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Why Am I Paying $65/year for Your Solar Panels?

700,000 California homes now have solar panels; what does this mean for everyone else’s rates?

“This is the future,” one of my neighbors recently told me, proudly showing off his rooftop solar panels, “Forget the old, inefficient utility.” The panels do look great, and, for a moment, I got caught up in my neighbor’s “green glow” of eco-righteousness. Should I be doing “my part” for climate?

But wait a second. I already am! As Severin Borenstein has been pointing out for years, a big part of the reason why rooftop solar is so popular in California is our electricity rates. And because of the way rates work, every time another neighbor installs solar, my rates go up. I’m tired of it. Why should they get all the “green glow”? Why should I be paying more for their rooftop solar, particularly given that grid-scale renewables are so much cheaper?

Almost 700,000 homes in California have installed solar, about 5% of all homes in California. Today I want to figure out what this means for the rest of us. No fancy econometrics, no complicated model. I just want to do a simple back-of-the-envelope calculation to try to figure out how big of a deal this is.

brickNote: Green glow. Image licensed under creative commons.

 

Utilities have a lot of Fixed Costs

It is helpful to take a step back and think about what it takes to deliver electricity. Utilities have lots of what economists call “fixed costs”. For example, utilities have to maintain all the transmission and distribution lines used to deliver power. These costs are fixed (not marginal) because they do not depend on how much electricity is consumed.

truckNote: Utilities have lots of cool trucks. Image licensed under creative commons.

Who pays for these fixed costs? We all do. Every time you use electricity, you help pay for these fixed costs. There is a long history in the United States of regulators setting electricity prices equal to average costs.  Economists have argued that it would be more efficient to set prices equal to marginal cost. But the truth is this didn’t matter much in the past, in part because people didn’t have much choice about whether or not to consume electricity.

Until now. Rooftop solar is an opportunity for consumers to radically reduce the amount of electricity they buy from the utility. In Hawaii there is a lot of talk of “grid defection”, but in 99.9%+ of cases solar homes continue to be connected to the grid. Solar homes use the grid just as much as other households, as they are always either importing or exporting electricity, it’s just that they consume much less grid-electricity.

What this means is that good people like my neighbor contribute much less to paying for utility fixed costs. The fixed costs haven’t gone away, but my neighbor now has a lower electricity bill so pays far less of them. This leaves the utility with a revenue shortfall, and it is forced to raise prices. So who pays for the fixed costs my neighbor used to pay? Everyone else.

wiresNote: Utilities have lots of fixed costs.

A key subtlety here is “net metering”. Households who install rooftop solar pay only for the electricity they consume “on net” after solar generation. This is easy and simple, but also wrong. Implicitly, this means that they get compensated for their solar panels’ sales to the grid at the retail electricity rate. This is too high, significantly exceeding what the utility saves from not having to supply that electricity. Under an alternative rate structure, in which households were paid the wholesale rate, you would not have this “cost-shifting” away from solar households.

 

Cost Shifting 

Ok, but how much cost shifting is actually happening? Outside California, Arizona, and Hawaii, probably not much. But California has a lot of solar, about half of all U.S. rooftop solar. How much have California electricity rates increased due to the 700,000 homes with solar?

spiral.pngNote: Utility Death Spiral? Source here.

This is tricky because we don’t actually know how much electricity is being produced by rooftop solar. Almost everyone is on net metering, so we only observe net consumption, not solar production. Fortunately, the California Energy Commission has poured over solar radiation information and other data and estimated that total annual generation from California behind-the-meter solar is 9,000 GWh. About two-thirds of this is residential, so about 6,000 GWh. To put this in some context, total annual residential electricity consumption in California is 90,000 GWh.

So how much “cost shifting” does this imply? The average residential electricity price in California is $0.185/kWh, while the average wholesale price is about $0.04/kWh. Accounting for electricity that is lost during delivery to the end customer adds about 9% more per kWh delivered. Thus, each time a California household produces a kWh, the utility experiences a revenue shortfall of about $0.14. Multiply this by total residential distributed solar generation, and you get $840 million annually. California utilities receive $15 billion annually in revenue from residential customers, so the total shortfall is about 5%.

This is a crude calculation, and it could undoubtedly be refined. For example, distributed solar proponents argue that local generation allows the utility to avoid distribution system upgrades, which would represent an additional benefit. These impacts have been found to be relatively small, but this continues to be an area of active research. On the other hand, I’ve also made an assumption that significantly decreases my estimate of cost shift. In particular, I’ve used the average residential retail price, but California customers actually pay increasing block rates so most solar customers face a marginal price well in excess of the average price.

 

Conclusion

The total revenue shortfall works out to about $0.01 per kWh, or $65/year for the average California household. This is more than I expected. And, I’d bet most Californians are not even aware that this cost shift is happening.

