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The Economics of Residential Rooftop Solar

Uploaded: Jan 16, 2022
The other day I mentioned to someone that I’m not a big fan of residential rooftop solar. His response was “You don’t believe in climate change?” That was my first clue as to how divisive the issue of rooftop solar pricing has become. (1)

There is little disagreement that rooftop solar pricing in California is broken. Solar customers do not pay enough and non-solar customers are left footing the bill. The California Public Utilities Commission (CPUC) looked into fixing this back in 2016 but they were lobbied hard by the solar industry and a split 3-2 decision left the revised rate structure (NEM 2.0) largely intact while the CPUC promised to gather more data.

Well, more data has been gathered and it doesn’t look good. The CPUC reports that PG&E’s NEM 2.0 customers pay just 18% of their total annual cost of service, while SCE and SDG&E customers pay only 9% (Table 1-7). They conclude that existing NEM 2.0 installations will increase bills paid by non-solar customers by $13 billion over 20 years (Table 5-1).

Source: Background image from Pixabay

Analysts at energy consultant E3 looked at the “first-year cost shift”, which measures the amount of utility costs that are shifted from solar customers to non-solar in the first year after a system is connected. Their analysis showed that to be $1,817 for PG&E, $1,287 for SCE, and $2,448 for SDG&E (Table 16). To make matters worse, because solar customers tend to be well off, this represents a cost-shift from the wealthy to the less wealthy. The CPUC reports that “the costs of NEM are disproportionately paid by younger, less wealthy, and more disadvantaged ratepayers, many of whom are renters.”

Yet another way to look at market distortions is with three other metrics that reflect how much solar customers, non-solar customers, and the system as a whole benefit: (2)
- PCT = Participant’s benefit-cost ratio (Participant Cost Test)
- RIM = Non-participant’s benefit-cost ratio (Ratepayer Impact Measure)
- TRC = Full system’s benefit-cost ratio (Total Resource Cost)

NEM 2.0 metrics for residential rooftop solar for PG&E, non-CARE rates. Source: E3 analysis, Table 4 (2021)

The first two columns show that those with solar do very well while those without pay more than their share. The third column indicates that residential rooftop solar overall is not cost-effective, costing more than the value it provides to our grid. (3)

When solar is coupled with storage the benefit is greater because it can provide more valuable energy (e.g., between 4-9pm). These paired systems have a TRC value of 0.5 to 0.69, compared to 0.36 without storage. Because the value of these systems is expected to improve as storage prices come down, the CPUC is much more interested in promoting solar+storage than standalone solar.

From what I can tell there seems to be little dispute about this analysis and its general conclusions. The disagreement is more about how to fix it. (4)

Why is the issue of solar pricing so contentious and difficult? One reason is that solar customers enjoy their cheap electricity and would like to keep it. That makes sense. In addition, the solar industry wants the utilities to maintain low rates so demand for their business stays high. In fact, state law requires that pricing ensures that “customer-sited renewable distributed generation continues to grow sustainably”. On the other hand, economists, rate-payer advocates, and the government want to see fair and cost-effective rates; in fact that is part of the CPUC charter. The priorities are inherently conflicting. The unhappy act of balancing these competing interests falls to the CPUC, which in 2020 began a lengthy process that resulted in its recently-announced proposed decision. I will go over that decision briefly, then share a few thoughts about what else may be behind the uproar over solar rates.

After the CPUC shared and reviewed the analysis summarized above, they asked interested parties to propose their own rate structures, using a framework provided by energy consultant E3. The CPUC encouraged plans that would align prices with costs and be fair for all customers, that would encourage electrification, and that would allow the industry to “grow sustainably”, especially in disadvantaged communities.

Nearly a dozen organizations developed fairly complete plans and many others provided partial feedback. E3 analyzed the submissions in a June report. The proposals fell largely into two camps, with the solar industry in one and rate-payer advocates and investor-owned utilities in the other. Two environmental groups were split, with the Sierra Club largely aligning with the solar industry and the Natural Resources Defense Council (NRDC) aligning with the rate-payer advocates and utilities.

Some of the questions that the plans needed to address were:
- How should solar customers be credited for energy they export to the grid?
- What should solar customers pay for electricity they import from the grid?
- How should solar customers pay for fixed costs (e.g., transmission and distribution) if they are using little net electricity? (5)
- How many years should it take to pay back a solar installation?
- How should we address the issue of equity?
- How should we transition to the new rate structure?
- Should any of this be retroactive to existing customers?

There was good agreement on some elements but wide disparities on others.

How should solar customers be credited for energy they export to the grid?
A big part of the problem with the NEM 2.0 rates is that solar customers are credited for energy they export to the grid using full retail rates, which are much higher than the cost the utility would otherwise incur for that energy at that time. Virtually all proposals suggested they be credited instead at “avoided cost” to better align costs and benefits and create a more accurate price signal. (6) This is where the CPUC landed with its proposal.

What should solar customers pay for electricity they import from the grid?
There was also good agreement on import rates, namely that solar customers should pay highly differentiated time-of-use rates, again to better align costs with benefits. The investor-owned utilities already offer such rates to some degree, though new rates could qualify as well. The CPUC agreed that requiring solar customers to be on these rates is the right approach, and cites PG&E’s EV2-A, SCE’s TOU-D-PRIME, and SDG&E’s EV-TOU-5 as eligible rates.

