To guarantee that all costs are reasonable and equitable, the state has to increase its incentives for rooftop solar panels.
Solar advocates go to California for good news. As a result, the most recent headlines came as a surprise.
Solar supporters should relax: the news isn’t all terrible. California’s Public Utilities Commission has suggested changes to the state’s net-metering standards. Net-metering is a subsidy for rooftop solar systems that pays homeowners for any spare energy they export to the grid. They are now paid nearly the full retail rate in California, which is a high. The average household bill is over 23 cents per kilowatt-hour, which is two-thirds higher than the national average.
There are two issues with this approach.
First, rooftop power sold to the grid isn’t worth much more than the retail rate, especially when much of the excess power is generated during the day, when the state has an electricity surplus. The second issue arises as a result of the first: if rooftop systems are overcompensated for their power, someone else must pick up the bill. And, because solar panels are more commonly seen on the homes of higher-income households, the cost is paid disproportionately by the poor. This goes against the social equity goals that are increasingly being embedded into energy-transition plans.
The existing net-metering arrangement is unsustainable due to this problem. You can’t market renewable power on the premise that its costs are becoming ever more competitive while simultaneously demanding subsidies that don’t match the economics.
Even if high-flying solar companies like Sunrun Inc. took a hit, the industry needs a long-term business model, not unsustainable subsidies. It will be painful to fix this, but it is vital.
Is the CPUC’s proposed fix ideal? This is utility regulation, after all. On the bright side, moving away from basic net-metering and toward a “avoided cost” standard is the proper thing to do. This is the value gained by grid owners being able to deliver less power. The idea also aims to encourage the use of solar-plus-storage systems rather than single-panel systems. This makes sense in a state where the midday sun is so bright that high-emission generators are occasionally used to keep the lights on in the evening.
There are numerous flaws in the CPUC proposal. The question of how to measure avoided cost has already sparked ferocious controversy, which has been sharpened by grid modeling’s increasing sophistication.
California has firmly established itself as the frontline in the conflict between large utilities and proponents of distributed energy resources. Meanwhile, the CPUC’s plan to reduce the duration of net-metering subsidies for existing rooftop systems is unjust because those homeowners made their decisions based on the state’s previous standards.
The most controversial aspect will most likely be the CPUC’s proposal to charge a $8 per kilowatt grid tax for rooftop solar systems. It’s difficult to argue against this concept, as it is with the avoided-cost plan; the great majority of households with solar panels still rely on the grid, which must be paid for. However, the charge appears to be somewhat exorbitant. A typical system costs $48 per month, which is more than 40% of the current average monthly bill in California. If the CPUC is serious about encouraging rooftop solar, the tax will have to be reduced.
The final rule will probably differ from what has just been revealed when all interested voices have been heard. Still, there will be a larger issue: California has consistently overestimated its electricity prices. One of the reasons that the state’s power rates are so expensive is because they cover not only the marginal cost of supply, but also a variety of extra costs, such as energy efficiency programs, subsidies for lower-income households, and, most recently, wildfire-related compensation.
These additional expenses are regressive, according to Severin Borenstein of the University of California’s Energy Institute at Haas, and send a distorted signal to customers in a state whose ambitious climate goals demand increased electrification of transportation and other things. California, in addition to net metering, must find new ways to share the costs of energy-related items rather than simply hiding them in utility bills.