So why am I paying $65/year for other people to have solar? It doesn’t make sense. Sure, I’m concerned about climate change, but my $65/year could go a lot farther if it was used instead for grid-scale renewables. Moreover, this is almost certainly bad from an equity perspective, as we know that high-income households adopt solar much more often than other households. Rooftop solar isn’t getting rid of the utility. It’s just changing who pays for it.

glow.jpgNote: I like seeing my neighbor happy, but they shouldn’t get all the green glow. Source here.

Lucas Davis View All

Lucas Davis is the Jeffrey A. Jacobs Distinguished Professor in Business and Technology at the Haas School of Business at the University of California, Berkeley. He is Faculty Director of the Energy Institute at Haas, a coeditor at the American Economic Journal: Economic Policy, and a Faculty Research Fellow at the National Bureau of Economic Research. He received a BA from Amherst College and a PhD in Economics from the University of Wisconsin. Prior to joining Haas in 2009, he was an assistant professor of Economics at the University of Michigan. His research focuses on energy and environmental markets, and in particular, on electricity and natural gas regulation, pricing in competitive and non-competitive markets, and the economic and business impacts of environmental policy.

147 thoughts on “Why Am I Paying $65/year for Your Solar Panels? Leave a comment

  1. Looks like this article has attracted all of the residential solar cheerleaders.

    hypergeometric,

    You claim that “Utilities here don’t want to invest (or even propose to invest) in the grid edge upgrades needed to do variable. They don’t even want to invest in upgrading their grids to make them more reliable in New England storms, or in the face of greater EV charging….” That’s complete nonsense. The utilities will make any investments for which they are assured full cost recovery. If, in your opinion, they are not investing enough then contact your state regulators and legislators and demand that the utilities receive adequate compensation for making those investments.

    Furthermore, your comment about EV charging is particularly off base. Given the declining demand for electricity due to energy efficiency and self-generation the utility industry is keenly aware that the move to EV ownership is a critical factor supporting the industry’s viability.

    You state, “…utilities are imposing upon prosumers — because it challenges their business models — is, in fact, pushing them to defect from the grid, or at least make dependency minimal so to minimize e such penalties.” Really? How many customers in Massachusetts have disconnected from the grid? Not many. Can you name any? I doubt it. What these prosumers want is to produce their own electricity when it allows them to avoid paying for the utility’s fixed costs but they also want the reliable service that their utilities provide at little or no cost. If they truly believe in “Energy Democracy” let them fully disconnect from the grid and stop complaining.

    Your comment that, “…when solar+storage is at a price which is cheaper than transmission, many more residential owners will join in, whether by getting their own leased panels or becoming part of a community solar farm,” has some validity. However, you overlook the fact that remaining connected to the grid offers the advantages of having access to backup energy when the prosumer’s energy facility is out of service and the ability to economically trade energy at market-based prices.

    Lastly, you state: “This is a market in transition and in disruption. Reassigning that $65 to solar owners will incentivize them to abandon you and your grid. If they disconnect, there’s nothing you can do to gain back those costs. It’s a shrinking market.” These comments suggest that you do not understand where the utility industry is ultimately is headed.

    The decline in the cost of solar + storage is going to force the distribution utilities to establish platforms that deliver energy to customers at competitive market-based price which vary in real time (ultimately for each 5-minute interval) and by location (point of connection on the distribution system). There will be no more rate designs administratively set by regulators, whose role will be to merely ensure that the distribution utilities set prices based on competitive market principles just as ISOs currently do at the wholesale level, and to ensure that the utilities set grid access charges that allow them to just cover their costs.

    • How many customers in Massachusetts have disconnected from the grid? Not many. Can you name any? I doubt it. What these prosumers want is to produce their own electricity when it allows them to avoid paying for the utility’s fixed costs but they also want the reliable service that their utilities provide at little or no cost. If they truly believe in “Energy Democracy” let them fully disconnect from the grid and stop complaining.

      Grid defection is a goal, as yet not achieved. But that’s where we’re headed. I’d prefer not to hoard electrons, but … We also have a demand-response-ready water heater which, if we defect, we’ll take with us.

      Also, utilities insist that when their grid goes down, our panels go down. That’s another reason to defect.

      And in Florida, it is illegal not to connect to the grid. It’s for “public health”.

      There will be no more rate designs administratively set by regulators, whose role will be to merely ensure that the distribution utilities set prices based on competitive market principles just as ISOs currently do at the wholesale level, and to ensure that the utilities set grid access charges that allow them to just cover their costs.

      Oh, really. Then why did Eversource successfully petition the MA DPU to delete time-of-day tariffs? Indeed, we were prepared to adjust both heating of hot water heater and EV charging to align with best mix of solar generation and least cost by tariff. That’s no longer possible.

