California’s Misguided Rooftop Solar Debate
The goal should be equitably saving the planet, not growing one industry.
California’s residential solar policy may be on the cusp of major change. In mid-December, the California Public Utilities Commission (CPUC) issued a proposed decision (PD) that would gradually scale back the subsidies that were adopted more than 20 years ago to support the then-infant solar industry.
The PD would reduce the compensation that households receive for the power they inject into the grid, ending net energy metering (NEM) under which customers get paid the retail rate for their supply. It would also phase in a monthly fixed charge on solar customers to cover their share of system fixed costs, such as costs of transmission and distribution lines, wildfire mitigation and compensation, and investments in early stage technologies, among others. In addition, the PD would beef up incentives for installing batteries alongside rooftop solar.
For the PD to be adopted, a majority of the five commissioners must support it in a formal vote, which they could consider as soon as January 27.
You might think that the PD would supercharge both sides of a policy debate about the value of residential solar. How much does it reduce grid investment? How much would it help balance local demand and supply? Is it cost-effective? Is California rooftop solar policy equitable? All issues that other EI bloggers and I have weighed in on previously.
You might think that, but media and stakeholder comments on the PD have instead focused on how much the new policy would reduce the profitability and growth of companies that install residential solar.
So instead 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.
This redirection of the residential solar debate highlights a larger reality about problematic regulatory policies: individuals and businesses make investments in response to those policies, and many come to believe that they have a right to see those policies continue indefinitely.
As California retail electricity rates have skyrocketed – primarily to pay for rising fixed costs that rooftop solar doesn’t alleviate – NEM has made residential solar a bonanza for the households who adopt it and the companies that install it. Responding to those incentives, over a million households have put in solar and entrepreneurs have built successful companies that sell it and install it.
That isn’t a criticism of those consumers or entrepreneurs. People are busy. It’s challenging enough to suss out all of the benefits, costs, and risks of a major household purchase or a new business plan without also diving into debates over the best climate policy.
Yet, as electricity prices have increased and the CPUC has stuck with NEM, the ballooning subsidies have induced residential solar firms to go big on selling more dumb systems, without storage or grid communication. Those installations now do little to reduce grid costs or cut GHGs in California, but are still the vast majority of new systems going in today. The result is costing non-solar households boatloads of money.
The distortion has been exacerbated by a California law that says rates charged to solar households must ensure “that customer-sited renewable distributed generation continues to grow sustainably…”
Let’s pause for a moment to appreciate the uniqueness of that legislative mandate. California doesn’t just have laws intended to reduce greenhouse gases and promote renewable energy generation; it also has an explicit provision that requires continued growth of a mature industry selling a specific deployment of a specific technology, regardless of its cost or value. Imagine what the outcome would have been if we had a similar law promoting miscanthus-based biofuel, tidal power, flywheel storage, or any of the other technologies that promoters say are nearly cost-effective, but just under-utilized.
So now firms in the rooftop solar industry are howling that the PD will slow or reverse their growth, while supporters of the PD are arguing that rooftop solar will still do just fine. It has even led to the dizzying argument from the industry that their technology is over 50% more expensive than the PD claims, so they need larger subsidies. Without larger subsidies, they argue, the industry won’t “grow sustainably”, so it is required by law, regardless of whether it is good policy.
Meanwhile, some current solar owners, and potential future adopters, express outrage that the PD will rob them of their “right” to freely generate their own electricity. These arguments tend to be so wound up in freedom rhetoric and resentment of big government and regulation that I wonder if they remember that we are fighting a global externality, which requires collective action. In reality, of course, they are still free to generate electricity, and even to pump a lot of that into the public grid. They just have to pay for the grid as they continue to use it.
The PD does infringe on the “right” to get paid the same rate for injecting power into the grid as they and others pay for taking power from the grid. Thankfully, that is not a right you will find in the Constitution. Still, misconceived rights arguments illustrate the consequences of regulations that are allowed to fester long past the time they make policy sense. Stakeholders who benefit find reasons – whether based on liberty, fairness, or some other admirable social goal – that it would be wrong to take away their special deal.
As is common when government buys out the beneficiaries of outdated regulation, the proposed changes would be phased in over time. The PD would assure that nearly everyone who has already put in rooftop solar still sees substantial net savings overall. The goal isn’t to punish early solar adopters, but to correct the policy path we are on in which the only people left paying for the grid – the grid that all of us are going to be using for a long time – will be renters and low-income customers.
I don’t agree with everything in the PD. I would prefer to see a faster phaseout of the over-compensation for exports to the grid. And I would much prefer to use funds to lower bills and increase renewable access for all low-income customers, not for the lucky few who will get solar. That could be done in part community and small-scale solar, which is more cost effective and doesn’t rely on distorted retail rates.
