more solar customers installing batteries to go along with the solar panels. I believe the numbers I’ve seen were 8% a couple of years ago and now they’re up to 13%, and I do believe that number is going to rise. Whether resilience is private or public is obviously a subject of conversation, but people putting [batteries] in are motivated by the outages that are happening more and more.
Even the utilities and the CPUC’s proposed decision are encouraging people to install batteries. The problem is the batteries are so expensive. We need a subsidy on the battery costs until they come down to make it affordable.
Again, I actually agree with Severin, that on the export side, there’s an enormous subsidy that should be phased out. On the import side, the subsidy is no different than a subsidy for anything else that helps lower the customer’s consumption. Many other voices are attacking it both on the import side and the export side. I wouldn’t claim to accept that there’s a subsidy on the export side. But on the import side, I don’t think it’s huge. I haven’t dug into the $3 billion number to see all the details. All I can say is that as an economist, I have seen studies and studies and no agreement.
Borenstein: I think there is a subsidy on both the imports and the exports. We do have to pay for the grid still. Even the Vibrant Clean Energy study, which was commissioned by the rooftop solar industry, said that we’re only going to get 5% to 7% of our electricity, in an optimized system, from rooftop distributed generation. I think that study is flawed and overstated. But even they agree that most of our power is still going to come from the grid.
We need to pay to upgrade that decrepit grid Ahmad was describing. Batteries are great, but they’re still a private value unless they’re part of a virtual power plant. That is, unless they are actually being dispatched by the grid operator or the distribution system operator — then they present real value to the grid.
St. John: Assembly Bill 327, passed in 2013, requires the CPUC to meet a number of tests in reforming net metering. Those include assuring that the tariff does achieve a balance of costs and benefits to customers and the electrical system. It requires that the CPUC encourages growth of distributed energy in disadvantaged communities. It mandates that renewable distributed generation continues to grow sustainably in the state. The CPUC’s guidance has also been to encourage the growth of energy storage as a necessary adder to what solar is doing and the duck-curve issues that you talked about. How do you think the CPUC ought to balance these mandates, some of which may be things you can do together and others which may be potentially in opposition?
Borenstein: This just proves that the legislature can write legislation that is internally inconsistent. Basically, they’re saying, “Don’t spend any money, but make sure that this industry continues to grow.” I think there’s clearly some conflict here in the legislation. The industry has, under the current subsidies, been growing incredibly rapidly. I think it can continue, but I don’t think it can continue to grow that rapidly and still reach an equitable and cost-effective energy transition.
I think we are going to have to make some adjustments.
If the legislature really wants that sort of growth to continue (and I hope they won’t go down this path), they could just, out of the state budget, pay for those subsidies. We have argued in a paper that moving subsidies onto the state budget is the most obvious and straightforward way to reduce the regressiveness of the current system. If they want to continue the subsidies for rooftop solar at an outsized level, they can do that in a direct way. I hope they won’t, but I think that is the mandate that some legislators want.
Let’s be clear on why this is happening. It is very easy for the legislature to create mandates and to say, “Take care of it, CPUC,” and then the CPUC is stuck with these conflicting mandates and trying to control rates, and that’s why the rates are so astronomical — which as I’ve pointed out, is why so many people are installing solar, but we do have to pay for the grid. We do have to pay for all of these programs that we think are good programs. We won’t agree on exactly which programs should be funded.
There is a way out of this. We have to recognize the internal conflict in that law. I think the sustainable-growth clause is unfortunate and has created a lot of problems. And I’m not familiar with any other case where an industry has not just been given a subsidy, but given a mandate that you keep selling more.
Faruqui: Let me first say that even though the subsidy you could say is going to the solar industry, in practice, it is going to the customers who are installing solar. Yes, the industry profits from it too because they’re selling more solar, but I think the issue is the cost-shift issue that should be concerning the legislature in the PUC and the ways to manage it.
Let me comment on one aspect of this discussion that I think is really important, which is the low-income customers. What can we do so they are also happier customers because their bills go down? And because they are contributing to clean energy?
I have yet to meet a person, regardless of their income, who doesn’t want to have a lower electric bill. I have yet to meet a person who wants to pollute the planet. Perhaps with a few exceptions, but by and large, every person in California wants to promote clean energy.
Unfortunately, it’s expensive. There is no doubt about it. Solar is expensive at the rooftop level. Even leasing is expensive. If your credit qualifications are not there, you will not qualify for the lease. Let me just talk briefly about how we can address this challenge — How do we engage with low-income communities?