How should solar customers pay for fixed costs (e.g., transmission and distribution) if they are using little net electricity?
In California many fixed costs are incorporated into the per-kWh electric rates. If you aren’t using much electricity, you don’t pay much. Can these costs be better allocated to solar customers, whose systems rely on the grid and who often consume at peak times? There was a wide disparity of opinion on this. The investor-owned utilities argued for a substantial charge on solar bills to more appropriately allocate costs and avoid the cost-shift to non-solar customers, citing expenses like transmission and distribution, wildfire hardening, public purpose programs (e.g., CARE), and nuclear decommissioning. In contrast, the California Solar and Storage Association (CALSSA) claimed that this type of fee is neither just nor reasonable, and in fact is illegal.

For those supporting the charge, proposals ranged from $6/kW to $14/kW. The CPUC landed on a monthly “Grid Participation Charge” of $8/kW, but with no charge for low-income households. This charge would replace the existing “nonbypassable charge” billed to solar customers and eliminate the $10 minimum bill. CALSSA calls this proposal “draconian”, and the Grid Participation Charge remains a major point of contention.

How many years should it take to pay back a solar installation?
The chart below shows the variation in “payback period” in the proposals, with the solar industry proposing much shorter payback times than the ratepayer advocates and utilities. All are longer than the current NEM 2.0 payback period of 4.5 years, shown in light blue at the bottom.

Payback periods advocated in proposals to CPUC. Source: E3 analysis, Figure 1 (2021)

The CPUC explained that it wasn’t interested in targeting a payback period for solar-only projects because these systems are not cost-effective for the grid. For a combined solar+storage system, which provides more benefit, they set their rates to target a payback period of 10 years. The solar-only payback in the CPUC proposal ends up being about 13 years for PG&E and SCE customers, and 7.4 years for SDG&E.

How should we address the issue of equity?
Solar providers argued that the best way to improve equity is to create more incentives to deploy solar for low-income households, while utilities said the best way is to lower rates for low-income households by addressing the cost shift. The CPUC opts to do both, adding some modifications to the rate structure to make solar systems more affordable for low-income households and setting up an Equity Fund to help pay for them. (7)

How should we transition to the new rate structure?
The solar industry suggested phasing in the new export compensation over time, while the utilities dismissed such a proposal as “a request to perpetuate the inequity caused by the current net energy metering program”. The CPUC concluded that “the magnitude and severity of the cost shift requires immediate action by the Commission”, deciding against gradually phasing in the new rates and opting instead to ease the transition with a small “Market Transition Credit” on the bill for a period of ten years, as shown below. This amount is only available to those who adopt the rate in the first year. After that it drops by 25% each year for new customers before phasing out entirely after four years.

CPUC’s proposed Market Transition Credit. Source: CPUC Proposed Decision (2021)

Should any of this be retroactive to existing customers?
This may be the most contentious element of the CPUC’s proposal. Solar companies warned that changing compensation for any existing customers would be “profoundly destabilizing” and “illegal”. But the ratepayer advocates and utilities felt it important to do more than just stop the bleeding, which is all that happens if the rate change is not retroactive. The CPUC agreed. As they put it: “The changes we have made thus far in this decision do nothing to tackle this existing cost shift. The changes only attempt to prevent or at least limit additional cost shift from new customers.”

The more aggressive advocates for rate reform suggested that existing customers should be switched to the new pricing 8 years after their system was installed, reasoning that was ample time to pay back their system, after which they would continue to receive bill savings albeit at the reduced new rate. The CPUC was more conservative, opting to give solar customers a full 15 years on their existing rate before requiring them to switch over.

That is pretty much the gist of the proposal. You can see in the table below that the cost shift is greatly reduced in the CPUC’s proposal, though still not zero. You can also see that the plan encourages storage (the PCT metric shows it is a better deal for participants), which is much better for the grid (see TRC column). (8)

Comparison of NEM 2.0 with the CPUC proposal for an installation in PG&E territory, non-CARE rates. Source: E3 analysis Tables 16 and 17 and CPUC Proposed Decision, Appendix B Table 2.

The outrage about this proposal surprised me -- in many ways it appropriately rights a long-standing wrong -- but in retrospect it shouldn't have. Solar customers have long understood that they are providing good, clean energy for California while also enjoying lower rates. They may have leaned into that by buying an EV or electric heater that they can operate at extra low cost. You can see why they would be upset at having their rates changed, even after a generous 15-year grace period. The solar industry has grown to support customer demand for these low rates and doesn't want the rug pulled out from under it. The CPUC’s 2016 decision to leave a misguided policy on the books just left more people to get more invested in it.

To compound the problem, there is not much of a lobby for non-solar customers. People don’t generally trust the big investor-owned utilities, who are among those spearheading this effort. Organizations like the Public Advocate’s Office and the The Utility Reform Network are doing their part, along with the Natural Resources Defense Council and a raft of economists. But they can easily be drowned out. This leaves the CPUC facing an uphill battle.

I’ve been trying to find the strongest policy arguments against the CPUC decision, arguments based not on personal interest but on the public interest. In the most widely-circulated arguments I’m seeing more emotion than fact, with misleading claims, few studies cited, and fewer proposals to rectify the problems they do see (e.g., distributed storage costs are still too high). Even Stanford Professor Mark Jacobson’s opinion piece in The Hill seemed mostly devoid of economics. (9) Instead it’s largely about the need to electrify.

I haven’t seen this argument spelled out, but I think one concern about raising rates for solar customers is that it is easier to electrify when electricity rates are low, and California’s prices are anything but. The brightest spot for electrification is in solar homes where rates are heavily subsidized. If we take that away, and instead just lower everyone’s rates slightly, the fear may be that the easiest case for electrification will disappear and we will lose our momentum.