      The utilities will make any investments for which they are assured full cost recovery. If, in your opinion, they are not investing enough then contact your state regulators and legislators and demand that the utilities receive adequate compensation for making those investments.

      The incremental cost to the grid from net metering is tiny compared to the requirement both at our home and at many of our neighbors to install and maintain propane-fueled backup electrical generators because the grid you applaud is unreliable in storms, sometimes for extended periods, and something which I thought utilities were supposed to maintain.

      • The cost of upgrading the distribution system to ensure you don’t have weather-related outages may be substantially higher than the cost of installing backup generators. Typically this requires undergrounding the wires, which is really expensive. If you think otherwise contact MA DPU and present your case.

        • Typically this requires undergrounding the wires, which is really expensive. If you think otherwise contact MA DPU and present your case.

          No, there are other ways, such as replacing wires and grid which depend less upon having real people driving around to isolate, and more upon modern, self-isolating and — shocking! — self-repairing networks. (Oh, and yeah, I’m a member of the IEEE Power & Energy Society, and, yeah, I know this is both possible and can be done, e.g., Denmark.) But, of course, you’ll argue, “They would have that if your MA DPU wasn’t so cheap”, meaning, essentially, if the residents of Massachusetts who are subject to this charade weren’t so cheap.

          No, it’s time to completely deconstruct the utility system and the system of central monopolies which created it, and support a community of professional leeches to maintain the thing, using arguments which mislead and obfuscate. There shouldn’t be a DPU.

          It does not matter if the overall system is less efficient. What matters is that regions and localities take control of it back from central planners and their overpaid gatekeepers. Cost statements depend upon who is paying and who is optimizing.

          The argument keeps being made that these capital investments need to come from ratepayers and through the DPU. What are shareholders for if not to raise capital?

          • “No, it’s time to completely deconstruct the utility system and the system of central monopolies which created it, and support a community of professional leeches to maintain the thing, using arguments which mislead and obfuscate. There shouldn’t be a DPU.

            It does not matter if the overall system is less efficient. What matters is that regions and localities take control of it back from central planners and their overpaid gatekeepers. Cost statements depend upon who is paying and who is optimizing.”

            The reason we have monopoly utilities today is because it was – and still – the lowest cost way to provide electric service to customers due to economies of scale and scope. What you are arguing for is a form of “Energy Democracy.” That will cost you more than the current system. Maybe you are willing to bear that cost but I am certain that most customers are not. If you feel strongly about this just disconnect from the grid and self provide using your own generator.

            Replacing the current system with a decentralized set of microgrids would be a massive and expensive undertaking. That may be where the industry is headed but it will take many years to get there. However, I think there is a better solution which involves implementing competitive market-based pricing for all retail customers. I think that can be accomplished in the next 10 years if the retail (state) regulators are willing to allow it. If not, it will take longer but it will happen when it becomes economically feasible for individual customers (prosumers) to get off the grid.

            “The argument keeps being made that these capital investments need to come from ratepayers and through the DPU. What are shareholders for if not to raise capital?”

            Shareholders (suppliers of equity capital) and creditors (suppliers of debt capital) ARE CURRENTLY the sources of all utility capital investments. However, neither class of investors are willing to commit funds if they don’t believe they will be able to earn a fair, risk-adjusted rate of return on those funds. The role of the DPU is to approve electric rates that make that possible. This is simple finance theory 101 and it applies equally to investments made by regulated monopolies and by companies like Apple.

          • Robert, it’s no longer true that centralized monopolies are the most cost-effective way to deliver power. The incremental costs of transmission in California now exceed $200/kW-yr, which approaching $40/MWH. Adding new residential connections are close to $3,000 per meter, which is close to $50/MWH. (And replacement costs are 10 times that.) Figuring out how to avoid remote network costs is the new game in town. The old model is becoming obsolete.

          • Robert, one more point. You wrote:

            “I think there is a better solution which involves implementing competitive market-based pricing for all retail customers.”

            What is your “competitive market-based pricing” metric? It’s NOT the hourly energy imbalance prices (which are about balancing the system, not meeting load growth) which are increasing irrelevant as fossil fuels disappear from the market (especially in California, which is what this post is discussing.) And regulators will NOT allow the reliability market to get so tight so as to allow the spot market price to spike enough for investors to recover capacity costs. They will always authorize new capacity adds long before the short run market price reacts.

            And what about allocating the excess sunk fixed costs? According to PG&E, its average costs are about double its marginal costs. Regulators will never authorize a fixed charge that is half of the monthly bill. Plus in the long run, the true marginal costs are much higher.

            And what about customers who want price assurance and don’t want to be exposed to market spikes?

            So I’m left with no practical means of implementing “competitive market-based pricing for all retail customers.”

