By Hamilton Steimer
California and Florida are ranked first and third, respectively, in installed solar PV capacity in the United States according to the Solar Energy Industry Association. While these states are rich in solar resources and have a history of supporting solar PV, the latest policy developments suggest rooftop solar may have a more difficult future ahead. Opponents to each state’s net metering rules are attempting to change how rooftop solar owners are compensated for their clean energy, putting these states’ rooftop solar industries in jeopardy. As I will explain, there are some legitimate concerns, but these actions could weaken the country’s ability to reduce GHG emissions and mitigate climate change.
Net metering and rooftop solar in Florida
Florida has over 7,700 MW of installed solar PV, most being utility-scale solar. The rooftop solar industry has grown in recent years, now producing $18.3 billion in economic impact within the state according to one estimate. However, the industry still has much room to grow as only 1% of the 8.5 million electric customers have rooftop solar installations on their homes.
Opponents of rooftop solar claim that this 1% of electric customers is negatively affecting the other 99% by contributing to elevated electricity prices because of the state’s net metering law. Under this law, the energy that a household’s solar panels produce and is not used is credited back to the consumer at the retail price of electricity, so the household is only billed for their net energy usage. Allowing customers to be compensated at the higher retail price of electricity has been important for the success of rooftop solar because it allows those customers to quickly recoup their costs and quickly pay off their investment. Opponents have argued that the high compensation rates to rooftop solar owners place an unfair burden on non-solar customers because utilities consequently raise electricity prices to maintain their revenues and pay for costs like grid maintenance.
Recently, SB 1024 and HB 751 have been introduced in the Florida legislature, and these bills aim to fundamentally change the state’s rules regarding rooftop solar. For example, SB 1024 would allow utilities to lower the credit amount given to solar panel owners, most likely to wholesale prices, and charge these homeowners additional costs such as minimum monthly payments, grid access fees, and facilities charges. While customers who install rooftop solar prior to 2023 can maintain the existing net metering rate for 20 years, there will be a sharp decline in compensation rates spread over the next 5 years, which could greatly discourage future rooftop solar installments. Rooftop solar PV proponents have argued this move could “set [the industry] back a decade”.
Net metering and rooftop solar in California
California leads the nation with over 33 GW of installed solar capacity, which supplies ~20% of the state’s total net electricity generation. By itself, the state’s rooftop solar industry is massive, with 1.3 million homes having rooftop solar arrays installed. Despite the state’s growing renewable energy portfolio and other commitments to combat climate change, the state’s investor-owned utility regulator, the California Public Utilities Commission (CPUC), is considering dramatic changes to net metering rules which could destabilize the entire rooftop solar industry.
Originally created in 1995, the state’s net metering rules compensate rooftop solar owners at the retail rate, around 30 cents per kWh in some locations, for their excess electricity. With so many rooftop solar installations in the state, utilities and the CPUC have argued that solar customers impose a cost of $2.8 billion to the grid, which can end up costing non-solar customers over $200 a year on their energy bills. Utilities support the proposal being considered by the CPUC, which would cut the value of solar by around 60-70% or more, reflecting wholesale rates. It would also charge solar customers $8 per kW which would establish an equity fund to improve access to clean energy for low-income customers. Existing solar customers would continue to be compensated as before until 15 years after their system’s installation before switching to the new program.
The CPUC has delayed reviewing the measure as 2 new members just joined the commission.
Is the cost-shift argument true?
There is conflicting information regarding the validity of the cost-shift argument.
Utilities’ claims of added costs due to rooftop solar customers could be accurate, and I am reluctant to disregard them because the CPUC supports the claims. For example, California customers pay some of the highest electricity rates in the country, with PG&E customers paying 80% more per kWh than the national average. Although someone may have rooftop solar, they are still connected to the larger grid, which the utility has to maintain. With transmission and distribution accounting for 44% of the electricity price on average, this cost is very high. Utilities need to recoup their losses, so they end up hiking electricity prices, which hurt low-income consumers the most.
Proponents of rooftop solar say these arguments are incorrect and misleading by not recognizing the tangible benefits of rooftop solar and overestimating its costs to utilities. The California Solar + Storage Association (CALSSA) presented its counterarguments, echoing the stance of rooftop solar proponents in California and Florida. It first argues that the energy produced by rooftop arrays produce unrecognized grid savings for everyone, not costs. Nearly 50% of the energy generated by rooftop solar arrays are consumed by homeowners, which lowers demand on the grid, deferring the need to acquire additional generation and build new infrastructure. CALSSA also points out the obvious incentive utilities have to hurt rooftop solar, as they would profit from the needed buildout of additional transmission infrastructure and can justify more peak demand charges. As CALSSA states, over the last 20 years, California utilities have spent $20 billion on infrastructure and have profited $20 billion by raising rates. CALSSA presents these and other evidence against the cost-shift argument.
