Clawing back benefits for rooftop solar proves politically and programmatically perilous.
California is a leader in fighting climate change. You just have to look at a trace of an average day's electrical power sources to see what is going on:
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| One day in the life of the California electricity grid. Solar dominates during the day, but fossil fuels are still used heavily. Imports from other states are a mix of solar, nuclear, and fossil fuel sources, even some coal. |
Solar power now dominates electricity production during mid-day periods. California has 1.5 million solar roof installations, (supplying 12 GW of capacity), which are, however, dwarfed by utility scale solar of about 24 GW in huge desert arrays. California doesn't have the kind of wind power that Texas and the Midwest have, but we have gone all in for solar, which supplies one fourth of our electricity.
But we are only beginning to reshape the grid. Addressing climate change means getting to zero fossil fuel use. In the graph above, you can see that, even at mid-day, we have natural gas plants humming along, supplying one third of electrical needs. It is the most efficient natural gas power plants (combined cycle) which can not be used as peaker plants, but need to be on full time, more or less, ironically. And then we have a huge fleet of peaker plants (and imported power from those in other states) to provide the mad rush of power required to transition every night from daytime solar to evening. The daily peak of power use comes not at noon, but at 6 PM. On top of this, decarbonizing transportation and heating/HVAC of buildings requires further electrical loads to be added to the grid, not all at convenient times.
California utilities are not state-run, but are heavily regulated. For instance, they make no profit from retail electricity sales, but from grid maintenance and power plant provision, via "decoupling" rules. The California Public Utilities Commission (CPUC) is the regulator, and has the job of planning this enormous transition. One of its biggest headaches is what to do about rooftop solar. Back in 2006, the state set its million solar roofs initiative, with the central component being net metering, or NEM. This said that retail customers get the same rate paid to them for electricity sent into the grid by their solar panels as they pay for electricity they take out of the grid. Back then, with solar barely viable and a tiny proportion of production, this subsidy made a lot of sense. And the program became increasingly attractive as solar costs came down.
But today, NEM is less economical. Solar customers make up 11.5% of total households, an increasingly significant share of the utility customer base. Solar power at mid-day is decreasingly valuable to the grid, failing to relieve the real crunch that happens into the evening. The lost revenue represents not only money for electrical generation, but for grid services and maintenance, which solar households make particularly significant use of, as the grid is essentially their battery and longer-term backup. And who pays the freight? The other rate payers, who on average are less rich than those who can foot the bill for solar. Extrapolating to all residences having solar power, the utilities would no longer have anyone paying for the system, at all. The CPUC made a proposal in 2021, inspired by these imbalances (not to mention the loathing utilities have for NEM), to drastically cut rates paid for exported solar energy, and also charge a grid connection fee of roughly $60 per month for solar households.
This caused a firestorm, needless to say. In the proud American tradition of the powerful rebelling against any reduction of their ill-gotten gains or structural advantages, the proposal was mercilessly attacked in the press, and the governor forced the CPUC to go back to the drawing board. While the policy was indeed bad and would have destroyed the rooftop solar industry, the reaction was reminiscent of the Prop 13 "revolution", where property owners relieved themselves of taxes, or even the Boston tea party and American Revolution, where taxes meant to maintain the colonies were declared abhorrent impositions, later to be replaced by the far more ruinous costs of war and independence.
In the newest iteration, just released, the CPUC follows the Prop 13 blueprint and grandfathers in all existing solar installations, selling only future installations down the river of reduced payback rates. It also drops the particularly galling grid connection fee, which was, in a policy sense, entirely appropriate. Someone needs to pay for the grid, after all. For my part, I would support a new grid electricity rate, charged on both import and export of energy. That way, solar users would be charged for the outgoing loads they put on the system, and encouraged to install (and use) batteries to reduce all loads on the grid. Extrapolated to universal participation, this would, instead of killing the grid by underfunding, make it smaller, as a backup resource, with funding aligned with usage.
Anyhow, in a masterful show of bureaucratic obfuscation, the CPUC in its newest proposal sets the future payback rate of solar to be a mysterious function of overall costs and climate impacts over a regional and hourly basis through the year- called the avoided cost calculator, or ACC. From the simplicity of NEM, we now go to a system that is both impenetrable and unpredictable, since the yearly calculations have been wildly varying, and result from a byzantine mechanism that takes 100 pages to explain.
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| How the ACC was set in three recent years. The variability is evident. |
This seems like a case of the road to hell being paved with good intentions. It makes sense (in an ideal economic world) to relate the payback rate of exported solar power to the actual value of that power. The wholesale electricity market deals in such rates on a minute-to-minute basis. But the solar installation industry relies on predictability- the predictability of solar power coming out of solar panels for twenty or more years, and the predictability of its value, which was so neatly supplied by the NEM concept. This variable pricing proposal might be as dangerous for the rooftop solar industry as the grid connection fee was going to be.
That may have been the plan, I don't know. But the CPUC needs to figure out what it wants at a deeper level. We can grant that on a global basis, residential rooftop solar is a relatively inefficient way to supply electricity and fight climate change. It is roughly 30% more expensive than utility-built mass solar installations. In compensation, the distributed nature of residential solar lowers the typical grid load, evens out production, and supplies important backup capability to customers, when paired with battery storage. Battery storage is something the CPUC aims to make default for solar installations, by using differential rates to offer low rates for electricity export at peak solar times, and paying much higher (if unknown!) rates at peak grid demand and demand growth times. The need to stabilize the grid and get rid of all those natural gas peaker plants is palpable. The CPUC plans for a future of utility scale battery installations that will provide that time-of-day balancing.
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| The California climate plan- how will we get there? |
The key problem is that the state (and CPUC) plan is to grow residential solar, almost doubling penetration over the next decade, and more than tripling over the longer term. The combination of ever-expanding grid scale to electrify the state plus decarbonization means that everything needs to be pursued- utility scale, residential, and storage, all as fast as possible. That is not going to happen with reduced incentives and greater uncertainty for the residential solar sector. After all, the whole regulatory mechanism exists to not to precisely calibrate the lowest cost source of power- markets can do that. It exists to shift costs around, so that the future (and externalized) catastrophic planetary, social, and economic costs of climate change can be brought forward to influence today's choices.
So there is a solution to this mess, which is to tax fossil fuels at much higher rates. Rather than fighting over marginal solar export rates and which kind of solar installation is better for the grid, we need to assess costs where the real costs lie- at the fossil fuels that are poisoning the biosphere and keeping us from a sustainable future. Since the CPUC is in control of the economics of electricity in the state, it should turn its formidable bureaucratic skills (in collaboration with the other entities that are in charge of fuel taxation, principally the legislature), in a more useful direction, such as raising the costs of the fuels we don't want while lowering those we do. That might mean charging a climate mitigation fee over all fossil fuels (beyond the very modest cap and trade fee California already participates in) that would pay for a moderated NEM bonus for residential solar, plus the batteries, grid strengthening, and everything else needed to put us on a deeper decarbonization path. Raising rates for electricity overall while redistributing prices in this way to favor clean energy would be difficult to sell, but quite justifiable. Especially if it did not penalize electricity use over the direct use of fossil fuels for heating and transportation, by taxing those fuels uniformly.
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