California has 1.3 million solar rooftops generating roughly 10,000 megawatts of electricity of which about two-thirds are on houses and businesses; the rest are on government buildings. According to the U.S. Census Bureau, there are about 13.2 million households in California, and the overwhelming majority of them—about 11.9 million—do not have rooftop solar systems. Current incentives for rooftop solar harm those households that do not have rooftop solar and a proposed plan was developed to address those incentives. Final approval of the proposed plan was set for January 27, but due to extensive comments, Governor Gavin Newsom indicated changes had to be made before final approval could be given.
Rooftop Solar Incentives
A popular incentive that solar rooftop owners receive is “net metering” where homeowners and businesses can sell back to the utility company any unused power generated from their rooftop solar panels. The sell back uses transmission and distribution lines owned by the utility at no cost to the rooftop solar owner. In sum, a utility is forced to pay rooftop owners a retail price for a wholesale product, and pass the costs on to those without rooftop solar. To remedy the gouging of non- rooftop solar owners, the California Public Utility Commission suggested a new monthly “grid participation charge” that would average an estimated $56 a month for solar customers. This solar charge would also apply to customers who invested in batteries to store the solar energy.
The commission also cut credits to new solar customers (and some older ones) by as much as 87 percent for the electricity they do not use and send to the grid under the net metering program. The reduction was to bring the credit in line with the cost of utility-generated electricity. The monthly cost of solar and electricity for homeowners with an average rooftop system who are served by Pacific Gas & Electric, the state’s largest utility, would increase to $215, from $133, according to the California Solar and Storage Association.
An argument against net metering is that it leads to higher electricity rates for homeowners who cannot afford to install solar and for apartment dwellers by shifting the costs of operating and maintaining the power grid to them. Lower-income customers who cannot afford solar panels are effectively subsidizing affluent homeowners. By forcing rooftop solar users to pay fees to support the electric grid, utility bills for lower-income residents would be reduced by about $10 a month. According to a filing by California’s three largest utilities, non-solar households pay $115 to $245 more per year to subsidize their neighbors with solar, and, if nothing changes, that subsidy will grow to $385 to $550 per year by 2030.
Less rooftop solar would mean that California would need to rely more on large power installations, including solar and wind farms, and long-distance transmission lines to connect those facilities to demand centers. Every watt of electricity not produced on the rooftop of a home will be produced and transmitted by a utility or wholesale power company, which would require about a quarter of California’s land for renewable energy to meet the state’s climate goals without expanding rooftop solar.
The California Energy Commission requires solar panels on new homes and last year voted to require solar panels and batteries in some new buildings, including apartments.
Impact of Incentive Changes
Analysts with Bank of America Global Research indicate the proposal would lead to a 20 percent annual drop in new rooftop solar systems in California next year before they would begin to recover, while representatives of the solar industry predict a decline of up to 80 percent, as part of their argument to keep the current system from changes.
A new analysis from Wood Mackenzie also shows that California’s proposed net energy metering tariffs would reduce residential solar. Its estimate is that the California residential market would be cut in half by 2024. Under the terms of the current proposal, the solar project payback period would more than double. For Pacific Gas & Electric (PG&E) and Southern California Edison (SCE), payback periods for typical residential solar projects built this year would increase from five to six years under current net metering to 14 to 15 years, depending on the utility. Beyond a 10-year threshold, customers are less inclined to invest in solar projects and installers are less motivated to sell them. According to the study, the current proposal would result in more than 2.4 gigawatts of demand destruction in California’s residential solar market through 2026.
There are clearly inequities in the incentives for rooftop solar. The issues are how much homeowners should be paid for the excess power their solar panels send to the grid and how much rooftop solar users should pay toward running the grid? The California Public Utility Commission took a stab at answering those questions but solar rooftop owners and those who benefit from selling systems were not happy with the proposed changes. Governor Newsom has now sent them back to the drawing board.