California utilities claim that current solar consumers impose a cost of $2.8 billion on non-solar consumers. They say this adds $200 to every non-solar consumer’s energy bill every year. They call this the “cost-shift” and they have launched a massive public relations campaign, creating a utility-funded front group called Affordable Clean Energy for All, around a call to “fix the cost shift.” Under this frame, they have proposed dramatic policy changes to net metering (NEM), the foundational policy to consumer solar, that would harm existing solar users and all but eliminate the rooftop solar market going forward, killing $4 billion in economic activity, 65,000 jobs, thousands of small businesses, thwarting California’s ability to achieve its clean energy goals on time.[i]
The real cost to consumers that deserves the attention of policy makers are the $4 billion in transmission costs, a 66% increase over 2016 in PG&E territory alone.[ii] In addition, California’s investor-owned utilities charged ratepayers $5 billion in wildfire liability expenses in 2019, costs which are expected to increase.[iii] Together, these $9 annual billion ratepayer costs amount to the real cost policy makers should be concerned with. Distribution system costs are on top of these.
The California utilities’ cost-shift numbers
are flawed in six main ways
Flaw #1: Energy not purchased from the utility is a direct cost shift on all other ratepayers.[iv]
If a farmer, school, or homeowner generates their own electricity from the sun, they are, in the utilities’ mind, shifting costs onto their neighbors. Yet, consumers are not obligated to buy a certain quantity of power from PG&E, or any other utility. Nearly 50% of the energy generated by a rooftop solar system is used onsite, by the solar consumer themselves.[v] This is called self-generation and it is, in essence, no different than energy efficiency and conservation. If everyone in California suddenly consumed half as much electricity on hot summer days when the sun is shining brightest and the grid most stressed, costs for everyone would come down thanks to supply and demand economics. Further, the grid itself could be smaller and require less infrastructure if everyone used half as much energy, saving everyone money.
Correcting for this misrepresentation would cut the utility-purported cost shift by more than half, given that more than half of solar power is self-generation, from $200 per year to less than $100 per year. Net metering is solely about spinning the meter backwards for a utility bill credit. It is not about whether customers are obligated to buy a certain amount of energy from the utility. The value of the credit that solar users receive for energy put back on the grid is the core of today’s net metering debate and it should be limited to that. With economy-wide electrification efforts underway, California should look for every opportunity to reduce strain on the grid, including self-generation. This will save everyone money.
Flaw #2: Infrastructure Costs Are Fixed
Utilities claim that all their infrastructure costs are fixed and therefore everyone using the grid needs to pay for these costs today and going forward. In truth, some costs are truly fixed and can be expected to be there for the foreseeable future. Solar users currently pay $120 per year just to interconnect to the grid to help cover some of these costs. The utilities oversimplify the equation around costs and benefits by ignoring the fact that the grid is constantly being expanded to accommodate growth and/or changes in demand. If demand were to stop growing or to shrink, especially during peak times of the year, long-term infrastructure costs would shrink. If a solar user buys an electric car and covers that car’s load with rooftop solar panels, there is no cost shift to that person’s neighbor, there are only cost savings. In contrast, if every new electric car draws 100% from the grid, costs will increase for everyone as the grid will have to grow to accommodate all that increased load. There is a profit loss for PG&E and other utilities, however. And that is what the controversy over rooftop solar is all about.
California utilities profit most when everyone demands a lot of electricity at the same time because this justifies the buildout of more infrastructure. Poles and wires are where PG&E and the other utilities get their guaranteed rate of return. Consumers never benefit when demand outstrips supply, but it is under these conditions that the investor-owned utilities justify massive build outs of infrastructure. Over the past twenty years, California’s investor-owned utilities spent $20 billion on infrastructure and reaped $20 billion in profit. California has invested in energy conservation (e.g., Flex Alerts), energy efficiency, and distributed generation for the very reason that these strategies help lower costs for everyone as well as improve grid reliability. California’s net metering law, passed in 1995, was not a subsidy program but rather a simple mechanism to encourage consumers to install enough rooftop solar to diversify California’s energy resources and create a financially healthier and more affordable grid for everyone.
In 2018, the California Independent System Operator canceled $2.6 billion in grid infrastructure projects due to the growth of rooftop solar.[vi] Some infrastructure and administration costs are unavoidable, but not all. Rooftop solar can save all ratepayers in the long run. A recent study found a major expansion in rooftop solar across the country would save Americans $473 billion.
