Everyone Should Pay a “Solar Tax”
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.
Keep up with Energy Institute blogs, research, and events on Twitter @energyathaas.
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/
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“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. ”
This assertion requires some explanation. So far, customer electricity costs in California have continued to go UP, not DOWN, despite the installation of massive quantities of non-rooftop solar. And thusfar the only thing that has proven meaningful in reducing costs to customers is rooftop solar. Unless and until PG&E and the other IOUs begin to reduce rates, there is little evidence and even less trust that if we just ‘leave it up to the utilities’, rates will become more reasonable.
We already pay the second highest rates in the country and PG&E has kindly informed us of more hikes in the next few months. What would be interesting is an analysis of just where all that money is going. Because according to the posters on this site, it sure isn’t energy production.
As a California solar owner I have to say this….we pay a fixed fee to PG&E every month. It’s a “line fee”. We pay that on top of our solar loan. It’s around $6 a month.
Why would I have to pay more to finance low income residents? I make more power than I use and the 3 power companies have saved ( and pocketed) billions from not having to build new power plants as more solar has been installed.
This is about greed. The power companies do not take a loss, they simply pass it on to their customers.
The only solution is for the power companies to buy the solar units from the home owner. Why would I pass 30k for a system and be stuck with the maintenance costs for PGE to profit at my expense? If they buy my system then they can do as they wish, but I produce my own power, much more than I use, so charging me more for social programs or to upgrade a system that they profit from is robbery.
I am pro roof-top solar and however lame (see below) the arguments here are, I agree with the fixed monthly charge. This charge should be relative to the cost of running the grid (Transmission lines and distribution system). I call this $etd, which would, depreciation (which is cost of construction), maintenance, administration, property taxes, etc. plus the public utility’s 10% profit. The proportion one connected to the grid would be the proportion of the connectee’s panel to the sum of all panels connected. Now that all the delivery costs have been paid. the cost of the energy would be wholesale. No markup by the utilities, because they’ve already been paid. The consumer would buy from what ever source they would like to chose.
A true free market for energy. Initially, energy costs when the sun don’t shine will be exorbitant. This will spur the much need energy storage market. Garage Storage has the same benefits as rooftop solar.
Some years ago I did a napkin calculation for San Diego county: the fixed cost would be $16-$20 for a 200A panel. Typical usage is about 1000kWh. So electric bills would be about $50. Currently, bills are in $200-$300 range. This is why the utilities in California don’t want a fixed rate for infrastructure. I had extracted the numbers from the SEC filings. Currently those numbers are well obfuscated in the filings. Please correct me if I am wrong. If you have a source for the fixed cost, please publish a link.
(below). Left out
While being the most expensive form of solar energy, rooftop solar installations are paid for by the rooftop owner, not the utility.
Inherently improves the stability of the grid (distributed sources)
Reduces the need for transmission lines.
Social cost (mitigating climate change, mentioned but brushed aside)
Just a data point to add. I installed a $30,000 solar panel system in an office building in North Carolina. The system covered about 10 – 30% of the power used at the building, and offset the monthly bill accordingly. Then, the local utilities were allowed to add an array of fees similar to those proposed in California, and they lowered the net metering payments to the point that it cost more to leave the panels connected to the grid than to disconnect them. So, we did what the utility wanted us to do, we disconnected the solar panels, which are now just collecting dust. If California and other states do the same thing, others will disconnect and sustainable electricity will die.
Nowhere in this article or in other comments can you find any mention of subsidies and tax cuts that the oil and natural gas companies get. Those subsidies are not paid by rate payers, so any low subsidies to the solar industry or solar producers shouldn’t be paid by rate payers either. There’s also no mention of the sources of funding for the research cited, nor the utility industry donations to faux environmental and community pushing for changes to net metering. Bottom line, it seems as though fossil fuel lobby wants to use taxes and fees to prevent sustainable competition.
This has been alluded to in a couple of posts. Although the issue and sub issues are complex, ultimately there is a public policy choice.
You can either have “the grid” (defined as everything other than the actual electricity) paid for by volumetric pricing, including peak pricing.
Or you can allow rooftop solar and ESS, with or without NEM.
You can’t have both, once adoption of rooftop solar, with or without ESS reaches a certain penetration.
It’s not, absolutely not, about “shifting costs” — any form of conservation shifts costs under the current system, a person who was otherwise consuming a large amount of peak power who change to a night job and ceases to consume that power “shifts costs” to others who have not choice but to consume peak power.
SCE’s overall units of KWH sold DECLINED from 2008 to 2020. Since the grid is paid for by those kwh, and the grid costs increase like anything, conservation, whether through light bulbs and appliances, better insulation, or yes, rooftop solar, can only go so far before the pricing structure of the utility falls apart.
I don’t think many customers realize that the 20 cents per kwh paid during non peak only includes 3 cents for the electricity, and I really, really don’t think those some customers charged up to 60 cents during peak realize the electricity is only 6 cents. The average customer is not logging on to CAISO.
The song of solar pannels owners not paying their share of maintenance is ridiculous and unfounded. Our energy consumption is billed at the same price as everyone else. The only difference has been that I have decided to produce my energy, and I pay that same rate with the energy I produced myself. The problem here is that the investors see the opportunity to steal from us. So instead of investing in making their energy grid clean, it is easier for them to steal the energy I produce on my roof with the solar panels that I invest in and maintain. So they can pay a barging price for my energy and then sell it to other customers for four times the price. If that’s not stealing, then what is. And the whole idea that decreasing the rebate price will bring equity is ridiculous. First, go and see how many working-class houses in el Cajon use sollar. Second, whether people will simply add batteries and store the energy themselves, the actual price will be for working-class people who have made a sacrifice to invest in solar.
So please don’t be a sheep of the investor power and spot spreading these lies.