The following is a contributed article by Robert Borlick, senior energy advisor at Borlick Energy Consultancy.
A recent opinion article in Utility Dive presents a misleading view of the California Public Utilities Commission's (CPUC's) long overdue review of its net energy metering policy (NEM).
The reason for the CPUC review is that the 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 initiated NEM 3.0 — not California's investor-owned utilities. These utilities are cost-of-service regulated by the CPUC, and have little to gain financially from correcting the cost-shift because they are allowed to retroactively recover the revenues they lose through NEM.
NEM produces subsidies for residential customers with rooftop solar in many states, but in California the subsidy is on steroids because of the outrageously high energy prices in its residential retail tariffs, which greatly exceed the marginal costs of delivering energy to residential customers. California's high adoption rate of residential solar is, and has always been, an unintended consequence of its dysfunctional retail rate designs. Most homeowners install solar to reduce their electric bills — not to save the planet.
NEM effectively pays residential customers with solar the full retail energy price for all of the energy they produce, including the portion they consume. This allows them to avoid paying some of their utilities' fixed costs, most of which are recovered through the inflated retail energy prices. The resulting lost utility revenues then get shifted to residential customers without solar. Because customers with solar are generally more affluent than those without solar, the cost shift is particularly inequitable — the poor end up subsidizing their more affluent neighbors. This is well documented in the numerous studies conducted for the CPUC and other respected organizations.
This article is not a defense of NEM 3.0, which merely puts another patch on a terrible retail rate design that deserves to be replaced in toto with a simpler rate design with energy prices that more closely reflect the marginal costs each customer imposes on the utility. Such a rate design would greatly reduce, and possibly eliminate, the rooftop solar subsidy. Lastly, all residential customers, including those with solar, should be billed under the same rate design.
Another indefensible aspect of NEM 3.0 is that it retroactively changes the rules after homeowners invested in solar based on expected bill savings under the previous NEM policies. That's unfair. Existing customers should be grandfathered under the NEM rules that applied when they installed solar regardless of the associated legacy cost-shift.
A 2014 case study sponsored by the Edison Foundation's Institute for Electricity Innovation concluded that paying Southern California Edison's rooftop solar customers the utility's avoided cost would result in about a 20-year payback period. While that is likely to deter most homeowners from adopting solar, it also suggests that residential solar is marginally economic compared with the lower costs of community solar and utility-scale solar. This raises the question of how much California should be incentivizing residential solar.
Residential solar (along with community solar) does preserve land that utility-scale solar would otherwise inhabit — but that amount of land represents less than 1% of the state. Furthermore, utility-scale solar systems are typically installed where land has low value, e.g., desert areas. The relevant economic tradeoff 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 the required transmission upgrades.
California leads the nation in producing solar energy but even today residential solar accounts for less than 10% of the state's total solar energy production. While this contribution is significant, residential solar is overshadowed by community solar and utility-scale solar.
The existing residential solar has significantly contributed to California's decarbonization commitments but going forward, the state should fulfill its future commitments in a more efficient, least-cost manner. New residential solar should directly compete on a cost basis with other zero-emissions options, including but not limited to, community solar and utility-scale solar.
So let's stop making claims that California's investor-owned utilities are scheming to kill residential solar or that the sky will fall without it.