I’m not convinced. Lower electricity rates certainly help to encourage electrification. But if that is the justification for the heavily subsidized solar pricing, then we should be more transparent about it and the rate structure should be tied much more closely to electrification than to solar. Moreover, there may be options for more widespread and equitable electrification. For example, the state could assume and then recoup in taxes more of the fixed costs of the grid, ideally assessing these more progressively than the utilities can easily do. Electricity rates would decrease significantly and be more equitable, while electrification would be accessible to many more people. UC Berkeley economist Severin Borenstein has been championing this for some time. I wonder if the state will have to do something like that anyway for our gas infrastructure as homes electrify and fewer households are left paying for it.

Final comments on the CPUC’s proposal are coming in and the final decision should be announced some time this month or next.

In the meantime, my advice for households concerned about climate change is to prioritize reducing your fossil usage over switching to rooftop solar. You can still save money while making a much bigger impact. Switch your car to an EV. Fly less. Get a smart thermostat that can save 10% or more on your gas bills. Try a heat-pump water heater and/or a mini-split to see your gas usage plummet.

If you also have or want to get a solar roof, fine, but consider adding storage. Evening electricity is the critical (and much more expensive) resource, and storage enables you to have power when you need it. A home battery also provides resiliency. It is very expensive so not accessible to everyone. But it is far better for the grid than a solar roof on its own.

Palo Alto switched years ago to using “avoided cost” for solar exports. Residents who want solar roofs can still get them, but not at the expense of those who cannot or will not. The policy went into effect in January 2018 and adoption stayed strong for the first two years of the revised rate. It leveled off in 2020 and 2021, though it is difficult to tell how much of that was due to COVID delays or the city’s widely publicized permitting difficulties.

Solar capacity in Palo Alto has grown significantly since the city began using avoided costs for exported energy. Source: City of Palo Alto Utilities

Recently my neighbors in Palo Alto were discussing solar roofs on our neighborhood email list. One neighbor was expressing doubt that they paid off, having found that the marketed payback periods were overly optimistic. Another replied: “In truth, I believe if you are doing this to either be (1) “green" or (2) "save money", it's probably not worth it. Palo Alto power is already 100% renewable and we have the longish payback time. I'm not sure I believe it really makes any economic sense, and power failure avoidance is still probably a once in every "n" year thing. So, instead, the rock solid reason for doing solar comes down to: (3) want to.”

And there is absolutely nothing wrong with that when you are the only one paying for that decision.

Notes and References
0. The most relevant documents for this post are the CPUC’s Proposed Decision, the E3 analysis of the proposals and the existing rate structure, and the Lookback Study that analyzed the existing rate structure. I would also call out a body of work by Severin Borenstein and other economists at the Energy Institute at Berkeley’s Haas School of Business. This is their most recent blog post on this topic, which has many other links to their other posts. In addition, this post from NRDC and this post from the Energy Institute address many of the most common complaints about the CPUC proposal.

1. This blog post is exclusively about residential rooftop solar. The analysis for commercial rooftop as well as community solar is different.

2. This graphic may help to clarify the three metrics in question.

This illustrates how PCT, RIM, and TRC are computed. This figure depicts values for solar plus storage in PG&E, non-CARE rates. Source: E3 analysis, Figure 5 (2021)

3. The chart below shows that, globally, the levelized cost of rooftop solar far exceeds that of utility-scale solar. The top row is residential rooftop solar while rows 4 and 5 are utility-scale. You can click through to the “Source” link for a clearer view.

Utility-scale solar is far cheaper than rooftop solar globally. Source: Lazard (2021)

4. The analysis was reviewed in depth as part of the CPUC proceedings and the avoided cost calculation undergoes annual review. There are still some lingering discussions about avoided costs -- there always are -- but that is generally not the focus of the debate.

5. Many of the largely fixed costs in California’s electricity grid are included in the volumetric (per-kWh) rates. This is partly what makes our rates so high, as I wrote about here. These costs include transmission and distribution, hardening against wildfires, public purpose programs (e.g., CARE), energy efficiency programs, and more. Currently solar customers pay a “nonbypassable charge” on each kWh they import in a given metered interval from the grid that covers some of this: the public purpose program charge, nuclear decommissioning charge, competition transition charge, and Department of Water Resources bond charge. The restrictions to metered intervals and imports-only constrain the amount collected, as does the limited set of programs covered.

6. Those of you who are Palo Alto residents may know that the City of Palo Alto Utilities already credits solar exports at avoided cost, having approved the change in 2016 and rolled it out in January 2018. The initial rate was $0.075/kWh, though it has been increased over time to $0.1078/kWh, largely because of increases in the cost of transmission and distribution.

7. More detail about this can be found in Section 8.6.1 of the CPUC’s Proposed Decision.

8. It may even be that storage on its own, without rooftop solar, could be a better value for the grid than solar + storage, but E3 did not analyze that option.

9. At the end Professor Jacobson pushes back against the per-kWh aspect of the Grid Participation Charge, saying that those who use the grid the least (larger installations) pay the most. It’s not clear to me that they use the grid the least (they may just have bigger houses). I am also strongly in favor of the wealthy paying a greater share of the fixed costs for our grid and this is a baby step in that direction.

10. It seems like residential rooftop solar would provide considerable value when it comes to reducing transmission or distribution costs. But studies show that is true only in certain places. If we were to distribute residential solar optimally, it could save money, but that is not what we do. You can find discussions about this here and here and here.

Current Climate Data (December 2021)
Global impacts, US impacts, CO2 metric, Climate dashboard

I expect you have already heard that the past seven years have been the warmest in recorded history. But a comment from climate scientist Dr. Zeke Hausfather that we will probably never again see temperatures as cool as we had before 2014 really struck me.