So who is right?
A 2016 study by Berkeley Lab suggests that the costs of distributed solar PV would have negligible effects on electricity prices. The report points out that energy efficiency measures taken by utilities have a greater impact on electricity sales than rooftop solar growth. Even when distributed solar reaches 10% of electricity sales, the impacts could be either a cost or benefit of half a cent per kWh. This would mean that, at least in Florida, it is unlikely the current rooftop solar market is having a significant negative impact on non-solar customers.
If the study holds true and CALSSA’s arguments are correct, utilities in California might be overstating the negative impact of rooftop solar on electricity prices. So the real question is, what else could be contributing to California’s high electricity prices?
Elevated electricity prices can be explained by a laundry list of reasons, each having an inflationary impact. One contributing factor could be the increasing grid resiliency costs and wildfire prevention measures utilities are having to take. You may remember, PG&E went bankrupt after it was found negligent and responsible for wildfires in 2017 and 2018, paying billions in fines and compensation to victims of wildfires. Just this past fall, the utility asked to raise rates totaling $3.6 billion in 2023 to pay for wildfire prevention measures, which could include tree clearing, monitoring devices, moving powerlines underground, and other actions.
Another reason could be the growth of utility-scale renewable energy generation. California utilities have had to divest much of their fossil fuel generation in favor of renewable energy such as utility-scale solar PV and wind turbines due to the state’s renewable portfolio standard. This requires minimum levels of renewable energy and has forced utilities to adopt technologies that may not currently be cost-competitive with fossil fuels. With most of these power plants not aligning with past fossil fuel plants, utilities have had to build out their grid transmission and distribution system to connect their systems, and they’ve had to buy/lease copious amounts of land that renewable energy plants require. A similar situation can be seen in Germany, which has invested heavily in renewables and has the highest electricity rates in Europe. 20% of German consumers’ electricity rates is the renewable energy surcharge.
A Quick Aside
Surprisingly, the Energy Information Administration’s (EIA) Annual Energy Outlook anticipates a decline in future electricity rates over time despite expected growth in renewable energy and overall electricity generation as society electrifies. Without fully understanding their calculations, this prediction seems surprising to me, as I would assume renewables might increase electricity rates, especially in states with renewable portfolio standards. The EIA’s calculations may include assumptions about when major renewable energy investments will be made and the cost-competiveness of the technologies. However, utilities will still have to build additional transmission and distribution infrastructure and invest in resiliency measures as climate change worsens. In addition to the infrastructure and land costs, most renewable energy plants have much shorter lifetimes and would have to be replaced twice over the lifespan of fossil fuel power plants.
An Unclear Future
If the CPUC’s and its regulated utilities’ arguments are true, it is hard to argue against the cost-shift claims, at least with respect to the California rooftop solar market. However, CALSSA also offers legitimate counterarguments that identify potential flaws in the calculations used by most rooftop solar’s detractors. As usual, it seems the truth lies somewhere in the middle.
There is one thing that we can say for certain: the new net metering proposals in Florida and California will create significant roadblocks and disincentives for new rooftop solar owners. If we should be prioritizing reducing our emissions, this is a major problem. As we decarbonize society, we want to support both utility and distributed renewable energy because both reduce our emissions, promote energy security, and ensure energy resiliency at a household and grid level. I would argue the energy resiliency benefits to households from rooftop solar should be emphasized the most, particularly in Florida and California, because homeowners face increasingly more frequent power outages from extreme weather events such as hurricanes and wildfires.
From what I have learned, the claims of Florida utilities seem premature, but that does not mean they will not eventually come to pass. Net metering is a policy created to incentivize the adoption of new, more expensive technologies, but it is not intended to exist forever. Based on current projections, solar PV will become increasingly more efficient and affordable, justifying the elimination of the high compensation rates provided by the net metering laws in Florida and California.
While I acknowledge there might be flaws to current net metering laws, I do not believe now is the time to remove this crucial policy support. Instead of weakening our ability to fight climate change, we should focus on improving our policy tools so that they work better for everyone. Maybe this means a gradual reduction of compensation rates over time that reflect cost and efficiency improvements of rooftop solar panels. Or maybe utilities need to recalculate the costs and benefits of rooftop solar to households and the energy grid. Or maybe solar PV owners need to pay increased fees to help with grid maintenance and resilience. Whatever these states decide to do, I hope they will reconsider their impacts on the rooftop solar industry. We are currently losing the battle against climate change, and now is not the time to disincentivize such an important energy asset.