  2. Lucas,
    Thank you for your article and thoughts. My answer to your question is that we support our neighbors to install PV because don’t know exactly where we are going with electrical infrastructure and we humans will continue to innovate solutions to our challenges. However, we need someone to push our hand to force this innovation away from the well-known road we wish to navigate from. In 2006, California passed AB-32, the Greenhouse Gas Reduction Bill, without having any statement of how it would be done. There were cries from opposition that this commitment would cost the economy dearly. Since then, California has continued to thrive – potentially BECAUSE of our commitment to innovation, leading the wave of renewable energy and efficiency. For the same reason that society funds basic scientific research without a clear return on investment, we benefit by supporting alternatives to status quo electricity consumption. I do not have grid-connected solar panels** and I am happy to pay the surcharge to drive innovation at home. I can’t wait to see what new technologies and societal adaptations will be initiated here in our state.

    Thanks
    Pete

    Pete Schwartz
    Cal Poly Physics, Sustainability
    pschwart@calpoly.edu

    ** Full disclosure: I have ~ 1600 W rooftop photovoltaic for home experimentation with DDS, Direct DC Solar. Among other things, the DDS powers the heater keeping the tilapia in the repurposed hot tub alive during the winter.

    • “Since then, California has continued to thrive – potentially BECAUSE of our commitment to innovation, leading the wave of renewable energy and efficiency”

      The causality nexus renewables->thriving economy suggested in the phrase here above is non-existent.
      It can be argued that investing in California the incredible amount of money thrown at Chinese PV modules/panel manufacturers would have generated more wealth for Californians, and more certainly more innovation. There’s little innovation in the PV production path… only economies of scale and the always present improvement in their production.

  3. At least here in MD, which does have net metering, my understanding is that the incentives for solar that were set up were based on savings from not having to put in another high voltage tie-line to energy sources in the Ohio River Valley region, so were there not solar, then all customers would be paying not only for the electricity, but also for what would have been a quite expensive (and weather vulnerable) tie-line to meet the peak summer AC load in the region, so powerlines that at other times of the year might not have gotten all that much use.

    Also, your analysis does not seem to count for the time of day effect, with solar being provided to the net at times of peak demand when electricity rates are high and drawing energy out at times when demand is generally way down and so it is actually cost beneficial to keep baseload suppliers up and running. Indeed, in California, is not solar making it so the wholesale electricity price is way below what it otherwise would be? I’m pretty sure this is what is happening here in MD, where net metering has the same price day and night for residential (not so for industrial users of power who can get reduced nighttime rates). So, those of us with residential solar are supplying power when it is most expensive for utilities and taking out power when it is least expensive for the utilities, so I do imagine they are making out on this transaction (which never seems to be mentioned in the discussions of figuring out what is equitable for us to be paying).

    I’d really thus like to have a much more nuanced presentation on the supposed subsidy.

    • Actually the time of day effect works the complete opposite. California is already feeling it when the huge solar capacity drives conventional usage down below normal baseload levels, and then in the evening, when people go home, there’s a second peak that occurs right after the sun sets. Conventional generation has to ramp at ~10GW/hr rates to meet that demand. This is commonly known as a duck curve.

      Unless you stop building solar panels once you clear the peak, the time of day argument works against solar, not for.

        • hypergeometric, I’m admittedly somewhat of a socialist too when it comes to efficiently meeting needs shared by all of society. Which is why I’m a bit mystified by your preference for free-market deregulation of Florida electricity vs. a well-regulated public utility model.

          Admittedly, in 2018 utilities are not that well-regulated. But before 2005, under the provisions of the Public Utility Holding Company Act, all citizens had access to the same electricity (in Florida, from two 100% carbon-free nuclear plants) at the same price. Floridians were, of course, free to generate their own electricity as they wished, and no one complained.

          What’s destroying cheap, clean energy in the U.S. is the myth there is, or ever can be, a free market in electricity. It’s a fantasy.

          • Bob Meinetz,

            It’s not a fantasy. We already have something approaching a free market in wholesale electricity, at least in those regions served by ISOs. That principle can, add will be extended to the retail level when small customers can economically disconnect from the grid (although most will not). Cost reductions in solar and storage technologies will inevitably make that possible.

          • @Robert Borlick,

            A free market in electricity won’t exist until end users – consumers – can economically and responsibly disconnect from the grid. I.e., “never”.

            Note the addition of “and responsibly” as a qualification – I only add it when it’s not obvious. Unfortunately, some free-market fanatics are using gas generators (from Generac, other companies) or tanks of propane to help them disconnect from the grid, usually after they discover their solar panels are pathetically incapable of generating the constant stream of electricity they took for granted. Are these declarers of independence, who shun efficiencies of scale, sequestering their emissions? Of course not.

            It doesn’t take much foresight to recognize the sum of millions of customers burning fossil fuels to generate their own electricity would constitute a catastrophic detour from our path to addressing climate change, with no hope of turning back.