Source: Twitter

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Posted by EPL, a resident of Menlo Park: The Willows,
on Jan 16, 2022 at 7:22 am

EPL is a registered user.

Thanks for the detailed posting. I am against NEM 3.0 as written. Some comments

* You specifically set aside commercial roof-top solar, yet, NEM 3.0 impacts that category. Walmart posted a comment on that topic in the CPUC Docket. Walmart specifically says that NEM 3.0 will impact their carbon neutral goals.

* I agree that grid-scale solar generation is more cost efficient than rooftop solar generation, but rooftop is more efficient in land usage, it is driven by consumer behavior and private investment, creates local jobs, and it creates a shared community sense.

* Yes, there are transmission and distribution costs that need to be addressed. NEM 3.0 is a very rough "solution" that will have the result of either killing rooftop investment, or leading to off-grid battery+solar systems. We can and should do better than NEM 3.0.

* I think relying on Investor Owned Utilities (IOU) like PG&E to solve our distribution and transmission problems when "left alone" is naive. PG&E has done a terrible job. Community Choice Aggregators (CCAs) like Peninsula Clean Energy are going a much better job. We need the pressure from CCA and residents to force the IOUs to find good solutions.

* There is substantial work on the benefits of micro-grids elsewhere. Australia has been exploring that for a while, see Web Link So is Germany Web Link


* Submitting the Proposed Decision (PD) on Dec 13, just before the holiday break, which meant that official comments were due Jan 10th, looks like an attempt to minimize negative feedback. CPUC comes across as being controlled by the IOU. And yet, as of this morning there are over 4800 comments from the public in the docket, essentially all of them against NEM 3.0 as written.

Posted by EPL, a resident of Menlo Park: The Willows,
on Jan 16, 2022 at 7:48 am

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A quick follow-up

* My main objection to NEM 3.0 is the non-avoidable $8/kW of installed Solar Capacity. There are much better formulas.

* I have seen no analysis from CPUC (or the HaaS) of the impact of NEM 3.0 in consumer behavior. I saw the impact of a similar "grid connection fee" in Spain. There it was imposed in 2014 and it killed the industry. The fee was repealed in 2018 but the adoption has not recovered.

Posted by dana hendrickson, a resident of Menlo Park: Central Menlo Park,
on Jan 16, 2022 at 7:53 am

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This is an extraordinarily credible, thorough and important analysis, Sherry. Thank you!

Posted by Peter Converse, a resident of University South,
on Jan 16, 2022 at 9:02 am

Peter Converse is a registered user.

An encyclopedic argument to be sure and all the hard work is appreciated! That said, it implicitly assumes that the state is generally willing to expand utility-scale renewable energy sufficient to (a) allow for future demand growth, (b) decarbonize the state's grid, (c) electrify broad sectors of the state's economy, and so on. But it's pretty obvious that the state is not willing to do that, not within an order of magnitude of what these goals would require. The unpleasant truth appears to be that California increasingly wants to accomplish these goals by having OTHER states develop utility-scale renewable projects in their states to satisfy CA's load demands. The latest CAISO 11.5GW reliability procurement order signals this reality. Even if neighboring states will be able to accomplish their similar goals (a)-(c), it seems unlikely that they can also counted on to increase renewable power exports to California in large scale.

California only added 1,700MW in utility-scale renewables during the last 12 months, according to EIA, and appears not to be on track for much more any time soon. By contrast, Texas of all places added 8,600 MW of utility-scale renewables during the last 12 months (5x that of California) and is headed toward adding 10-20GW in-state per year.

By contrast, until recently the California progress with rooftop was meaningful, immediate, proven and apparently repeatable, to the tune of 1,800MW during the last 12 months, or slightly larger than the total utility-scale renewables development in the state.

While I agree that utility-scale renewables are much cheaper than rooftop solar, why are you so comfortable in assuming that the state can begin to add, say, 15-25GW of them year after year, rather than the 1,700MW or so we're doing now?

I would suggest that we need more rooftop solar development, not less, while pushing to solve the intractable problem of increasing utility-scale renewables development.

Posted by SRB, a resident of St. Francis Acres,
on Jan 16, 2022 at 9:46 am

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Great essay but it doesn't seem to take into account that solar panels are now mandated on new residences and that new homes also need to be all electric. Rationale for these mandates was based on an economic study showing that the change would be cost neutral. If you slap a monthly fee/tax on solar kwh and change the NEM credit, you drastically change economy study and the solar/all electric mandates will result in additional costs.

Posted by David+Coale, a resident of Barron Park,
on Jan 16, 2022 at 10:21 am

David+Coale is a registered user.

Great posting. This is the best factual article about the CPUC solar rates that I have seen yet. Almost all the rest are less factual in their arguments. Even the IOU's are tugging at our heartstrings when they talk about inequity. They have a negative track record when looking out for their cash cows, er, rate payers, so I can't really trust them here. I think the recent CPUC rules goes too far, no one is really addressing/answering the questions that I have.

1) if you are going to make things more equitable this needs be based on income and not on having rich solar customers pay for subsidizing the ones that can't afford it. There will be probably a double digit amount of people that put solar on their roof's because they feel it was the right thing to do and are not rich. The $/kW for installed solar in the CPUC proposal is too high. This comes out to about $600 per year, while the cost to non-solar rate payers to cover this cost (grid connection and other costs) is about $100/year.

2) I am not convinced that storage at the home is the best place for it, just as roof top solar is not as economically efficient as utility scale solar. Most all home storage does not back-feed the grid so is less valuable to the grid to address peak demand than storage placed at a subsection. So incentivizing storage at the home is the wrong incentive, unless you are a utility looking to place this cost in the private sector.