Some of you may have read an op-ed, which appeared in the [San Jose] Mercury News a few weeks ago by a reverend in the Catholic church who was talking about how his community is engaging with rooftop solar, and they do not like the proposed decision. We are seeing more and more low- and moderate-income customers who are reaching out and finding ways to install solar, but it’s still a challenge.
So how do we promote it? The best way is to [use] the analogy from energy efficiency. If you’re a low-income customer, you can weatherize your home, you can upgrade your appliances courtesy of the utilities, funded by other customers; as much as $4,500 per customer in rebates is available. And this is not just in California; it’s throughout the country. Why can’t we come up with a similar rebate program that actually will lower the cost of installing solar for low-income customers?
Today, there is no similar rebate for solar panels for any customer. Unlike the energy-efficient air conditioning program, which has huge rebates, solar doesn’t. Let’s do that just with the low-income segment, and we will make it more attractive to them. This is worthy of a workshop or conference discussion to see, as Severin said, if there is a role for the state legislature. Call a webinar conference and sort out how much of that should be in rates and how much of that should be in taxes, how much of that should come from the huge budget surplus that we now have? Maybe Governor Newsom needs to weigh in on how to make solar affordable for low-income customers. That has to be addressed.
St. John: Everyone is pushing in this state to electrify transport and buildings. These things are expensive, and it’s important to craft policies that will allow lower-income and disadvantaged communities to be able to do that and not be stuck with the growing costs of not being able to make that transition. What mix of policies is best suited to support disadvantaged communities? What do you make of whether or not the CPUC’s proposed decision on net metering will move us toward or away from those goals?
Borenstein: I don’t quite agree with the premise. I think there are real goals that we need to focus on for disadvantaged communities, but the ones that I hear from people in the disadvantaged communities are that they want lower rates, reliability and a clean environment. The idea that we should be putting rooftop solar on is sort of a means, not an end. And the problem is that rooftop solar in low-income communities is not going to get us there.
First of all, it’s more expensive, much more expensive. And that’s going to drive up rates. Second of all, what keeps fossil fuel generation alive in these disadvantaged communities is not going to be solved by putting in rooftop solar. It is the hours when the solar isn’t producing that keep those fossil fuels plants running.
More rooftop solar doesn’t really solve that problem. Rooftop solar with virtual power plants does help, but that’s not the cost-effective way to do it. We really need to recognize that what we want to do in disadvantaged communities is clean up the environment, lower their costs, because even with the CARE discount [of 30% to 35% on the electricity bills of low-income households] that Ahmad talked about earlier, that he called “a very large discount,” even with that discount, low-income customers in California are paying way more than customers in other states in the West and way more than the avoided cost of electricity. Even they are paying an electricity tax.
I think it’s important to recognize that we’re not going to put rooftop solar on most houses in California. Even the Vibrant Clean Energy study doesn’t suggest that and that means some customers in low-income communities would get rooftop solar and others would get a higher bill. It’s sort of like going to a casino where a few people win and everybody else ends up losing. I don’t think that’s the way to go. I think this whole idea that people are going to get off the grid or be more resilient or be more protected really is a problem because when we stop investing in public goods, whether it’s schools or health care or infrastructure, we know who gets left behind. Wealthy people can provide for themselves; they have the money to do it. And poor people end up getting lower-quality service. In this case, it’ll be a lower-quality grid, and they end up paying more for it.
I think that this emphasis on putting rooftop solar in disadvantaged communities really is confusing means and goals. The goal should be a clean environment, low cost and reliable service. If rooftop solar were the means to do that, I’d be all for it. But at this point with these technologies, it’s not, and as a result, we’re just going to make the problem worse, when we should be focusing on cleaning up the grid as a whole and lowering prices for disadvantaged communities.
Faruqui: The reference to a casino is somewhat unfortunate. I think it’s a bit of a stretch to compare people putting solar panels to those who are running out to gamble in Las Vegas.
What I do agree with is that it’s just a means to an end and we should look at the cost-effective alternatives for low-income communities. You’re absolutely right. Despite the CARE discount, they’re paying more than people next door pay, in Arizona and in Nevada, and we need to deal with the rate-level issue.
