State votes to slash rooftop solar credits, ending long battle over state subsidies

Dec 15, 2022 | In the News, Solar

Source: San Francisco Examiner  |   By Jessica Wolfrom

The contentious battle over the future of rooftop solar in California has come to a dramatic conclusion this week as the California Public Utilities Commission voted to approve changes to the way Californians generate and store solar energy in their homes.


Thursday’s vote locks in new rules for a policy known as net metering, or NEM 3.0, a billing mechanism that allows residents who generate power to receive financial credit for any surplus energy they send to the grid.


The updated policy will reduce payments that homes and businesses receive for sending excess energy to the grid, a move which has been seen as both a necessary adjustment of a two-decade-old policy and an outright attack on the rooftop solar industry that could disincentivize people from investing in solar panels in the future.


It also includes fresh subsidies for battery storage, which the CPUC says will bolster grid stability by encouraging residents to store excess energy generated during the day for nighttime use when demand for energy peaks.


“California is poised to unlock the next phase of our ambitious climate change agenda, and this decision is part of that,” said Alice Busching Reynolds, president of the CPUC, at Thursday’s meeting. With the recent and rapid increase of battery storage, she said, “we’re building a powerhouse of clean energy storage for grid use in the evening to serve load when we need it, to complement the power produced by the sun and wind in the daytime.”


When net metering was first introduced in the late 1990s, its incentives were designed to encourage early adopters to invest in the high cost of solar panels and jumpstart a nascent industry.


It worked. Today, some 1.5 million Californians have installed solar panels, generating around 12 megawatts of clean electricity. In the past 18 months alone, the state has seen a 25% increase in adoption, noted Matthew Freedman, staff attorney for The Utility Reform Network.


Net metering “has really pushed daytime gas and, at one time, coal, off of the grid at the times when the sun is shining,” said Matt Baker, director of the Public Advocate’s Office at the California Public Utilities Commission.


But over time, said Baker, the benefits enjoyed by solar customers have become incongruent with the harms inflicted on non-solar users, especially low-income ratepayers, for whom the cost of rooftop solar is often out of reach but who end up paying for public programs like wildfire migration and maintaining an aging grid.


“If you live in the Bay Area, about 11%, 12% of your bill goes to pay for NEM,” said Baker. “And given that it doesn’t quite have the carbon benefits it had in the past, we think that part of this ruling is really important.”


The technical term for this imbalance is called “the cost shift,” which has become a political lightning rod, animating much of the debate.


In 2022 alone, customers without solar panels paid more than $4.6 billion to subsidize those who participated in net metering, the CPUC Public Advocate Office found. And those customers without solar tend to be middle- and lower-income ratepayers.


According to a 2021 report from the U.S. Department of Energy, low- to moderate-income households account for 43% of households across the country. Yet in 2018, only 15% of those households had solar.


“We’re now at the point where the policies need updating because they’re not fit for purpose,” said Baker. “Solar doesn’t compete with natural gas anymore; it competes with other solar, wind, geothermal and other forms of clean energy.”

Still, some don’t agree with the notion of a cost shift.


“Even if you don’t have solar, you are benefiting, the pocketbook is benefiting, and you’re also benefiting from clean energy for the planet,” said David Rosenfeld, executive director of Solar Rights Alliance, an association of California solar users, who argued that rooftop solar can help cut down the cost of equipment and infrastructure by reducing the need for it.


The new ruling, which some saw as a win for the solar industry, keeps intact the original benefits of net metering for existing customers, meaning that the rate of return for energy shared with the grid remains the same, and no monthly fees will be levied.


“This is basically all about making sure that these solar companies can still sell their product, which is just not, I believe, the correct purview of the CPUC or the state legislature,” said Severin Borenstein, an energy economist at UC Berkeley.


But Baker called the new rules “the best the commission could do” after the initial proposal was met with swift rebukes from the solar industry, which said the changes would “kill the industry overnight.”


Still, the CPUC concedes that even under this new rule, the cost shift will still impact low-income households, but to a lesser extent. Analysis from the Public Advocates Office has found that the annual cost shift will increase to $7.6 billion by 2030, a decrease of 24% compared to the status quo.


“Solar customers are overwhelmingly middle- and upper-income households,” said Commissioner Clifford Rechtschaffen at Thursday’s meeting. There are “very few people in the lower income category — It’s a burden for them to take on rooftop solar.”


Some fear the new policy will continue to be felt acutely by renters, who pay utilities for power but have limited autonomy over how or where that power comes from, all while landlords have few incentives to install solar panels.


“This is a program to benefit homeowners that is paid for by other homeowners and renters,” said Freedman of TURN. “If you are a renter, you basically are excluded from benefiting from the net metering program.”


There is also concern that the new ruling, which doesn’t go into effect until April, will create a run on solar panels before the deadline, with people scrambling to lock in the old rates.


“We’ve characterized it as a gold rush,” said Freedman. “If you let people know they have a certain amount of time to lock into the deal of the century. Then many customers will take it, and the industry will use it as a sales pitch, guaranteed.”

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