3) What is the true value of solar? Since we don't have a price on carbon, one that is meaningful, solar roof top or otherwise is probably under valued. Plus there is a huge jobs market in place that is at risk if the system is changed too much too fast.

4) As for reducing one's CO2, in CA, you save more CO2 by replacing your gas hot water heater with a heat pump water heater instead. That is because the carbon content of our electricity is pretty low and many places have access to CCAs where they can get 100% carbon neutral electrically.

Posted by David+Coale, a resident of Barron Park,
on Jan 16, 2022 at 10:22 am

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Here is the rest of my comments:

4) As for reducing one's CO2, in California, you save more CO2 by replacing your gas hot water heater with a heat pump water heater instead. That is because the carbon content of our electricity is pretty low and many places have access to CCAs where they can get 100% carbon neutral electrically already at rates less than the big IOUs. And if you really want to have some fun and reduce your CO2, get an EV and get ride of your gas car. So if you have expendable funds at hand, get these other items first and then get solar. It will be a lot better for the planet and the payback times are probably better as well.


Posted by Allen Akin, a resident of Professorville,
on Jan 16, 2022 at 1:36 pm

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Distributed systems usually deliver less value per dollar than centralized systems. We use them anyway because other metrics almost always come into play. In my case, I have PV with storage because of resiliency. I've lived through enough periods of service disruption due to market distortions and utility mismanagement, and I expect to live through enough periods of service disruption due to natural disasters, that I'm willing to accept the additional cost.

Here's an analogy for perspective. Consider evaluating *residences* with the same sort of analysis you're applying to residential PV. For many of the same reasons you've given for PV, I think you'd have to conclude that individual residences themselves are less cost-effective than completely centralized residences. Given that, how far are you willing to take the argument that individual residences should be eliminated? Why? Do other metrics come into play?

As an aside, does the association between residences and residential PV systems explain some of the resistance to enforced elimination of residential PV systems?

Posted by Kirsten Lakin, a resident of another community,
on Jan 16, 2022 at 2:02 pm

Kirsten Lakin is a registered user.

Why doesn't anyone design solar panels that fit on the roofs and trunks of our EVs?

This implementation could reduce charging times and provide back-up electrical energy to our lithium-ion powered vehicles.

I own a Prius and it being a somewhat drab-looking car, I would have no problem with solar panels mounted on the car's roof.

Posted by Donald, a resident of South of Midtown,
on Jan 16, 2022 at 6:01 pm

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Thanks for the detailed analysis. I have heard many emotional arguments about the CPUC proposal from both sides, so it was nice to see some hard facts.

I installed rooftop solar in 2008. It has not paid for itself yet, and probably never will. Palo Alto's electricity rates are so low that I knew that the payback time would be much longer than the sales rep estimated. The argument about all of Palo Alto's energy being green was not true at that time, so I felt that I was helping reduce emissions even if it was at a loss.

Posted by Running hard to stay in place, a resident of Menlo Park: Linfield Oaks,
on Jan 16, 2022 at 7:58 pm

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Charging people for their installed solar capacity without regard to storage capacity, without regard to how they impact and serve the grid is wrong.

We need rooftop solar and local storage, properly managed to minimize the need for more grid capacity.

Posted by EPL, a resident of Menlo Park: The Willows,
on Jan 17, 2022 at 9:40 am

EPL is a registered user.

The more I think about this the more I believe that current NEM 3.0 is a band-aid to the real grid problem. It may help the IOUs in the short term but that's about it.

I interacted briefly with a micro-grid project in New South Wales & Victoria. Australia has separated generation, transmission and distribution. It seems to me this type of separation leads to more flexibility and more innovative solutions.

I would trust Peninsula Clean Energy to set up a local grid, plus large local batteries, so that solar generation (residential and non-residential) in the area stays local, reduces transmission costs and increases resilience. I don't trust PG&E to do the same as they are accountable to their investors, are less likely to try new solutions, and they can pass expenses to us (NEM 3.0).

Posted by kyrie+robinson, a resident of South of Midtown,
on Jan 17, 2022 at 10:39 am

kyrie+robinson is a registered user.

Who is your audience for this posting? It is so filled with jargon, acronyms, and complex statistics that it reads more like a trade journal article than a community blog. These are important issues, and your responsibility as a journalist is to write about them in accessible ways that a motivated public can understand. I am an educated, highly motivated person, and I have recently gotten bids to get solar installed, so I am now somewhat familiar with the arcana of the industry. And yet I cannot make heads or tails of your analysis.

I suggest you try again, rewrite the whole piece and test it out on some non-wonks before you re-publish.


Posted by Frozen, a resident of Menlo Park: Linfield Oaks,
on Jan 17, 2022 at 11:29 am

Frozen is a registered user.

Thanks @kyrie+robinson -- I thought I was the only person who could not figure out what this article was about, except that I'm a bad, heavily-subsidized person because I've got solar panels and am producing power for the grid.

Given the unreliability of PG&E, why wouldn't everyone want to generate their own power? In the past, we lost power for as long as a week; no more thanks to the solar panels and battery system. That said, I don't know where the 4.5 year payback comes from; we've had our panels longer than that and we're not going to break even for another, oh, two or three decades.

I am trying to understand the economic tradeoffs presented in this article and I'm not a complete idiot (MBA from the local school) but I got lost somewhere around paragraph 2 when the acronyms began piling up.

Posted by Sherry Listgarten, a Almanac Online blogger,
on Jan 17, 2022 at 12:30 pm

Sherry Listgarten is a registered user.