Right now, the state is taking a very proactive approach through its weatherization programs to help the low-income communities in addition to the CARE discount. And all of that is designed to lower their bill. If the focus is to lower their bill, then let’s include rooftop solar in the menu of options, and if it makes economic sense, let’s do it. If it doesn’t make economic sense let’s not do it. It should not be excluded a priori.
Borenstein: I’m going to mostly agree with Ahmad. It should be one of the options in the policy debate. But what we’re going to find out is rooftop solar is not one of the cost-effective options. My reference to the casino is that there are going to be a few lucky households who get rooftop solar through some low-income program but everyone else, and it is going to be the vast majority of low-income customers, are not going to get rooftop solar. They’re likely going to be renters. They don’t have houses that can manage rooftop solar, and we’re just not going to put rooftop solar on every possible house. And those people are going to be losers because it’s going to drive up their prices.
St. John: Let’s broaden our scope and talk about California electricity rate design and policy. Severin, I know that you and your colleagues at Haas have suggested that today’s rate structures are inherently regressive, that they put a greater burden on low-income customers and that there could be some radical ways in changing things from the ground up to deal with that.
The Vibrant Clean Energy study did presume solar and storage located more strategically on the distribution grid lowers distribution costs, and we have been talking for quite a while about the need to reform rates to more effectively balance equity of access to the benefits of clean energy.
Please talk about some of the ways in which California rate design, utility rate design and California policy ought to be changed to prepare for this future?
Faruqui: There are two issues here. One is rate level. And the other is rate design. Rate design can only go so far in lowering the rate level. The problem that California has had for as long as I have lived here, which is since 1974, is that it has always been a very expensive state, for electricity and for everything else. But particularly for electricity.
The situation is now out of control. If you look at the E1 tiered rate that PG&E has, it has no time-of-use; it’s just tiers. The first tier begins at 26 cents per kilowatt-hour. That’s twice the national average of 13 cents, and then it goes higher and higher. The lowest [rate] you can have is 26 cents. So what can we do here to fix the rate level? There’s cost of service, there’s regulation and there’s performance-based ratemaking.
Low-income customers are a priority for the state — they get up to a 35% discount on their bills; they get free weatherization assistance. So I’m saying also give them yet another option to consider: rooftop solar. Give them more rebates if needed. As far as all other customers go, I see no reason why every customer should not be required to pay the same minimum bill, let’s say $35 a month.
There are many customers that I’ve seen in databases who are paying less than $50 a month who don’t have solar. Some are paying less than $30 a month. Some living in small apartments are paying $25 a month. Let’s try to set a minimum bill — maybe it varies by the size of the house or it’s based on the connection as they do in Europe, France, Spain and Italy. Let’s set up some mechanism for recovering these fixed grid costs that Severin and I have been talking about. We have to pay for it in an equitable fashion. Number one is the minimum bill. Number two is sharply differentiated time-of-use rates that encourage, for example, the charging of electric cars and the installation of heat pumps.
But let’s not stop there. Let’s go to step number three, which is to pair them with dynamic pricing for a few days of the year. That’s something that Severin and I are in violent agreement on going back at least two decades to the California energy crisis.
We only have 2% of the customers today in California on dynamic pricing. You need dynamic pricing to get the demand-response benefits, and you need at least 15% of your customers to be on those rates. Why do we only have 2%?
Somebody is going to bring up the fact, perhaps on Twitter, that we already have time-of-use being rolled out across the state by the investor-owned utilities. Well, they are time-of-use just in name. They are fake time-of-use rates, if I can use that term. They are not [genuine] time-of-use rates. They will not make a dent in customer bills or their carbon emissions. From what I’m hearing from my friends and neighbors, people are simply confused and annoyed by these rates. So why are we bothering millions [of customers] for an opportunity that won’t save them anything? It appears to me to be in need of a serious audit, perhaps by the Energy Institute.
Those rates remind me of what happened in the state of Washington in the early 2000s when one of the utilities rolled out what they said was real-time pricing. They rolled it out to some 300,000 customers. They were really time-of-use [rates] and were very mild.
Compare our 2% number to Oklahoma’s 20% number in dynamic pricing. That should shame us. California needs to be in the lead in rate design. Right now California is in the lead in the digital capital of the world status, the land of innovation, but in the world of rate design, it’s nowhere to be seen. Nowhere dignified to be seen.
St. John: Can you tell us about your platonic ideal of rate design or some of the options that you’re looking at?
Borenstein: You’re not going to get any disagreement between us on dynamic pricing. I am all in favor of it. But I don’t think that’s going to solve the problem we’re talking about today.