        • Offshore wind??? Oh Lord, you pressed my button on that topic.

          Offshore wind is just about the most expensive way to produce renewable energy known to mankind. The Maryland Public Service Commission recently approved subsidies for two wind farms to be constructed off the coast of Maryland. The PPAs signed pay the developers 18 cents per kWh (in 2017 dollars). Contrast this with the PPA prices for onshore wind which are coming in a less than 5 cents per kWh.
          Over the next 20 years those two projects are going to cost Maryland’s residential and small C&I customers about $2 billion (in 2017 dollars).

          And perversely, according to the MPSC’s own consultant (Levitan & Associates), the projects are likely to INCREASE CO2, NOX and SOX emissions! Why? Because the RECs produced by the wind farms will displace RECs that Maryland would have otherwise purchased from onshore wind farms in neighboring states, Pennsylvania and Ohio. As a result those wind farms will not be developed and the energy they would have produced will likely come from increased coal-fired generation. At the same time energy from the offshore wind will displace gas-fired generation in Maryland. Because coal combustion produces much more CO2, NOX and SOX per kWh than natural gas does the net effect is a regionwide increase in these emissions.

          The last thing California needs is the folly of expensive, offshore wind.

          • Robert,
            Coal is disappearing from the WECC and almost any increased fossil generation is from gas. We’re getting net GHG reductions from renewables in this region.

  4. This is a very disappointing post.

    First and foremost, “infant industry” subsidies exist for an important reason: to stimulate a new industry that has promise to help all of us. We did it with land grants to the railroads; we did it with air mail subsidies to the airlines; we did it with space and military semiconductor purchases. The solar incentives are no different. We are just now beginning to see the fruit of this effort. By investing in the early phase of the industry, we have created an industry that can now offer unsubsidized power at about $.03/kWh at the utility scale, lower than the operating costs of existing coal and gas-fired power plants. CFE in Mexico signed a contract for solar power at $.022/kWh; Xcel in Colorado received bids for which the median was $.029/kWh.

    Second, one should also measure the societal benefit that non-solar customers receive as a result of the solar investment. The biggest of these is low natural gas prices. By flooding the market with solar, we have suppressed demand for natural gas, and gas prices have stayed very low. When I started my career, the Canadian border price of gas was $5.04/mmbtu; today it is closer to $2.50/MMBTU — in 2018 dollars. The only way we “beat OPEC” is to buy less of what they sell. This is an example of this. Every California electric consumer is saving money on their electric bill from the suppression of gas demand; we call this DRIPE, Demand Response Induced Price Effects. The same effect justifies utility investment in energy efficiency.

    Third, there are other societal savings that come from solar. Reduced criteria air pollutants, less water required for the cooling systems for power plants, improved balance of payments (much of California’s natural gas is imported), reduced line losses (the power is injected into the system at the distribution level, avoiding all transmission costs and losses) and others.

    The “Layer Cake” of benefits from Energy Efficiency is matched by an equal, but slightly different layer cake of benefits from solar. The layers are detailed in Recognizing the Full Value of Energy Efficiency, available at:
    http://www.raponline.org/document/download/id/6739

    Does this make residential solar a good investment today? Maybe or maybe not. Residential systems are more expensive than bigger systems, less likely to shade an air-conditioned roof than commercial systems, and less likely to be cleaned regularly than larger systems. The question of whether residential solar “subsidies” should give way to incentives only for larger, more economical systems, is a legitimate area for inquiry. But it’s unfortunate to measure one cost — lost utility margin — without trying to measure all of the external benefits of solar at the same time.

        • hypergeometric, there are no “Sankey efficiencies” – or any other efficiency gains – from splitting a shared task into smaller pieces.

          Efficiencies of scale in both economics and physics show electricity privatization wastes both money and energy. It will require a more extensive government regulatory structure when home solar advocates, who suddenly realize the sun doesn’t shine at night, buy natural gas or propane generators to provide nighttime electricity they had taken for granted.

          Or did they think they would be permitted to spew CO2, without restriction, into my air?

          • Substations don’t exhibit losses?

            Granted that distance transmission can be done efficiently, I doubt “last mile” can be done as well. Even net metering is bad for that reason, because I can never get back intact the kWh I generated, and that’s why I am no fan of net metering. I prefer to be given what my generation is worth, and be charged what provision costs, and I’ll make my choice how much I want to continue the relationship with the utility.

            My propane generator exists solely to drop in when the grid goes offline. If I were permitted to run panels and batteries when the grid were down, I might have decided differently on the generator. (Yes I know, the grid operator claims “safety” which is like Florida’s “public health”.) The point was the grid isn’t all that reliable.