Flaw #3: Rooftop solar is less valuable over time as California decarbonizes
California utilities purposefully undercount the value of rooftop solar in meeting the state’s ambitious climate change goals. This undercounting would be one thing if the utilities were generating 100% of their energy from carbon-free resources today or had plans to get there by 2030. But the reality is, California has a long way to go to get to 100% zero carbon and every solar rooftop helps.
In calculating their cost-shift numbers, the utilities count 9 years-worth of benefits of a rooftop solar system that is designed to last 25 years.[vii] This is not only obviously flawed on the face of it but, further, it negates the increasing value of decarbonizing the economy over time as we get closer to 100% clean power. As California gets closer to 100% zero carbon, we will have exhausted the “low-hanging fruit” and it will become more difficult to get to 100%. Solar installed today will generate clean energy for 25 years. By evaluating rooftop solar for nine years rather than 25 years, California utilities are deliberately using lower value years and excluding higher value years. The state-approved value of solar calculator was created to measure lifecycle costs and benefits. The utilities are deliberately misusing it to inflate their cost-shift numbers.
Correcting for this misrepresentation would cut the utility-purported cost shift in half again, from $100 per non-solar user per year to $50 per year.
Flaw #4: Rooftop solar installed ten years ago provides the same value as rooftop solar installed today.
In calculating their cost-shift numbers, California utilities capture the 500,000 solar roofs installed prior to 2017, so-called “NEM 1.0 customers” and assign them the same calculated benefits as rooftop solar installed today. In so doing, the utilities are ignoring the important context that existed when early adopters of solar installed their systems. Five, ten and fifteen years ago, when the first half million solar consumers were stepping up and helping usher in today’s clean energy revolution, California was heavily dependent on natural gas power plants and electricity demand peaked at 3pm on hot summer days. Further, contracts for large scale solar farms were far more expensive than they are today. If those half a million consumers had not built 10 gigawatts of rooftop solar (For scale, Diablo Canyon nuclear power plant is 2 gigawatts) over the past 15 years, utilities would have signed more large-scale solar contracts at a higher price to meet clean energy goals.
Correcting for this misrepresentation cuts the utility-claimed cost shift in half again, since half of today’s solar systems are five years old or more. Now, we are down to $25 per year of the utility-claimed cost shift for non-solar users, or $2.08 per month, or less. And that’s using the utilities numbers as our starting point.
Flaw #5: Energy generated from a rooftop solar system in the middle of a city is more expensive than solar generated on solar farms located hundreds of miles from the city
The utility front group, Affordable Clean Energy for All, claims non-solar users pay $0.25 per kilowatt hour for rooftop solar instead of $0.03 from a solar farm. Comparing wholesale prices against retail credits is a dishonest “apples to oranges” comparison based on false equivalencies. Buying an electron from a solar farm located hundreds of miles from Los Angeles is not the same as crediting a public school for an electron shared within the same neighborhood. Transporting the electron generated out in the desert across hundreds of miles of wires into Los Angeles is inefficient and expensive, both in the building and maintaining of the lines, and in paying for the growing liability of those lines in the form of wildfires ($5 billion per year). The solar system at the school in downtown Los Angeles avoids those costs and provides clean, renewable power right where and when Los Angeles needs it most. California is nowhere near generating 100% of its energy from zero-carbon resources. California needs all clean energy solutions to remain on the table if we are to achieve our climate change goals in time.
Flaw #6: Rooftop solar provides no additional value than a solar farm in the desert
Utility arguments against rooftop solar ignore unique values such as land conservation due to the ability to incorporate solar into the built environment, grid reliability due to reduced reliance on transmission lines, and the speed of decarbonization since 500 megawatts (size of a power plant) are built on rooftops across California every six months – much faster than can be achieved when building large projects in the desert. Maintaining a robust market for consumer solar will also help speed the adoption of battery storage, which will boost local resiliency.
These intrinsic values of rooftop solar are the hardest for utility economists to calculate and therefore often get assigned a “zero” value even though the public, and indeed our economy, values grid reliability, reduced threat of wildfires, and open space highly.
The Real Cost Shift
Utilities have guaranteed profit on construction of transmission lines. They have a financial incentive to build more power lines and perpetuate a system of getting energy from faraway power plants. Transmission and distribution costs have soared since 2016, increasing 66% in PG&E territory alone. Wildfire liability, largely due to PG&E’s failure to properly maintain the poles and wires, is costing ratepayers $5 billion this year alone. The unpaid bills from transmission construction and maintenance stand at $19 billion, 50% of which were self-approved, and will continue to go unchecked unless policy makers rein them in.[viii] They want to continue their runaway spending and drive those receivables higher. These are the reasons California’s electric rates are so high. This is the real cost shift, not the 15-20% of California consumers who have done their part to create a clean energy future for everyone.
