California’s Plan To Slash Solar Subsidies Seems Backwards. It’s Not.

Jan 28, 2022 | In the News, Wildfire

Source: Grist  |  By Shannon Osaka

If you suggest cutting subsidies for rooftop solar panels in California, you’ll make a lot of enemies — and fast.

That was the lesson learned by the California Public Utilities Commission, or CPUC, which proposed a drastic change last month to the generous payments that have helped over 1.3 million Golden State residents install solar panels on their roofs. If approved — which could happen as early as this Thursday — the proposal would slash payments to solar panel owners in the state by up to 80 percent and charge a monthly fee for homes with solar.

It’s a rule that seems entirely backwards for a state that has promised to zero out carbon emissions from its electricity system in the next 25 years. And it received almost instant blowback.

A coalition of 600 organizations and community leaders from across the state began writing op-eds and creating petitions, calling on Governor Gavin Newsom to help “Save California Solar” and arguing that the new rule was effectively a cash grab on the part of utilities. In an op-ed in the New York Times, former California governor Arnold Schwarzenegger wrote that the proposed change amounted to a “solar tax.” This being California, other celebrities chimed in:  Edward Norton of Fight Club fame wrote a long thread on Twitter slamming the program as a “solar killer.”

But the story of California’s rooftop solar is more complicated than it seems. At the center of the debate is what is best for the state’s low-income electricity consumers and California’s plans to cut carbon emissions. Supporters of the change argue that, since it was introduced over 25 years ago, the program known as “net metering” has transformed from a helpful boost to a nascent industry to a regressive program that unfairly burdens California’s lower-income families with higher electric bills. And if the state truly wants to zero out its carbon emissions to fight climate change, they claim, California is going to need to reallocate money to cut electricity prices and put more batteries on the grid. The Natural Resources Defense Council, utility companies, and several consumer advocacy groups all support the commission’s proposal.

Net metering “massively overcompensates participating customers relative to the value that they are providing to the system,” said Matthew Freedman, a staff attorney at the Utilities Reform Network, a group that advocates for utility customers. “It’s a reverse Robin Hood scenario.”

The growing ranks of opponents, however — solar companies, some environmental groups, and community solar organizations — say that the changes would cripple California’s thriving solar industry and snatch rooftop solar away from low-income families who are only starting to get access. Who is right — and who will win — matters not just for California, but also for the rest of the country. California is a leader in solar and in climate policy for the entire United States. Where it goes, other states follow.


California’s current rooftop solar system works like this: Customers buy and install solar panels, for a cost of around $15,000 or more, depending on the size. Those panels generate electricity for the home itself and, if there’s a surplus of power, they can send electricity back onto the grid. When electricity flows back into the larger system, solar panel owners get paid by the utility at the retail rate for electricity, around 20 to 30 cents per kilowatt-hour.

That’s a great deal for rooftop solar owners — who sometimes receive negative electricity bills because of their solar output — but some say that it’s a raw deal for everyone else. California currently generates around 15 percent of its electricity from solar, most of it in the middle of the day when the sun is high. As a result, plentiful supply means that midday electricity prices are much lower than prices in the morning or late in the day. When a rooftop solar customer sells a kilowatt-hour of electricity back to the grid, then, they get paid around 20 to 30 cents by the utility — but that power is only worth about 7 to 9 cents to the utility company. That 10- to 20-cent gap gets paid by every other California customer.

It wasn’t a big problem when net-metering was first introduced in the 1990s, because there wasn’t much solar on the grid, and electricity in California was cheap: only about 10 cents per kilowatt-hour. But as California copes with wildfires and tries to improve the transmission and distribution of electricity, those rates have skyrocketed. One analysis by researchers at the University of California, Berkeley, estimated that California households are now paying between $50 and $225 more every year in electricity costs to offset the net-metering program.

Consumer advocacy groups and utilities say that the problem is compounded by the fact that higher-income Californians are more likely to have rooftop solar. According to a report from the Lawrence Berkeley National Laboratory, the average annual income of rooftop solar adopters in the country is $113,000 — compared to a nationwide average income of $64,000.

“The subsidy is going disproportionately to wealthy people,” said Severin Borenstein, a professor of public policy and economics at the University of California, Berkeley.

The conundrum is likely a sign of things to come as more and more states struggle to decarbonize their grids and cut carbon dioxide emissions. With wind and solar energy getting cheaper and cheaper, incentives for installing them may no longer make financial sense — and governments may want to spend their money elsewhere. But it will be hard to take away subsidies that have built entire industries from the ground up. “This is the history of government regulation,” Borenstein said. “You create rules, businesses make decisions around those rules, and it turns out that the benefits of those rules either never were there — or have changed.”