            I don’t say own generation or grid defection is for everyone. I don’t even say the utility oughtn’t, through regulatory capture, slap a penalty on me for displaced costs. But the utility — and you — oughtn’t be surprised if technically knowledgeable people — or cooperatives of technically knowledgeable people — decided to go their own way. And, under those circumstances, the displaced costs, revenue, and excess electrons will all be lost.

            Besides, your calculations are integrated over the entire population. They don’t consider people like me putting up capital because of, oh, I don’t know, “animal spirits”.

      • Grid scale solar has two costs that rooftop does not: 1) transmission which has an incremental cost in excess of $200/kW-year from a SEIA study using CAISO data presented in SCE’s Rate Design Window, and 2) significant environmental consequences, particularly in the most productive areas in SE California, based on DRECP analysis.

      • Indeed the environmental benefits come with utility-scale solar. BUT:
        1) We needed to stimulate the industry to get to the low costs we are achieving today; rooftop solar was part of the stimulus package.
        2) Utility scale solar does not provide the distribution system and line loss benefits that distributed solar provides.
        3) Utility scale solar does not provide the shading benefits that distributed solar provides. One study showed that for every kWh produced, another 0.3 kWh was saved in reduced air conditioning load when solar was put on the roof of air-conditioned space. That pays much of the cost premium for distributed solar. Another study showed that the roof of a Wal-Mart or Costco was the cost minimization — economies of scale in installation and maintenance, shading benefits, no trees around, and injected into the grid at the distribution level, avoiding transmission costs and losses.
        So it’s not a given that utility scale is the optimal choice. I think it’s difficult to argue that residential scale is anywhere close to optimum, however.

        • Jim, it would be nice if everyone had a south-facing rooftop, on a $1.5 million home, which could be decked with solar panels to get free electricity – but they don’t. And because the infrastructure everyone uses costs money to maintain, to expand, to retrofit, to power with fossil fuel when the sun isn’t shining, electricity for those unlucky customers costs hard money.

          Utility-scale solar, at least, would deliver clean electricity in return. Better still, scrap existing solar panels and wind turbines, and use money derived therefrom to help finance construction of new nuclear – you know, that source which delivers safe, clean, cheap electricity for everyone, 24/7/365. What’s to debate?

    • The comments section seems like a poor place to do peer review, but I suppose that’s what it’s come to.

      “All these benefits you get also with grid-scale solar, and at a much lower cost per kwh.” – please quantify. It is not acceptable to put a dollar figure in the title of your article and then gloss over the costs and benefits of certain quantifiable aspects of the value stack with qualitative handwaving. If there are benefits, quantify them and then explain why, net of costs, the majority of them accrue to grid-scale solar.

      This article ignores, at great cost to its relative value, two main factors:

      1) Wholesale price suppression effects (see especially subsequent comment by Karen Street).

      Even simple calculations of observable solar-coincident wholesale price suppression suggest the benefits to all ratepayers far exceeds the costs you are quantifying here. Looking at Locational Marginal Prices and total demand in MWh in the CAISO from 2013 through 2017 one can observe wholesale price suppression effects in excess of $3B, annually. Certainly residential solar is not responsible for all of this, but its contributions to it should not be ignored.

      2) Mandatory time of use rates.

      It is understandable to avoid the subtleties and complexities of tiered rates in a short piece, but mentioning them at all is focusing on a train that has already left the station. The month you published this article Southern California Edison began its migration of ~10% of its residential customers over to TOU rates. The rest will be migrated by the end of the year after next, along with almost all other residential customers in the state. The vast majority of the productive lives of the majority of the state’s behind the meter PV systems will exist in a TOU paradigm.

      • cramps,

        I urge you to read my reply to Jim Lazar regarding the price-depressing effect of solar. Maybe you will think differently after doing so. CAISO’s “Duck Curve” prices that Karen referred to are have a serious impact on the ability of generators to recover their costs. If they decide to cut their losses by retiring their plants California will face a serious reliability problem and consumers will experience extensive outages as they did back in 2000. Is that you idea of a “benefit?”

        Turning to TOU rates, yes, new solar customers will be placed on those tariffs. However, as I recall, the CPUC has grandfathered all customers that installed solar before July 1, 2017 which allows them to choose to stay on the four-tiered tariff. See: CPUC Rulemaking 12-11-005.

        • Robert Borlick, two issues:

          1) Almost all conventional generation in California is on long-term PPAs that cover their expenses no matter what CAISO prices are. The CAISO Market Monitoring Reports since 2001 have shown that CAISO revenues have been insufficient to recover CCGT investments in every year buy one since 2001.

          2) TOU grandfathering only allows continuing in the same time periods, but it does not protect the rates. The IOUs are proposing to move to essentially flat rates between peak and off peak periods in the grandfathered tariffs by using the underlying short run marginal costs for the new TOU periods. There’s little protection for solar customers (vs. generators who have long term PPAs with set time of day pricing.)

