The following is an article written by Robert Borlick, Senior Energy Advisor at Borlick Energy Consultancy.
A recent opinion piece in Utility Dive presents a misleading view of the California Public Utilities Commission’s (CPUC) long overdue review of its Net Energy Metering (NEM) policy.
The reason for the CPUC’s review is that regulators recognize that NEM subsidizes customers with rooftop solar and shifts those costs to customers without solar, most of whom are less affluent. The CPUC launched NEM 3.0 – not California investor-owned utilities. These utilities are cost-of-service-governed by the CPUC and have little to gain financially from correcting cost shifting as they are allowed to retroactively recover revenue they lose through the NEM.
NEM produces subsidies for residential customers with rooftop solar panels in many states, but in California the subsidy is on steroids due to shockingly high energy prices in its residential retail rates, which far exceed the marginal costs of supplying energy to residential customers. California’s high residential solar adoption rate is, and always has been, an unintended consequence of its dysfunctional retail rate designs. Most homeowners install solar power to lower their electric bills, not to save the planet.
NEM effectively pays residential solar customers the full retail energy price for all the energy they produce, including the portion they consume. This allows them to avoid paying some of the fixed costs of their utilities, most of which are recouped through inflated retail energy prices. The resulting lost utility revenue is then passed on to non-solar residential customers. Since solar customers are generally better off than those without, cost shifting is particularly inequitable – the poor end up subsidizing their wealthier neighbors. This is well documented in the many studies conducted for the CPUC and other respected organizations.
This article is not a defense of NEM 3.0, which just puts another fix on a terrible retail rate design that deserves to be replaced in full with a simpler tariff design with energy prices that more closely reflect the marginal costs that each customer imposes on the utility. Such a tariff design would significantly reduce, if not eliminate, the rooftop solar subsidy. Finally, all residential customers, including those using solar energy, should be charged according to the same tariff design.
Another indefensible aspect of NEM 3.0 is that it retroactively changes the rules after homeowners invest in solar based on expected bill savings under previous NEM policies. It is unfair. Existing customers should be grandfathered under the NEM rules that applied when they installed solar, regardless of the associated legacy cost change.
A 2014 case study sponsored by the Edison Foundation’s Institute for Electricity Innovation concluded that paying Edison rooftop solar customers in Southern California the utility’s avoided cost would result in a period of recovery of about 20 years. While this is likely to deter most homeowners from adopting solar power, it also suggests that residential solar power is marginally economical compared to the lower costs of community solar power and off-grid solar power. ladder. This begs the question of how much California should encourage residential solar power.
Residential solar (as well as community solar) conserves land that utility-scale solar would otherwise occupy, but that amount of land represents less than 1% of the state. Also, large-scale solar systems are usually installed where land has low value, for example, desert areas. The relevant economic trade-off is a comparison of the high cost of residential solar with the lower cost of community solar and utility-scale solar, including the cost of land and required transmission upgrades.
California leads the nation in solar power generation, but even today, residential solar power accounts for less than 10% of the state’s total solar power generation. While this contribution is significant, residential solar is dwarfed by community solar and utility scale solar.
Existing residential solar has contributed significantly to California’s decarbonization commitments, but moving forward, the state should meet future commitments more efficiently and at lower cost. New residential solar is expected to compete directly on cost with other zero-emission options, including but not limited to community solar and utility-scale solar.
So let’s stop pretending that California’s investor-owned utilities are planning to kill residential solar or that the sky will crumble without it.