By Severin Borenstein
Special to The Examiner
California’s residential solar policy may be on the cusp of major change. In mid December, the California Public Utilities Commission issued a proposed decision that would gradually scale back the subsidies that were adopted more than 20 years ago to support the then-infant solar industry.
The proposed decision would reduce the compensation that households receive for the power they inject into the grid, ending net energy metering under which customers get paid the retail rate for their supply. It would also phase in a monthly fixed charge on solar customers to cover their share of system fixed costs, such as costs of transmission and distribution lines, wildfire mitigation and compensation, and investments in early stage technologies, among others. In addition, the proposed decision would beef up incentives for installing batteries alongside rooftop solar.
For the proposed decision to be adopted, a majority of the five commissioners must support it in a formal vote, which they could consider as soon as February.
You might think that the proposed decision would supercharge both sides of a policy debate about the value of residential solar. How much does it reduce grid investment? How much would it help balance local demand and supply? Is it cost-effective? Is California rooftop solar policy equitable? All issues that I and my colleagues at UC Berkeley’s Energy Institute have weighed in on over the last year.
You might think that, but media and stakeholder comments on the proposed decision have instead focused on how much the new policy would reduce the profitability and growth of companies that install residential solar.
So instead of a debate about the appropriate role of residential solar in addressing greenhouse gas emissions in California and beyond, the reactions have largely been about how much subsidy rooftop solar companies in California need in order to stay in business. If that sounds to you like climate policy is taking a back seat to political horse trading, you aren’t alone.
This redirection of the residential solar debate highlights a larger reality about problematic regulatory policies: Individuals and businesses make investments in response to those policies, and many come to believe that they have a right to see those policies continue indefinitely.
As California retail electricity rates have skyrocketed — primarily to pay for rising fixed costs that rooftop solar doesn’t alleviate — net energy metering has made residential solar a bonanza for the households who adopt it and the companies that install it. Responding to those incentives, over a million households have put in solar and entrepreneurs have built successful companies that sell it and install it.
That isn’t a criticism of those consumers or entrepreneurs. People are busy. It’s challenging enough to suss out all of the benefits, costs and risks of a major household purchase or a new business plan without also diving into debates over the best climate policy.
Yet, as electricity prices have increased and the CPUC has stuck with net energy metering, the ballooning subsidies have induced residential solar firms to go big on selling more dumb systems, without storage or grid communication. Those installations now do little to reduce grid costs or cut greenhouse gases in California, but are still the vast majority of new systems going in today. The result is costing non-solar households boatloads of money.
The distortion has been exacerbated by a California law that says rates charged to solar households must ensure “that customer-sited renewable distributed generation continues to grow sustainably…”
Let’s pause for a moment to appreciate the uniqueness of that legislative mandate. California doesn’t just have laws intended to reduce greenhouse gases and promote renewable energy generation; it also has an explicit provision that requires continued growth of a mature industry selling a specific deployment of a specific technology, regardless of its cost or value. Imagine what the outcome would have been if we had a similar law promoting miscanthus-based biofuel (you’ve never heard of it? there’s a reason), tidal power (ditto), flywheel storage or any of the other technologies that promoters say are nearly cost-effective, but just underutilized.
So now firms in the rooftop solar industry are howling that the proposed decision will slow or reverse their growth, while supporters of the proposed decision are arguing that rooftop solar will still do just fine. It has even led to the dizzying argument from the industry that their technology is over 50% more expensive than the proposed decision claims, so they need larger subsidies. Without larger subsidies, they argue, the industry won’t “grow sustainably,” so it is required by law, regardless of whether it is good policy.
Meanwhile, some current solar owners, and potential future adopters, express outrage that the proposed decision will rob them of their “right” to freely generate their own electricity. These arguments tend to be so wound up in freedom rhetoric and resentment of big government and regulation that I wonder if they remember that we are fighting a global pollutant, which requires collective action. In reality, of course, they are still free to generate electricity, and even to pump a lot of that into the public grid. They just have to pay for the grid as they continue to use it.
The proposed decision does infringe on the “right” to get paid the same rate for injecting power into the grid as they and others pay for taking power from the grid. Thankfully, that is not a right you will find in the Constitution. Still, misconceived rights arguments illustrate the consequences of regulations that are allowed to fester long past the time they make policy sense. Stakeholders who benefit find reasons — whether based on liberty, fairness, or some other admirable social goal — that it would be wrong to take away their special deal.
As is common when government buys out the beneficiaries of outdated regulation, the proposed changes would be phased in over time. The proposed decision would assure that nearly everyone who has already put in rooftop solar still sees substantial net savings overall. The goal isn’t to punish early solar adopters, but to correct the policy path we are on in which the only people left paying for the grid — the grid that all of us are going to be using for a long time — will be renters and low-income customers.
I don’t agree with everything in the proposed decision. I would prefer to see a faster phaseout of the over-compensation for exports to the grid. And I would much prefer to use funds to lower bills and increase renewable access for all low-income customers, not for the lucky few who will get solar. That could be done in part with community and small-scale solar, which is more cost effective and doesn’t rely on distorted retail rates.
But no one following this issue is going to get everything they want. The proposed decision is still a bold step toward a more rational climate policy, one that combines all of the decarbonization tools and technologies we have in order to chart a cost-effective and equitable path to zero emissions.
Severin Borenstein is a professor of the Graduate School at UC Berkeley’s Haas School of Business and faculty director of the Energy Institute at Haas.