Hey everyone. As always, I appreciate the thoughtful comments. Here are a few responses, in no particular order. I’m going to do them as smaller separate comments to avoid one really big one.

For @Kyrie and @Frozen and others who find this way too jargony, here is a short summary. The first solar pricing plan was called NEM 1.0. In 2016 they revised it somewhat and it was called NEM 2.0. Now they are looking at revising it again -- that is called NEM 3.0.

Why are they revising it? Because solar customers aren’t paying their fair share of grid costs. Solar customers in PG&E territory are estimated to be paying only 18% of what they should be. The result is that non-solar customers are having to pay more to cover those costs. This is called a “cost shift”. In just the first year after a solar installation goes in, the cost shift amounts to $1817. In just one year, that is how much a solar customer underpays and is subsidized by others. Since solar customers tend to be wealthy and home-owners, this means lower-income people and renters are paying for the wealthy homeowners to have solar. So, not a great policy!

How is it possible they aren’t paying their fair share? A few reasons. (1) When solar customers export power to the grid, they get paid for it at retail rates (e.g., 30 cents). Since it would cost the utility much less to procure that same power (say 10 cents), the utility is effectively having to overpay for power. And (2) Solar customers use the grid a lot -- importing power evenings, night, early morning and putting power back on midday -- but they pay very little for the “fixed costs” of the grid, which are incorporated into the per-kWh rates. So again others have to pay more. (There is a “nonbypassable charge” on solar bills, and a “minimum bill”, to partially address this, but they aren’t adequate.)

So the CPUC, and ratepayer advocates, and utilities, and many others want to fix this.

To be clear, it is not that solar owners today did something wrong. This policy was on the books after all! But over time solar power has become much less valuable and it is past time to revise the pricing. Solar customers should get paid for the power they put on the grid closer to wholesale than retail rates; they should pay more for scarce evening power than for plentiful midday power; they should pay for more of the fixed costs; etc. The discussion is about the details. For example, should it be retroactive? The proposal there is that once a home has had a solar roof for 15 years, it would revert to the new pricing structure.

I hope this helps some.

@Frozen, to your point, systems with batteries are more expensive and have a longer payback period. They are great for making solar power available in evenings, and as you say they are fantastic for reliability. But few can afford them. In rural areas with bad reliability, such as many PSPS areas, people are having to resort to cheaper but more polluting generators. That’s a topic for a whole other blog post… But right now battery storage is just very expensive.

Please lmk if you have other questions and I can give them a shot. I apologize for the jargon. Since it’s a contentious issue, I wanted to provide as much info as I could. Maybe I should have written two blogs…

Posted by Sherry Listgarten, a Almanac Online blogger,
on Jan 17, 2022 at 12:35 pm

Sherry Listgarten is a registered user.

@Running hard: I think that's a good point that systems with storage that are on aggressive time-of-use plans should not be taxing the grid as heavily (e.g., they aren't importing in evenings) and so could be billed less. After all, the CPUC wants to encourage such systems. So maybe there's something there. But my understanding is these still aren't cost-effective, so subsidizing them still requires the utilities to transfer money from non-storage people to storage people (who tend to be wealthy because the systems are so expensive). It's tricky. But I think your point is a good one, that the CPUC could distinguish between standalone solar and hybrid solar when it comes to the Grid Participation Charge.

Posted by Sherry Listgarten, a Almanac Online blogger,
on Jan 17, 2022 at 12:40 pm

Sherry Listgarten is a registered user.

@Donald, one of the things that is interesting to me is that solar used to be much more valuable to the grid than it is now. And that is because we got so much more of it, so the value of midday power plummeted (and in fact is negative on many spring days). So the grid is trying to shift demand to midday, but in the meantime 4-hour storage (batteries) is all the rage, so that midday power can be extended to evenings. Once those become popular, and especially once heat gets electrified, they will be worthless because the morning peak will be the big one. So the prices of all of this shift over time. One reason why demand response is nice -- shifting demand to cheaper times -- is because it is so flexible. Just let the "smart" system decide when to charge your car or top up your water heater. It doesn't matter then if everyone has solar or not, or everyone has 4-hour or 8-hour batteries.

Anyway, it's great that you installed solar when you did, and surely it helped, but imo we can't keep remunerating residential solar in the same way at this point.

Posted by Sherry Listgarten, a Almanac Online blogger,
on Jan 17, 2022 at 12:42 pm

Sherry Listgarten is a registered user.

@Kirsten: Re solar panels on cars, I expect two concerns are (a) the surface area isn't very big relative to demand and (b) they aren't parked in full sun. I think when you do see this kind of thing, it's more of a marketing gimmick.

Posted by Sherry Listgarten, a Almanac Online blogger,
on Jan 17, 2022 at 12:44 pm

Sherry Listgarten is a registered user.

@Allen: Not sure I follow, but if we were asking apartment owners to pay mortgages for other people to live in single-family homes then, yeah, I'd be less than thrilled.

Posted by Sherry Listgarten, a Almanac Online blogger,
on Jan 17, 2022 at 12:49 pm

Sherry Listgarten is a registered user.

@SRB: Yeah, I was wondering about the solar mandate for new homes as well. The main point I saw on that is that solar is cheaper to incorporate into new homes so the numbers still pan out. But I haven't seen that analysis.

Posted by KOhlson, a resident of Old Palo Alto,
on Jan 17, 2022 at 3:18 pm

KOhlson is a registered user.