But no one following this issue is going to get everything they want. The PD is still a bold step towards a more rational climate policy, a policy that combines all of the decarbonization tools and technologies we have to chart a cost-effective and equitable path to zero emissions.
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Suggested citation: Borenstein, Severin. “California’s Misguided Rooftop Solar Debate” Energy Institute Blog, UC Berkeley, January 10, 2022, https://energyathaas.wordpress.com/2022/01/10/californias-misguided-rooftop-solar-debate/
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Severin Borenstein View All
Severin Borenstein is Professor of the Graduate School in the Economic Analysis and Policy Group at the Haas School of Business and Faculty Director of the Energy Institute at Haas. He received his A.B. from U.C. Berkeley and Ph.D. in Economics from M.I.T. His research focuses on the economics of renewable energy, economic policies for reducing greenhouse gases, and alternative models of retail electricity pricing. Borenstein is also a research associate of the National Bureau of Economic Research in Cambridge, MA. He served on the Board of Governors of the California Power Exchange from 1997 to 2003. During 1999-2000, he was a member of the California Attorney General's Gasoline Price Task Force. In 2012-13, he served on the Emissions Market Assessment Committee, which advised the California Air Resources Board on the operation of California’s Cap and Trade market for greenhouse gases. In 2014, he was appointed to the California Energy Commission’s Petroleum Market Advisory Committee, which he chaired from 2015 until the Committee was dissolved in 2017. From 2015-2020, he served on the Advisory Council of the Bay Area Air Quality Management District. Since 2019, he has been a member of the Governing Board of the California Independent System Operator.
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Severin,
Thanks for your consistent and courageous position on NEM in California. I recall few energy policy issues that are as politicized as this one. I also appreciate the informed (and even civil!) commentary in response to your posting.
I’m still not sure where I sit on this and need to study the proposed decision further. Given Governor Newsom’s recent comments its seems that the proposed decision we have isn’t likely to be the final decision we arrive at.
I DID have a few questions which I’m hoping you might address:
a) Should any ratepayers (rooftop solar adopters or not) be paying utilities for wildfire mitigation costs above and beyond that which are caused by poor maintenance practices, negligence, or insurance costs? Isn’t the California Wildfire Legislation that has been passed over the past few years primarily a utility bailout to lower utility bankruptcy risk?
b) In your view, does the Proposed Decision adequately value carbon costs, or are the costs material enough to matter given CA IOU’s high cost of electricity?
c) Are there other state NEM models that are superior to that set forth in this proposed PD? (e.g. South Carolina)
As always, thank you for the insights and thought-provoking blog.
From David Robert’s Volts post of May 2021: “VCE’s [Vibrant Clean Energy] work is obviously germane to the many fights going on across the country over net metering. (See California in particular.) Utilities want to pay solar homeowners less for the energy they produce, but VCE’s modeling shows that, if anything, they should be paid more. They can help reduce rates for all ratepayers. It makes fiscal sense for utilities and states to incentivize as much DER growth as humanly possible.”
https://www.volts.wtf/p/rooftop-solar-and-home-batteries
As the Institute reviewed the Clack et al on the economic feasibility of DER? If so, will that be discussed?
As a strong counterpoint, I suggest reading Ahmad Faruqui’s comment submitted to the CPUC. Faruqui recently retired from Brattle Group (who’s current president is a UC Berkeley faculty member) where he was considered the premier expert on time varying retail electricity pricing.
http://ahmadfaruqui.blogspot.com/2022/01/my-comments-on-cpucs-proposed-decision.html
Enlightening testimony. New to me is the argument that there is a lot of cost shifting in the system already that we accept: rural vs urban, CARE, etc. Why pick out PV cost shifting as a focus? He says it’s a red herring.
The latest net energy metering tariff (NEM2) was put in place 5 years ago (2016), not 20 years ago. If I understand the blog, the CPUC made a terrible mistake in designing the tariff that time, and was not competent enough to see it. But we can trust them to get it right this time . . . can’t we? And the right thing, according to the CPUC, is a California solar tariff that will be the highest in the United States. This seems to imply a remarkable level of incompetence in public utility commissions across the country – if the current iteration of the CPUC is right.
What is clear is that the new tariff is a big change in the policy the state followed to incent something more than an million Californians to install rooftop solar. The benefits they understood they would get from installing solar will be substantially reduced. The CPUC’s proposal also says it will now “incentivize” Californians to install battery storage. If the CPUC doesn’t do a much better job of explaining and justifying the change it wants, good luck with getting Californians to invest any more money based on CPUC promises.
“good luck with getting Californians to invest any more money based on CPUC promises”
This is perhaps the single most important observation among all of the comments. Government is already greatly mistrusted. How would reneging on a deal that turned out to be overly successful improve that trust? If we’re counting on collectively solving our more pressing problems such as climate change and pandemics, we’re going to have to do it through government action. Elon Musk can only accomplish so much (and he’s relying almost entirely on government action anyway).