Setting the Record Straight: Solar Incentives Contribute to Mounting Electricity Rates

The Public Advocates Office is committed to ensuring that California’s energy policies are equitable, sustainable, and serve the best interest of all ratepayers, particularly as we confront the challenge of making electricity more affordable while helping meet the state’s electrification and climate goals.

Our recent fact sheet on the Net Energy Metering (NEM) cost shift estimates that ratepayers without rooftop solar will subsidize the cost of the solar incentive to the tune of $8.5 billion by the end of 2024, more than doubling since 2021. Our findings are rooted in rigorous analysis based on actual data and in line with the California Public Utilities Commission’s (CPUC) methodology – the Avoided Cost Calculator.

Recently, the California Solar and Storage Association (CALSSA), the trade association for rooftop solar corporations, released a misleading press release about our findings. We believe it’s important to clarify that the solar incentive structures for NEM 1.0 and 2.0 programs overcompensate for the benefits provided and do not accurately reflect the cost of solar and storage. These incentives are one of the main drivers of the current rates crisis, placing undue burden on non-solar customers, such as renters and lower-income households, and will impede the state’s electrification efforts if not addressed.

• Rooftop Solar is Not the Same as Energy Efficiency and Conservation

  CALSSA's claim that rooftop solar or self-generation should be equated with energy efficiency and conservation is comparing apples to oranges. This overlooks that energy efficiency effectively reduces the demand a home places on the grid, whereas customers with rooftop solar primarily rely on the grid during non-solar generating hours, contributing to peak demand and to the costs for maintaining and upgrading grid infrastructure. The existing NEM 1.0 and 2.0 incentives shift a significant portion of these infrastructure costs onto non-solar customers, many of whom are low-income. As such, all rooftop solar customers should contribute to these costs.

• Correcting a Muddled Definition of Utility Fixed Costs
  A fixed cost refers to a cost that does not change as a result of how or when customers use energy. However, CALSSA erroneously defines fixed costs as costs that do not change over time. For instance, the cost of replacing wires to improve wildfire safety is a fixed cost because it does not vary with energy consumption, though the actual cost of replacement can change over time due to changes in cost for materials, labor, and other factors. While the need to monitor and address utilities’ overspending is a priority, maintaining and upgrading the grid is still necessary and the associated costs should be shared by all ratepayers. CALSSA has participated in the CPUC’s public hearings on this matter and should be aware of the correct definition of a fixed cost in the context of setting energy rates.
• The Avoided Cost Calculator and Long-Term Benefits
  CalSSA’s criticisms of the CPUC’s Avoided Cost Calculator are misdirected. The Avoided Cost Calculator is a standardized and publicly available tool approved by the CPUC to calculate the dollar value of costs that are avoided due to the generation and distribution of energy related to demand-side resources such as rooftop solar. These avoided costs include all the benefits of rooftop solar: avoided generation capacity, avoided transmission and distribution capacity, and avoided energy cost, among others.

  
  The CPUC regularly updates the Avoided Cost Calculator based on input the CPUC receives from stakeholders – such as CALSSA and the Public Advocates Office – which is considered in the CPUC’s public proceedings.

• The Public Advocates Office’s Commonsense Proposals Would Ensure Rooftop Solar Customers Receive Generous Subsidies without Accelerating the Cost Shift
  As ratepayer advocates committed to California’s climate and energy goals, we recognize that the generous NEM subsidy was an effective incentive when adopted, driving significant growth of rooftop solar. However, the incentives have resulted in runaway retail rates, paid by non-solar customers, despite the wholesale price of renewables falling. This situation is untenable both in terms of affordability and reaching our climate and energy goals through electrification.

  
  Because the NEM subsidies are directly tied to retail electric rate increases, whenever rates increase so do the subsidies. As such, the NEM program benefits have far outpaced expectations, including those of the solar corporations.  A more equitable approach is to set compensation based on when a customer signed up for solar.  This would still guarantee that solar customers would see a sizeable return on investment while mitigating the unreasonable mechanism that continues to push ever-increasing cost burdens on non-solar customers.

  Rooftop solar is an important resource as we move to reduce greenhouse gas emissions.  It should continue to grow while being managed in a manner that is fair to all customers, especially for those who are unable to install rooftop panels. The NEM subsidy accounts for approximately 21-27% of non-solar customer bills by the end of 2024 – a fact that cannot be ignored. This percentage will only continue to grow if current policies remain unchanged.

• The Danger of Continuing with Status Quo
  In seeking the status quo, the solar industry’s position would effectively hamper progress on the climate crisis by contributing to higher than necessary costs for electricity – making customers less likely to switch away from gas to electric appliances. To require non-solar customers to pay upwards of 20% extra on their utility bills so that homeowners with rooftop solar can avoid paying for fixed costs, such as costs associated with wildfire prevention and maintaining the grid, is unfair and will only lead to further hardship.

California’s energy future depends on finding a balance between encouraging the growth of clean energy, incentivizing electrification, and ensuring fairness for all ratepayers.  This transition requires thoughtful decision making and monumental effort.  We welcome ongoing dialogue with stakeholders to achieve our shared goal of a clean, affordable, and reliable energy future.

Please contact Mary Flannelly at mary.flannelly@cpuc.ca.gov if you’d like more information on this issue.