We started out talking about this monthly grid charge, and I’m not a big fan of it. I think it is a ham-handed approach. But that’s because we have this big problem that it’s not just the exports that are massively subsidized. It’s also the imports. And if people just put a battery behind their meter, they can keep all the power behind the meter and continue to get that big subsidy.
I don’t think that a minimum bill really solves the problem, certainly not at $35 would it even come close in terms of revenue generation. As I’m pointing out, two types of people will be hit by it. People with rooftop solar who are putting in a whole lot of solar. That would be fine. And low-income people who live in small apartments, not all low-income, but disproportionately low-income people who have low bills.
There’s a better approach: move as much of the costs of infrastructure, public policy, special programs, all of the things that the legislature has loaded into rates, move them back onto the state budget. The state budget is a far more progressive way to finance these costs.
It would help to lower the rates, and if we’re going to electrify — if we’re going to make space heating and water heating and electric vehicles really attractive — then we’re going to have to have much, much lower rates. Get those programs out of bills and put them into the state budget where we pay for them through state income taxes and state sales taxes.
To the extent that we can’t put it all on the state budget — and I think there’s no way the legislature would accept it — do it with fixed monthly charges. This only works for residential; this does not solve the commercial-industrial issue, but we’re talking here about residential rooftop — do it with fixed monthly charges. I would prefer to make those fixed monthly charges progressive and make them income-based.
We are now at the point where there’s so much rooftop solar among wealthy customers that the net consumption from the grid is about the same for wealthy customers as for poorer customers. That didn’t used to be the case at all, but now we are at a point where there isn’t that much difference. But if we make those fixed charges income-based, we can actually make this progressive and not put an undue burden on low-income [populations].
Finally, I’ll just say, here’s a fundamental philosophy of this: Nobody should pay less than the burden they impose on the system. But if everybody just pays the burden they impose on the system, that still leaves a lot of residual costs that have to be recovered. Right now we are recovering those through the most regressive tax you could imagine by just raising the price of volumetric electricity. What we could do is move those into other tax sources and have a much better outcome than we have right now.
St. John: I wanted to give each of you just a moment to summarize the key points you wish to leave our audience with as it pertains to the net-metering decision now before the CPUC.
Borenstein: I have nothing against rooftop solar. [Some of my best friends] have rooftop solar.
I think rooftop solar is a fine technology. My views on all of the technologies have changed over time as those technologies have evolved. I think we want to keep rooftop solar in the mix. We want to appropriately subsidize it to reflect its value. And I think the redesign of rates is necessary to do that. We are on a path to doing that right now with the proposed decision and to improving equity. So by and large, I think the proposed decision is the best way to go until we can actually change rates. And when we can actually change rates, then we can just stop arguing about net energy metering. If the cost of volumetric electricity were actually reflecting avoided costs, and we were paying these other costs through something less regressive than an additional tax on electricity, then I think we could stop arguing about net metering.
Faruqui: I think the proposed decision is a horrible mistake. It should be thrown out, and the commission needs to start from scratch. Look at time-varying rates. Look at the minimum bill on the import side and lower compensation on the export side. Just totally get rid of that grid-access charge (it’s insufferable!) and also get rid of the retroactive adjustment. California wants to promote clean energy; it wants to decarbonize the state. If this decision is approved, we will look really bad on the global scale. Based on all the context that I have, I think it’s an embarrassment. I hope we get over it. Otherwise, it would be a terrible mark on our report card.
St. John: Thank you for a great discussion. And thank you to all in our audience for joining.
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 CPUC announced 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.
Pro-rooftop-solar groups in California have been locked in a yearlong policy and public relations battle with utilities and their allies over these arguments.
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 SB 100. 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’s Gov. Newsom says ‘changes need to be made’ to the state’s polarizing net-metering proposal
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.
The avoided-cost calculator: The controversial metric at the center of California’s solar net-metering fight
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 NEM 3.0 (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, allowing them to receive the 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 AB 327, 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 NEM 2.0, 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, SB 100, 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 NEM 3.0 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.
That’s on the eve of the date the decision was originally expected, but the regulators appear to have pushed back their timeline — perhaps taking note of California Governor Gavin Newsom’s recent comment that “changes need to be made.”
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 Group invested $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.
This dynamic bars millions of people from accessing clean energy in their homes. A company called PearlX says it can fix that.
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.