A thoughtful and well-research post. I thought about it for a couple of days before responding. I think my big take-aways are:
1) Much of the analysis seems to come from Verdant, as you linked at the beginning. Who did they create this report for? Some organization paid a lot of money to get something like this written, and whoever that is may reveal some implicit bias. I made a good living doing similar reports - they reflected the bias of who was paying me.
2) It seems very unlikely that California will meet its renewable energy goals without rooftop solar. It certainly won't be with additional hydro.
3) There are a couple of themes that seem to turn the conventional wisdom on its head. For many decades a fundamental policy of the CPUC is to reduce electricity usage, based on the concept that a power plant avoided is a good thing. This means conserve, and those who use less should pay less. A byproduct of this is many residential users can invest in those things that are more efficient - leaving those who cannot invest to "shoulder the border." I have a hard time thinking that gas furnaces or water heaters will go away in the next 20 years, without economic incentives. Those who keep them will not be paying their fair share of the grid.
4) I don't have a lot of faith in the big 3 utility companies named in the Verdant report. PG&E seems exceptionally committed to going out of business. If they are saddled with court losses, how will they invest in renewable energy?
5) Perhaps a muni utility, like PA, is the way to go. Incentivize residents to conserve and invest, and make a fair rate structure. But I believe it will require a big change of thinking. In their most recent report, they are asking for a 5% annual increase for each of the next 5 years. The idea that the energy that heats my house, powers my car, and so on increase by 5% each year seems unthinkable. Especially as rooftop solar continues to get cheaper.

Posted by KOhlson, a resident of Old Palo Alto,
on Jan 17, 2022 at 3:21 pm

KOhlson is a registered user.

The PA 2022 Electrical Financial Plan: Fascinating reading - full of surprising info
Web Link

The California Energy Commission 2020 Electrical System Generation - renewable wind and solar have a very long way to go.
Web Link

Posted by Allen Akin, a resident of Professorville,
on Jan 17, 2022 at 3:31 pm

Allen Akin is a registered user.

@Sherry: I was thinking about the many services and forms of infrastructure for which everyone pays, but without which single-family homes would be less feasible. Local roads are an obvious example. Everyone pays for them (in the form of gas taxes and direct or indirect property taxes and externalities), but they benefit single-family homeowners disproportionately (by making larger amounts of such housing possible).

It seemed to me that the type of arguments you were making applied not only to centralization of power generation, but centralization of many other kinds as well. If you accept those arguments in one situation, but not another, it's helpful to understand why.

Posted by Alexian Daugherty, a resident of Los Altos,
on Jan 17, 2022 at 3:59 pm

Alexian Daugherty is a registered user.

My husband mentioned that automotive engineers in Japan are designing a supplemental energy system for selected EVs.

It involves four small generators mounted on the two axles which in turn charge the lithium ion batteries when the vehicle is moving.

If perfected, this innovation could increase the maximum distance range of EVs.

Posted by Sherry Listgarten, a Almanac Online blogger,
on Jan 17, 2022 at 4:16 pm

Sherry Listgarten is a registered user.

@DavidC: It's a weird thing about the utilities. My understanding is that *they do not make money* from these bills, and in fact they are required not to. They make it from capital investments. My best guess is the IOU's worry that when they need to raise rates (e.g., for wildfire hardening), it will become increasingly unmanageable as the rate-payer base keeps shrinking.

Re the size of the Grid Participation Charge, they include transmission and distribution and wildfire hardening, and those costs are very high. You may be talking just about the subset of charges covered by today’s nonbypassable costs?

Agreed that storage at the home is not super efficient. I wonder if there is such a thing as “community storage”? FWIW, vaguely related to this, I read somewhere that one reason why home solar is less efficient than utility-scale is that people don’t maintain it as well as utility-scale managers do. That made sense to me.

Re emissions, the cost calculations do include that, and sometimes that even over-values the rooftop solar because the alternative is often utility-scale solar, which has the same emissions. Re the labor force, in my dream, we could convert a bunch of these solar installers to electricians and HVAC techs. So. Many. Jobs.

Agree 100% on prioritizing electrification to keep fossil fuel in the ground.

Posted by Sherry Listgarten, a Almanac Online blogger,
on Jan 17, 2022 at 4:34 pm

Sherry Listgarten is a registered user.

@Peter: That is a great comment, though it would be better with references! I think California will always rely on imports to some extent because we are much more populous than neighboring states. I would expect Arizona and New Mexico will just have excess solar always, even when they are as aggressive with their clean power goals. That said, there is no question we will have to (and want to) build a lot in California and as you said our eyes may be bigger than our stomach. It’s not clear how we get all of this renewable energy, and it seems almost impossible now with all the supply chain issues. But I don’t see how that is an argument for residential rooftop solar, which uses all those same resources less efficiently.

Posted by Sherry Listgarten, a Almanac Online blogger,
on Jan 17, 2022 at 4:56 pm

Sherry Listgarten is a registered user.

@KOhlson: The CPUC contracted for both the Verdant report and the E3 report. E3 is very well regarded. I don't know much about Verdant. I assume CPUC tries to pick organizations that will do good work since that work will be so heavily scrutinized.

From what I recall reading, residential rooftop solar is a very small proportion of the total solar growth that CA is "planning" for. At most 10% IIRC. I don't think that justifies this kind of pricing. (Rooftop solar is a bigger contribution, but that includes commercial and community solar.)

Your third point is so on point -- when it costs money to save money, the people who most need to save will be left out. Incentives need to go to them. (But what if they can't? What about renters? Community solar is an interesting angle there but it doesn't apply to water heaters, etc.)

Thanks for the links. FWIW, my understanding is that a big driver of increasing rates is transmission and distribution costs going up. And climate change is just making that more expensive. This whole thing is not easy, for sure.

