The California Public Utilities Commission’s proposed NEM-3 decision is based on a lie.
The proposed NEM-3 decision authored by former commissioner Martha Guzman Aceves claims that it would result in a ten-year payback period for solar and storage.[1] To claim this, it uses a solar cost of $2.34 per watt. This number comes from a research project that tracks the costs of basic components of solar systems – not the installed cost to the customer of the system as a whole but the underlying costs of major pieces of the system.
These tracked costs include the panels and inverters, plus the labor costs for an installation that is free of all complications, but do not include real world costs of running a contracting business, navigating the inconsistent permitting process, or installing components that are needed for many homes. All of these added costs are quite dramatic in a state like California. It is a useful exercise to track basic costs over time to understand trends in core costs, but to pretend this represents the real-world costs that customers face is a fabrication. Furthermore, as California aims to achieve deeper and deeper penetration of rooftop solar on lower and moderate-income homes, costs are likely to go up. For example, many older homes have antiquated electrical equipment and require a panel upgrade to host a solar and energy storage system. These added costs are not factored into the static and idealized cost of $2.34 per watt that the CPUC used to justify their proposed decision.
Lawrence Berkeley National Lab produces an annual report on the solar costs actually paid by customers in the real world. The most recent report shows that residential customers in California paid an average of $3.87 per watt in 2020. Hence, the CPUC is only counting 60% of the actual cost of solar.
The California solar market is fiercely competitive, with 185 contractors that install at least two systems every week and 740 contractors that install at least one per month. It is not possible to charge more than what is justified by actual costs because someone else will outbid you if you do. Solar companies operate on thin margins. This is, of course, good for consumers but it spells trouble for the entire solar market ecosystem if the Commission gets the math wrong for everybody.
The CPUC’s proposed decision also errs in claiming that a ten-year payback period is sufficient to sustain today’s solar market. That number is contrary to many years of experience. Even if the decision hits the ten-year market accurately, it will result in market downturn. On average in California today, solar pays for itself in around six years, assuming a federal tax credit is taken. It is well-known that increasing the payback to 10 years or beyond would significantly reduce the number of consumers willing to invest their own money in solar, and the market would decline immediately. This has been experienced by other states including Hawaii, Nevada, and Arizona.
The proposed decision as a whole would put the majority of solar contractors out of business. This would result in the loss of tens of thousands of jobs while hurting the ability to provide solar at affordable prices to low and moderate-income Californians. It would threaten the ability to cost-effectively mandate solar on new homes, and it would be an abandonment of our long-term carbon reduction targets.
To say that we can make up for a reduction in rooftop solar with more large-scale solar farms is folly because we are already pushing the limits of industrial solar development to meet our goals even if we continue installing solar in our already-developed cities and towns.
The CPUC is attempting to manage the solar market with top-down regulation based on bad math. If it continues on that path, it needs to rely on real data rather than picking numbers it finds convenient to justify a pro-utility decision, and using them out of context.
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[1] Many California consumers opt for a power purchase agreement, or “PPA,” for their solar systems to avoid the up-front cost of going solar which is around $23,000 for the average home before the federal tax credit. However, around 60% of California consumers opt to own their solar system outright, paying for it with savings or more commonly financing it through a loan. One way to measure the value of the solar investment is through a simple payback calculation. Simple payback takes annual utility bill savings and calculates how many years it would take for the upfront investment in solar to pay for itself. For example, if the solar system cost a homeowner $21,000 and saved the homeowner $2,000 in annual utility bill savings, the solar system would pay for itself in 10.5 years.