          • You’re right about most generation being covered by Long-Term PPAs. This is true not only in California but in the other ISO regions I know of (e.g., ERCOT and PJM). Two comments on this.

            Firstly, the existence of these PPAs means that the DRIPE “benefit” being attributed to renewables (especially solar) is greatly diminished because the counter-parties to those PPAs (e.g., large electricity customers and load-serving entities) don’t immediately benefit from energy prices that are depressed after a PPA is signed. So even if one ignores the adverse effect that depressed prices have on the generators (which one should not do) the DRIPE argument loses validity.

            Secondly, all PPAs have a limited contract life. When they come up for renewal the new prices will be determined by the parties’ expectations regarding what future spot electric energy prices will be. To the extent that those spot prices are expected to remain depressed the new PPA contract prices will also be depressed. So the DRIPE “benefit” is delayed, not eliminated.

            Regarding your comment about grandfathered rates, the CPUC order specifically applied to the current four-tiered rate structure. The utilities cannot unilaterally change that to a flat on-peak, off-peak rate structure; only the CPUC can.

            Finally, who should solar customers be protected? They made investment decisions based on what they thought was a good deal (and it was at the time) and took the risk that it would remain so. They did so to circumvent the high third and fourth tier prices, i.e., “game the system.” Now they may lose that bet. I have no sympathy for them.

            Incidentally, the real culprits are the solar leasing companies (e.g., SolarCity) who convinced customers to sign long-term contracts that left the customer with all of the risk associated with future utility tariffs. The leasing companies locked in their profits and left their customers holding the bag. Then they milked the federal government for ITC subsidies based on the market values of the contracts, which exceeded their actual investments in the solar facilities. Disgusting.

          • Not sure what you mean by DRIPE benefits. Regardless, the spot market may have largely disappeared in California by the time most of these PPAs expire in the 2030s. That’s a long time before we know what price signals will be used to price those new PPAs. In California, gas won’t be used as the market indicator then.

            On TOU grandfathering, I’ve testified for 2 parties in 2 GRCs on this matter. What I described is what is happening. The TOU peak and off peak prices are virtually equal in 2023 at the end of the transition for PG&E, and SCE is proposing a similar result. You can check the filed PG&E settlement. So the CPUC has adopted a essentially flat rate structure for grandfathered TOU customers.

            As for prosumers installing solar, why don’t they deserve the same protections that a solar generator gets in a 25 year PPA with fixed TOD prices? Parties in similar circumstances should be treated similarly to be equitable. If you want to put existing generators at the same risk, then I would agree. But guess what–we did that in California in 1998 and we paid dearly for the market power that the generators exercised. No, the solar customers have produced huge savings for other customers through load reshaping and they deserve to receive a share of the pecuniary benefits.

          • mcubedecon, in recent years load reshaping by solar in California has been solely responsible for late-summer grid reliability problems, even the threat of rolling blackouts.

            Because the sun reliably begins to set each afternoon, the ensuing freefall in solar electricity generation creates a power vacuum which must be filled by gas-fired generation. Between 2-5PM in Los Angeles, 3bcf of methane or more must be moved to local generators – a situation for which gas distribution networks were not designed. If CAISO didn’t trigger emergency “demand-response programs” – imposing selective limits on electricity consumption – the lights would go out.

            So I’m curious why you consider rolling blackouts, or increased reliance on fossil fuel, or enforced limits on electricity consumption to be “pecuniary benefits”. Seems owners of home solar should be not only forced to pay for their own panels, but assume liability for any power shortages to which the rest of us are subjected (?).

  5. You are paying because utilities have been retro in installing grid scale solar – certainly here in New Mexico. So you would rather have no contributions to stopping global climate change This is rather piggish of you. Delaying just means a better case for the utilities to recover stranded assets which you will pay for.

  6. A couple of questions.
    How universal are your assumptions? You appear to assume all solar paneled homes sell back to the utility. My panels reduce my usage from 50 to 80%, never 100% (it is upstate NY). I pay for what I use, get no credits from selling back (due in part to the system size) and reduce my usage on shoulder and peak. How many residential installations in CA are in a similar position?
    How much storage is associated with the solar paneled residences? Such installations could provide huge savings if called upon to support the grid on peak, local and statewide. Are there residential tariffs rewarding such action?
    Finally, every kWh of solar is one small step in saving the world. Owners pay large sums to help in that regard and provide additional benefits by delaying or eliminating the need for system upgrades (NY has concluded that these benefits are real and material).
    To be clear, CA’s rate designs (and many others) need examination and change, in part to address equity concerns you raise, but a fair analysis should consider all of the benefits and costs provided by residential and business distributed solar self generation.

