Monthly connection fees are good for the climate.
Regular readers of this blog are well aware that the California Public Utilities Commission (CPUC) published a proposed decision on reforming net energy metering (NEM) for residential rooftop solar last December. One of the most contentious elements of the proposed decision is a requirement that households that install solar power in the future pay a monthly fixed connection fee to help cover the various fixed costs associated with distributing electricity in California. This has been derided as a “Solar tax” since, under the proposal, only solar homes would pay the connection fee .
Over the last few months there have been several head-scratching and, I would argue, misguided arguments put forward in favor of preserving the NEM status quo. The most curious one is the widely circulated argument that NEM reform would constitute a step backwards in California’s climate leadership. In fact, the opposite is true. For many years, NEM has been a growing impediment to the centerpiece of California’s current climate plan – electrification of households and transportation.
How could NEM be impeding climate progress? It’s really not that complicated.
- Under the current NEM, homes with rooftop solar do not contribute much to the cost of electricity infrastructure, wildfire mitigation and compensation, investments in new clean technologies, and many other programs utilities are required to pay for.
- Those costs are still recovered through the price of electricity, so the more homes that go solar, the higher the cost of electricity for everyone else. This is the real solar tax – one that is paid by non-solar homes.
- Higher electricity prices make the shift to electric vehicles, space heating, and water heating less and less appealing to the majority of Californian’s whom the state’s own climate scoping plan is counting on to electrify their lifestyles.
Critics of the CPUCs proposed decision point to the fact that in the parts of California where NEM has already been changed – places, by the way, with publicly-owned utility systems and not “profit-seeking” investor-owned utilities – solar installations have declined sharply. The implication is that this is in turn stalling progress toward renewable energy goals. That’s just not true. This perspective ignores the fact that residential rooftop solar isn’t the only way to generate clean electricity. It’s not even the only way to generate solar electricity. It is only the most expensive way to generate clean electricity.
“Dirty” Energy Displaced by Rooftop Solar
Given that the state has already committed itself to 100% clean electricity, rooftop solar doesn’t make the grid any cleaner, it simply crowds out other, less expensive, types of clean electricity. So NEM reform won’t hurt the solar industry, or make our electric system any less clean, it will just hurt the residential rooftop solar industry.
What NEM reform would do is help slow the inexorable increase in electricity prices for non-solar homes. This in turn would help stave off the very real possibility that fueling an electric car in California becomes more expensive than fueling a conventional one. According to research by Dave Rapson and Erich Muehlegger at UC Davis, fuel savings from EVs are already lower in California than almost anywhere else.
Savings per mile from driving EVs (Rapson and Muehleggar, 2022)
My own recent research with Severin Borenstein indicates that electric appliances and vehicles should be much cheaper to use than they actually are at current electricity prices. Heating houses and water with electricity is penalized relative to gas in California, even though it should cost about the same. So, if we really cared about climate goals, we wouldn’t be focused on providing electrification incentives just for solar homes at the cost of everybody else.
The solution, which makes too much sense to ever be widely adopted in California, is to make NEM irrelevant. We have spent too long arguing about the rates paid by solar homes and not enough time talking about the rates paid by everyone else. The proposed monthly fixed charge (e.g. solar tax) is simply a means of recovering the fixed costs of distributing electricity in California. But we shouldn’t stop at only the solar homes. The road to electrification is to shift everyone to a rate structure that encourages electrification, one that accurately reflects the high costs of connecting to the grid and the low costs of actually consuming electricity.
This means moving everyone to a monthly connection charge and lowering the marginal price of electricity by an amount that offsets the revenues raised by the connection fees. It’s not a revolutionary idea. Lots of electric utilities already do it. Our gas utilities in California already do it. In fact, California’s CPUC regulated electric utilities are about the only utilities in the country to not charge a monthly connection fee.
Monthly Fixed Charges for Residential Electricity Service (Darker is Larger)
So why hasn’t California moved toward this two-part pricing structure? One reason has been equity concerns. These can be dealt with by creating low-income connection fees, or other more creative solutions. The other reason is that it would hurt the rooftop solar industry. If all homes faced volumetric (per kWh) prices that reflected the true cost of electricity, few would see an appeal to paying twice as much for rooftop solar power. However, in California, we seem to be more concerned with making 10% of our households really, Really, REALLY clean than with getting serious about actually reducing total statewide greenhouse gas emissions.
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Suggested citation: Bushnell, James. “Everyone Should Pay a “Solar Tax”” Energy Institute Blog, UC Berkeley, February 14, 2022, https://energyathaas.wordpress.com/2022/02/07/monster-trucks/