Solar and Communities of Concern
In addition to the cost-shift argument, California utilities are weaponizing communities of concern by claiming that only wealthy consumers have rooftop solar. They cherry-pick facts that fit the narrative they want to tell to pit ratepayer against ratepayer and community against community, eliminating the growth of rooftop solar and batteries in the process. The fact is, as the price of solar has come down and the availability of financing options have become more available to consumers with low savings or credit scores, the adoption of rooftop solar in low and working-class neighborhoods has steadily risen. According to the Lawrence Berkeley National Labs, 42% of new California solar adopters in 2019 were in low- and working-class neighborhoods, making these communities among the fastest growing. Further, according to the California Public Utilities Commission, at least 150,000 low-income homeowners have solar on their roof, making up 15% of today’s rooftop solar market.[ix] These numbers show significant progress toward equity and inclusion goals and indicate the state is on the right path. California should improve upon net metering to further drive these investments, as opposed to making solar more expensive. Lastly, AB 693 (Eggman) is driving solar investments in multi-family affordable housing. Today, 400 properties with 33,000 units are building rooftop solar systems to directly benefit over 100,000 low-income families. These projects will help close the gap and make California’s rooftop solar market more inclusive and beneficial to everyone. Other policies like enhanced NEM and community solar can go even further.
Getting to 100%: More Solar and More Storage Are Key
California policy makers need to stop looking back and start looking forward if we are to decarbonize the fifth largest economy in the world within the timelines dictated by climate science. Net metering, as a policy, can and should evolve over time but the key question is how California continues to grow its distributed generation market while ramping up solar-charged batteries to cover evening peak. The investor-owned utility policies would all but eliminate the rooftop solar and energy storage market going forward, save for a few wealthy consumers for whom cost is no object.
All parties in the current CPUC NEM-3 proceeding have proposed major changes to net metering. Some of them are larger and some are smaller. Some are immediate and some are phased in over time. All of them represent major change.
CALSSA has proposed reducing the NEM credits by fifty percent, phased in over eight years, and tied to market growth.
The utilities have proposed cutting the NEM credits by 75% and adding a $60-90/month fee, starting immediately.
AB 1139 would cut the NEM credits by 88% and add a fee of $80 per month. These levels of change are hostile and unnecessary.
As California looks forward to how we are going to decarbonize our economy, we must focus on energy storage – the true bridge to a renewable future. California utilities are intent on eliminating the market for consumer solar before storage can get to scale and enable communities to manage their power locally. As energy needs increase from electric vehicles and electric buildings we should be striving to meet load growth locally. The California Energy Commission estimates California needs three times more rooftop solar by 2045 and 48 times more energy storage. To get to these goals, California must at least maintain its rooftop solar market and seek to pair 100% of solar systems with batteries by 2030. Making drastic changes to net metering will eliminate this important component of California’s clean energy path forward.
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[i] This effort reveals itself at the CPUC in the investor-owned utility proposals for NEM-3 as well as in AB 1139, a bill introduced by Lorena Gonzalez in the 2021 legislative session. The utilities publicly claimed to not have a position on AB 1139 but it was sponsored by the Coalition of Utility Employees and conversations with legislative offices reveal the utilities themselves were directly lobbying it behind the scenes. The utilities’ front group’s website posted a press release on April 23, 2021 praising AB 1139.
[ii] See page 36 of CPUC’s recent En Banc white paper on the affordability of electric rates.
[iii] En Banc, page 60.
[iv] Utility response to CALSSA Data Request #1 in CPUC Rulemaking 20-08-020. Note: CalAdvocates is cut and pasting PG&E’s figures into their own spreadsheet.
[v] CALSSA analysis shows 46% of the energy output of a typical 6kW residential system is consumed on-site, the rest is exported for bill credit to cover the customer’s load the remainder of the year.
[vi] CAISO, 2018 http://www.caiso.com/Documents/BoardApproves2017-18TransmissionPlan_CRRRuleChanges.html
[vii] See PG&E and CalAdvocates cost shift spreadsheets referenced in the above note. On all three tabs, “Cost-Shift 1.0”, “Cost-Shift 2.0” and “Cost-Shift 3.0”, PG&E and CalAdvocates, by extension, only calculate through 2030 instead of showing benefits for the systems expected to last 25 years, at a minimum.
[viii] See CPUC En Banc, page 39
[ix] See CPUC En Banc, page 28.