  7. Great article.

    However, the average cross-subsidy is certain to be higher than $65 per year because, as you pointed out, residential solar customers are avoiding the high prices in the top two tiers of their retail rate designs. In 2014 I produced a study illustrating this for Southern California Edison’s residential solar customers. See:

    Institute for Electric Innovation, The Edison Foundation, “Net Energy Metering: Subsidy Issues and Regulatory Solutions,” Issue Brief, August, 2014.

  8. At least in Massachusetts, residents don’t like or want community-scale or grid scale solar farms or especially land-based wind turbines, despite the latter being the cheapest generators of electrical energy available, unsubsidized. So, there are limits here to how much residents care about cost of electricity.

    The allocation of costs you cite is an accounting assignment, and accounting does not necessarily track reality. Net metering does not properly capture value of solar, which is time variable, as should be cost of electricity. Utilities here don’t want to invest (or even propose to invest) in the grid edge upgrades needed to do variable. They don’t even want to invest in upgrading their grids to make them more reliable in New England storms, or in the face of greater EV charging which, by the way, people who have residential PV also buy.

    Lawrence Berkeley and NREL as well as Rocky Mountain Institute have shown distributed solar, in the form of residential PV makes grids more robust against demand variation.

    Despite the present tendency to maintain grid connections, the penalties utilities are imposing upon prosumers — because it challenges their business models — is, in fact, pushing them to defect from the grid, or at least make dependency minimal so to minimize e such penalties. Yes, such grid defection or minimization drives up cost for everyone else, as it is supposed to do. Eventually, when solar+storage is at a price which is cheaper than transmission, many more residential owners will join in, whether by getting their own leased panels or becoming part of a community solar farm.

    This is a market in transition and in disruption. Reassigning that $65 to solar owners will incentivize them to abandon you and your grid. If they disconnect, there’s nothing you can do to gain back those costs. It’s a shrinking market.

    • hypergeometric,

      You have made so many unsubstantiated assertions that I don’t know where to begin. So I won’t bother. I’ll just say that you do not and cannot speak for all, or even most Massachusetts residents.

      • @Robert Borlick,

        I may not speak for most Massachusetts residents, but I never said I did. But, it seems, neither do you, to the degree to which you align with utilities and ISO-NE and are paid by groups like them.

        Massachusetts residents want no more natural gas pipelines and are tired of being manipulated on cold January days into thinking they need them.

        Substantiating claims here doesn’t make any difference. You use out of date numbers, accounting, and thinking to counter them and make no accounting for the power of technological disruption. I look forward to the day when the holders of your leash have been consigned to the dustbin of business and technical history.

        As for me this encounter has convinced me there is no accommodation possible with the 20th century utility company mindset. While I once would agree with and support things like bidirectional costing and reimbursement streams over net metering, I will no longer, since I see financial harm to utility companies is a good in itself. I will use every legal political choice to oppose them, and, just like them, optimize my own energy returns via net metering and SRECs ignoring the greater good. And, if it will harm utilities’ financial well being, I’ll remain connected to the grid as long as I can.

        Utilities embrace the language of “the market” when it is in their interest but otherwise act like communist central planners. I’m for unbridled free market choice at the grassroots and applaud solar and wind access rights for private citizens. Let’s see who wins.

        • “…since I see financial harm to utility companies is a good in itself. I will use every legal political choice to oppose them, and, just like them, optimize my own energy returns via net metering and SRECs ignoring the greater good. And, if it will harm utilities’ financial well being, I’ll remain connected to the grid as long as I can.”

          Looks like your anger has finally overcome your rational self. With that attitude you are likely to convince many people of your point of view. The debate is not about “who wins,” its about what is best from a comprehensive societal perspective.

          Contrary to your assertion, electric utilities are not evil entities; they are companies organized to provide an essential service to people. Having been involved with this industry for more than four decades I can attest to the fact that much needs to change in the industry, including its business model and how it is regulated. The era of the prosumer will come soon enough and will be effectuated in an economically efficient manner through the introduction of competitive market-based pricing of electricity to all customers. In that environment there will be no place for net metering.

          On last point. Your comment, “I look forward to the day when the holders of your leash have been consigned to the dustbin of business and technical history,” is out of line. You know nothing about me or the clients I have worked for. While I have represented utility clients I have also worked for regulators and for clients suing utilities. I am not beholden, and never have been, to the utility industry.

          This is the end of our dialogue.

          • Robert
            You write “Contrary to your assertion, electric utilities are not evil entities…”
            and
            Unfortunately, that’s not necessarily my experience in day-to-day contact with IOU staff in California. I have had malicious encounters with certain staff members on issues that seem truly inconsequential to the utility. It’s also evident that the CA IOUs have become irrational about their resistance to community choice aggregation (CCAs). So I can’t dismiss the notion that they are acting in an evil manner at times (maybe not to the level of Satan.) And I don’t think you can dismiss others’ similar experiences.

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