Reaching into the e-mailbag to address some unhappy blog readers.
There is a serious energy and climate policy debate about the appropriate role of behind-the-meter generation, particularly rooftop solar, in a decarbonizing electricity system. The serious discussion includes topics like
- the relative cost of electricity from rooftop solar versus grid scale solar,
- the potential distribution cost savings from generating near the point of consumption,
- the potential strain on the distribution system from distributed solar due to backflows,
- the environmental damage averted when rooftop solar is added,
- the environmental damage averted from grid scale solar generation,
- the environmental damage caused by building and operating a solar or wind farm,
- the degree to which solar customers shift system fixed costs to non-solar customers,
- how to equitably incorporate behind-the-meter generation into the system
When we do, we often hear from solar owners with their own arguments about the righteousness of their panels. It’s tempting for an energy geek, like me, to focus on the serious policy discussion and simply ignore some less thoughtful arguments that show up in my email inbox.
But solar owners are adamant, sometimes angry, mostly concerned about the environment, and numerous. And they vote, both literally and also figuratively, with their wallets. So today, I’m going to reach into the e-mailbag and respond to a few of the arguments I have received from rooftop solar owners that (mostly for good reason) seldom make it into the policy discussion.
[These are based on actual emails, though I have edited and condensed the arguments.]
Argument #1: “You claim that I get paid the retail price for electricity that my panels send into the grid, but I just looked at my bill and I actually get paid less than 4 cents per kWh for exports.” You get paid that lower compensation only for excess kWhs your system injects into the grid beyond the quantity that offsets all of the kWh you take from the grid over the year. For instance, if over the course of the year you consume 1300 kWh from the grid and you inject 1325 kWh into the grid, you will indeed get paid some lower amount like $0.04/kWh for the extra 25 kWh. But, you will first get the 1300 kWh you consumed from the grid offset by the first 1300 kWh you injected into the grid. In other words, rather than having to pay the retail price for those 1300 kWh, you will have to pay nothing because they will be netted out against the first 1300 kWh you injected into the grid. So you will have saved the full retail price on those 1300 kWh. The great majority of solar homes don’t produce excess over the course of a year, so most solar homes get credited the retail price for all of their exports. (If you got your solar system in most of California after 2016 and are under “NEM 2.0”, you don’t get the complete retail credit. You still need to pay a “non-bypassable charge” of about 2 cents per kWh, out of a full retail price of about 25-30 cents.)
Argument #2: “When I inject electricity into the grid, my utility sells it to my neighbor for the retail price, so if they pay me the retail price, it’s a wash.” Alas, no. The utility would still sell the electricity to your neighbor, even if you did not have rooftop solar, only it could have bought the power for your neighbor at the wholesale price, which in California averages less than one-third of the retail price. As many of us here at the EI blog have written about, that difference goes to pay for all sorts of fixed costs, from expensive renewable power contracts signed years ago to jumpstart the industry, to wildfire mitigation and compensation for past victims, to energy efficiency programs, support for low income customers, subsidies for rooftop solar, and many other expenses. When the utility pays you the retail price for injections, they end up with less revenue towards those fixed costs, which means the regulator then allows them to raise the retail price further, so they can still cover them. Even most rooftop solar advocates in California now recognize that there is such a cost shift, though they argue there are many other cost shifts in the system as well.
Argument #3: “Rooftop solar is disrupting the electricity industry and utilities are just fighting against their inevitable extinction. The solution is to let them go under, like Kodak and Blockbuster, rather than continuing to subsidize their outdated business model.” This comes from a misunderstanding about what electric utilities do these days. For the most part, they are not in the electricity generation business anymore. They buy electricity from independent generators, just as non-profit Community Choice Aggregators (CCAs) do, and sell it at cost to customers. Utilities make their money building and maintaining transmission and distribution lines, on which they are allowed to earn a rate of return on their capital investment. Electric utilities may go extinct someday, but that will be when we no longer need transmission or distribution lines because every customer is generating all of their own power – 24 hours a day, 365 days a year. That’s unlikely to happen in my lifetime, and probably not in yours if you are reading this blog post.
Argument #3A: “Utilities invested in a bad technology – grid infrastructure – that is now unprofitable. That should be their problem and utility shareholders should eat the losses just like in any other market.” Utilities could easily still recover all of their costs if they were treated like firms in any other market and allowed to set their own prices. They are not allowed to do that, because they are regulated monopolies, and part of that regulatory framework is that they are allowed to charge prices that collect enough revenue to cover their costs unless they are shown to have been imprudent or fraudulent. Costs that fit into those categories should be thrown out, but everything else is on us, the ratepayers. Both legally and in practice, the savings that go to rooftop solar owners are going to be paid by other customers.
Argument #3B: “It’s time to take away the utility’s monopoly and allow others to compete to sell power, including customers.” Yes, fine. In California, with CCAs and behind-the-meter generation, that’s already happening on the energy component. But we still need the transmission and distribution lines, and no one serious is suggesting those should be operated as anything but a regulated or publicly-owned monopoly. (Some people argue that monopoly should be a nonprofit run by a government agency, as with municipal utilities. Those who believe this is a panacea apparently have never been to the DMV, and many are the same people who ridicule the dysfunctional California Public Utilities Commission, a government agency.)
Argument #4: “There aren’t barriers to poor people going solar anymore. Companies will put the panels on a homeowner’s roof for free and sell them the power.” There are companies that offer such long-term power purchase agreements (PPAs) to homeowners with good credit, along with what is effectively a lien on the house, and at a higher cost per kWh than buying or leasing the panels. Of course, low-income households are much less likely to be homeowners and less likely to have good credit. So, in the real world, there are still very large barriers to poor people going solar. That’s why, as of 2019, 4.6% of the 1.3 million PG&E households with annual income below $50,000 per year have solar, while 15.4% of the 0.7 million households with income above $200,000 have solar, according to research we will be releasing in July.
Argument #5: “With electricity rates above 25 cents per kWh, rooftop solar is the only thing that makes it cost-effective to electrify my space heating, water heating, or vehicle.” There is certainly truth to that, but let’s be clear on how solar customers are affording electrification: by having other customers subsidize them through even higher electricity prices. The cost shift when one house puts in solar makes electrification even less affordable for everyone else. The problem of skyrocketing electricity prices can’t be solved by shifting costs from those with solar to those without.
Media discussions of energy and climate change are riddled with myths from all political directions, whether it is that we could solve our problems easily with massive investments in nuclear power, carbon capture, or a system that is predominantly distributed generation. We need to continue the serious debate over the role of all electricity generation sources, but we also need to address the popular myths that will otherwise sidetrack the serious discussion. And we all need to be open to changing our minds as a result of changing technology and new data. That’s how we will get to a clean and equitable energy transition.
Find me @BorensteinS most days tweeting energy news/research/blogs.
Keep up with Energy Institute blog posts, research, and events on Twitter @energyathaas.
Suggested citation: Borenstein, Severin, “Myths that Solar Owners Tell Themselves”, Energy Institute Blog, UC Berkeley, June 6, 2022, https://energyathaas.wordpress.com/2022/06/05/myths-that-solar-owners-tell-themselves/
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.