The new proposal from the CPUC tries to rectify the situation by changing the amount of money consumers get for returning their solar power to the grid. Instead of receiving the “retail rate” for selling their electricity, rooftop solar customers would receive the “avoided cost” rate — an estimate for how much value their power is actually providing to the overall grid. That would be more like 5 cents per kilowatt-hour on average, according to the California Solar and Storage Association, an industry group. The CPUC says this change would incentivize customers to install batteries so that they can release power onto the grid when it’s more valuable.

Customers would also have to pay that monthly fee of $8 for every kilowatt of solar they have installed on their roof; the CPUC argues that this would counterbalance the fact that, when solar customers are using their own power, they aren’t contributing for things like wildfire preparedness and grid maintenance. (That fee, which has received the most ire from opponents, is a bit like the higher registration fees states charge owners of electric cars, since EV owners don’t pay the gas tax.) Then, to make matters even more complicated, the new rules would also provide a “market transition credit” every month to help customers pay back the cost of their solar panels. Low-income customers would get a higher credit.


Would those changes fix the problem of solar in California? There, views diverge over what California should prioritize: the expansion of the rooftop solar program to low-income residents, or lowering electricity rates as quickly as possible to benefit those same residents.

Susannah Churchill, the senior regional director for Vote Solar, doesn’t dispute that net-metering pushes electricity costs onto those without solar panels, but she argues those costs have been overstated by utilities. And, she says, electricity rates aren’t the only things that matter. “The other side of the equity discussion is about how available and affordable on-site solar and storage is for low-income families in California,” she said. In a state increasingly beset by wildfires and power outages, poorer families and communities could benefit from having panels and batteries when the grid goes down.

A crowd of protestors hold signs saying "Save Solar Jobs."

To Churchill, the proposed rule goes in the wrong direction. “The changes the commission is proposing are going to put solar and storage farther out of reach for low-income families,” she said. While it exempts some poorer customers from the monthly solar fee and provides a $600 million “equity fund” to help low-income families adopt clean energy, Churchill believes it doesn’t go far enough. The exemption only applies to customers who make less than 2.5 times the federal poverty line, which works out to approximately $66,000 for a family of four. Advocacy groups and the solar industry argue that won’t be enough to offset the up-front costs of new panels.

Others, however, argue that it’s unrealistic to expect many low-income Californians — who are also more likely to live in rented homes — to install rooftop solar. Borenstein says that the proposed changes, while complicated, would be “very effective” at making the system fairer for everybody. In recent years, he said, low-income customers have started investing in solar panels — but the overwhelming majority of low-income customers still don’t have them. “What you have is a lottery, where a small number of poor people are getting rooftop solar, and everybody else is getting screwed,” he said.

It’s still unclear what the proposed change would mean for California’s climate progress. The solar industry and many advocacy groups have argued that it would slow the growth of rooftop solar, with deleterious effects on California’s electricity mix. The state still gets almost 50 percent of its power from natural gas.

Freedman argues that heavily subsidizing solar through net-metering no longer makes economic sense. California currently emits around 410 million metric tons of carbon dioxide per year, about the same as the entire country of Mexico. And if the state wants to cut those emissions by electrifying cars and heating and industry, it’s going to need cheap electricity. “We don’t have unlimited money to achieve our climate and clean energy goals,” Freedman said. The solar program as it stands, he added, “has become an obstacle to achieving those goals.”

Many solar groups have framed the conflict as one between solar companies and cash-grabbing utilities — but Freedman says that narrative is misleading, evidenced by the fact that his employer, a customer advocacy group, supports the change. “It’s a misdirect,” he said. “My organization does nothing but fight utilities. That’s our raison d’etre.”

There might be another option, one that doesn’t involve tanking the solar industry or forcing low-income families to pick up the tab. Borenstein said that if California wants to continue to subsidize rooftop solar, it should do so through the state’s overall budget — not by raising electricity rates. According to an analysis from the University of California, Berkeley, raising electricity prices is the single most regressive way to offset the cost of the solar program,even more than a gasoline or sales tax. Wealthy Californians don’t use much more energy than low-income Californians, but low-income households spend much more of their income on energy.

Churchill agrees. “We’re in a budget surplus situation in California,” she said. (The state is expected to have a $31 billion surplus this year.) “This shouldn’t be funded via ratepayers. It should probably be funded through the state budget.”

The CPUC is unlikely to make its final decision until February at the earliest. Governor Newsom, for his part, said earlier this month that “changes need to be made” to the proposal but declined to get more closely involved in the process.

The outcome is likely to have far-reaching effects, as states struggle to cut emissions, keep costs low, and keep the lights on — all at the same time. “Everybody looks to California as a leader,” Freedman said. “So if we do it right, we become the model. And we do it wrong, everyone says, ‘Hey, look at California. They committed to this clean energy revolution and look how terribly it turned out: Nobody can afford their bills.”

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