Rooftop solar in California won’t be the deal it once was under new proposed rate structure

After two years of debate with stakeholders, consumers and investor-owned utilities, state regulators are close to finishing a new rate structure for rooftop solar systems in California.

The result is a system of peak and off-peak pricing, transitional buffers and calculations so complex one agency representative described it as something akin to “spaghetti.”

There still may be some tweaks in the details before the five-member California Public Utilities Commission takes an expected Dec. 15 vote on the proposal, which was released Nov. 10.

Involved parties have been meeting frequently with Commission President Alice Busching Reynolds since a public hearing on the proposed decision Nov. 16.

But one thing is sure: It’s a game changer.

The generous economic incentives that helped drive solar adoption by 1.5 million residential, commercial and industrial users over the past quarter century will be trimmed substantially in a bid to restore equity among all California consumers — solar or otherwise.

That was the goal after a study determined that those who generate their own electricity unfairly escape paying for a host of general grid services like maintenance and upgrades, nuclear plant decommissioning, discount programs for those with the lowest incomes, wildfire mitigation and equipment hardening.

Those costs thus are borne by a shrinking group of ratepayers who are disproportionately lower income — though that’s improving.

The fact is, most solar users still depend on the transmission grid to export excess electricity beyond what they need and to import electricity when it’s dark or overcast and they can’t generate their own.

More importantly, the credits rooftop solar owners accrue for sending excess power to the grid are still so high that they drive up rates for everyone else, critics say.

Utilities like Pacific Gas & Electric are obligated to credit that electricity at the same per kilowatt retail rate at which their other consumers purchase power, even though the company could buy it far more cheaply from a large solar farm or other renewable sources.

The result is what some call a “cost shift” that amounts to nonsolar users subsidizing solar users by more than $4 billion a year, even as the cost of installing solar plummets, said Matthew Freedman, staff attorney for The Utility Reform Network, or TURN, a more-than-40-year-old San Francisco-based nonprofit consumer advocacy group.

Though difficult to calculate, that’s several hundred dollars per year, per person, according to Kathy Fairbanks, a spokeswoman for Affordable Clean Energy for All, a coalition of 120 community, faith and civic groups, funded by California’s major electrical providers. In San Diego, about 20% of utility customers’ bill go toward solar subsidies, according to a Tweet by Matt Baker, director of the Public Advocates Office at the Public Utilities Commission.

Solar adopters have lots of reason to tout rooftop solar: economics, environmental concerns and improved disaster resiliency.

They also may think they’re “sticking it to PG&E,” or whatever utility provides service in their region, Freedman said. “But it’s basically everybody else that gets stuck with kicking in to cover the share of everybody else that isn’t paying,” he said.

Solar industry representatives say they get that it’s time to cut back the incentives, now that rooftop solar has such a strong foothold in the state. (Those with existing solar systems operating under 20-year rate contracts will not be affected by the new proposal.)

Originally established in 1996 to stimulate adoption of varying energy resources at a time that rooftop solar was extremely expensive, the initial convention allowed users to generate their own electricity when the sun was up and export any excess back to the grid, earning credit at the same rate nonsolar users paid for each kilowatt of power they used.

When it was dark or overcast, individual solar users still had access to electricity. They just used their credits to cover the cost of power they imported from the grid. Their total bill was equal to whatever those credits didn’t cover, if any.

It was a deal they locked in for 20 years, usually recouping capital costs in about a decade. Anything above that was, as they say, gravy.

Though revisions later reduced the export rates, particularly during a wholesale rewrite of the framework in 2016, the upfront costs of installing solar declined so rapidly, the investment remained highly profitable, especially with two years of spiraling utility rates that have also bolstered the credits solar users accrue.

But the solar industry says the drastic reduction in export rates now imagined, even with annual “adders” to intended to buffer the pain for residential customers over the first five years, will disincentivize consumers from going solar, hurting decarbonization efforts and the industry.

The new proposal would go into effect in mid-April if approved Dec. 15 and would immediately reduce the rate at which North Bay solar users would be credited for exported electricity from an average of almost 30 cents per kilowatt-hour in Northern California to less than 7 cents — a 77% drop.

Over a four-year transition period, the rate would step down to about 5 cents per kilowatt-hour on average, though in reality the rates would very by month, hour and weekday v. weekend to reflect the true value of exported electricity based on overall grid demand.

“It’s just ridiculous,” said Bernadette Del Chiaro, executive director of the California Solar & Storage Association.

She and others argue that utilities have exerted sway over the Public Utilities Commission, in part to create more favorable conditions for utility-owned solar conditions that are less resilient and less environmentally thoughtful.

They also say that increasingly distributing power generation to discrete sites would put less wear and tear on the grid — a point roundly disputed by other who cite its role in the import and export of rooftop solar power.

And they dispute the value of the credits and time-of-use rates that are intended to encourage solar users to get storage batteries that will allow them store solar-generated power for their own use during night and overcast periods, as well as transfer it to the grid during peak demand.

“We would love that,” Del Chiaro said. “Under this proposal, adding a battery would be about the same as it is today, but the stand-alone solar just got 50% more expensive under this proposal.”

“It will definitely slow the market and really hurt the economics,” said Jason Jackson, owner of Sebastopol-based Vital Energy since 1971.

Folks “want to do their part and take responsibility for their footprint on the climate,” but they also want to know that it will pay for itself, Jackson said.

Customers who now have a four-to-six-year payback period will be looking at nine or 10 years instead. And since the rate agreement doesn’t transfer to a new owner, its disadvantageous to make the investment unless the house will be held in ownership for at least nine years, he said.

Solar industry representatives say installations will decline, as a result, jeopardizing California’s renewable energy progress and threatening the health of the industry, as consumers realize they the same investment made next year and in the future will be less lucrative than in years past.

The commission said homeowners will still save an average $100 a month on their electrical bills by installing solar and be able to recover their capital costs in about nine years, instead of about six. And they’ll still know the satisfaction of generating their own clean energy.

And some say the proposal still favors the rooftop solar position supported by many environmental groups, though not all.

“The lines have been drawn,” Freedman said.

You can reach Staff Writer Mary Callahan at 707-521-5249 or mary.callahan@pressdemocrat.com. On Twitter @MaryCallahanB.