Posted by Sherry Listgarten, a Almanac Online blogger,
on Jan 17, 2022 at 4:58 pm

Sherry Listgarten is a registered user.

@Allen: But what about transit?

Posted by Holden, a resident of Leland Manor/Garland Drive,
on Jan 17, 2022 at 6:11 pm

Holden is a registered user.

Once again, a great article, and I really appreciate your efforts to be even-handed and fact-focused.

As solar- and wind-produced electricity in California gets cheaper and cheaper, it looks like storage becomes the last hurdle preventing us from getting off of fossil fuels this way.  One could further argue that long-term storage (seasonal) can greatly be addressed by over-provisioning, since solar panels are relatively cheap, and getting cheaper, and there's a lot of sun in the Mojave even in the winter.  Short-term storage then is the remaining issue, which could be addressed by (currently expensive) home batteries.

But meanwhile, we are encouraged to own and drive EVs:  they reduce fossil-fuel consumption, they have better performance in many ways, and they too are getting cheaper.

Yet from one perspective, EVs are just giant batteries with wheels.  Except we buy them for their transportation function, and they're left parked (and maybe plugged in) about 95% of the time.  So many of us will soon have big batteries that could be applied to the short-term storage issue.


Posted by Holden, a resident of Leland Manor/Garland Drive,
on Jan 17, 2022 at 6:11 pm

Holden is a registered user.

So when are we going to leverage these "mobile batteries" to fully enable solar- and wind-produced electricity?  We read about ongoing EV battery improvements in longevity and endurance:  for example, "LFP" formulations that have longer cycle life and are happy to be charged to 100%.

How about better taking advantage of these "mobile batteries" with bi-directional charging, coupled with real-time utility pricing for users to be both buying and selling kWh?  For example, utilities have plenty of modeling to reasonably predict pricing 24 hours in advance, and basically all cars/chargers/homes have internet connections.  To address equity, levy a few cents/kWh (in both directions) to cover grid maintenance.  For increased fairness, part of that grid charge should also be proportional to how far that kWh has to travel across the grid. 

Note that not everyone needs to be on this time-of-use rate plan for all utility users to benefit, since nearby-sourced kWhs should be cheaper for the utility to distribute than those from far-away power stations.  But real-time electricity pricing would enable more cost-efficient deployment of rooftop solar and "mobile batteries" by utility users.

Posted by Jennifer, a resident of another community,
on Jan 17, 2022 at 6:19 pm

Jennifer is a registered user.

Solar is complicated, and it's not for everybody. The number one reason individuals and businesses go solar is to save money on their electric bill. We haven't gone solar, but if you're concerned that solar customers are benefitting financially (and they are) the wise thing to do is go solar yourself. Nobody ever said life was fair.

Posted by Allen Akin, a resident of Professorville,
on Jan 17, 2022 at 6:33 pm

Allen Akin is a registered user.

@Sherry: Re transit, it's my turn to be puzzled. I don't see how it fits into the analogy.

But since you mentioned it, I've read arguments that transit around here runs at a loss, penalizes lower-income folks through its fare structures, subsidizes operations using regressive sales taxes, and fails to deliver adequate levels of service.

Our present transit systems don't look like good models for power infrastructure policy. Roads are working better, for now. :-)

Posted by Paly Grad, a resident of Leland Manor/Garland Drive,
on Jan 17, 2022 at 7:47 pm

Paly Grad is a registered user.


A similar situation exists with electric vehicles and road maintenance costs. Currently electric vehicle owners pay an annual Transportation Improvement Fee based on the value of the vehicle and an annual $100 assessment, called a Road Improvement Fee. Is this fair and does it adequately replace the gas tax which has traditionally paid for road maintenance? Just as the utility infrastructure needs to be maintained so do the roads and highways we drive on.

Posted by Sherry Listgarten, a Almanac Online blogger,
on Jan 17, 2022 at 9:22 pm

Sherry Listgarten is a registered user.

@Holden, I would love if EV batteries would work as home batteries. I can imagine them working well for outages. But a big function of home batteries is to capture cheap midday energy and make it available in the evening when energy is much more expensive. That means charging and discharging the EV battery every day. I'm not sure that is good for the life of the battery. I need to learn more about this.

@Paly, the average car drives around $12,000 miles and gets, say, 25 mph. At $0.50/gallon for the gas tax, that is $240. So $100 seems low. A Prius Eco that gets 50 mph would be paying $120. Maybe a minimum of $150 would be fairer, or at least $125. FWIW, California is looking at a road mileage tax. I can't even imagine how controversial that would be, but it would at least not distinguish gas and electric.

EVs need to be much more accessible to everyone. I would love if a portion of the new EV purchase price went to a used EV fund for low-income households (for example). Getting this right is way more important that solar roofs imo.

Posted by Sherry Listgarten, a Almanac Online blogger,
on Jan 17, 2022 at 9:31 pm

Sherry Listgarten is a registered user.

@Allen: Sorry to be short, there are a lot of comments. It was probably a mistake to try to reply to them all :) Anyway, I always think of transit as something that everyone pays for but that primarily benefits those who live in cities. In Palo Alto we always complain that most VTA funding comes from us but we see no benefit, no? My point was, it works in all directions.

As to you larger point, I'm not sure what to say. The post office spends a lot of money serving rural areas. That is okay in my book, even though the city people are subsidizing the rurals. But this is a policy that is driving a large and growing cost shift from wealthy, older homeowners to younger, poorer renters. All in the service of deploying some very inefficient, low-value energy. Yay?

Posted by SRB, a resident of St. Francis Acres,
on Jan 18, 2022 at 6:40 am

SRB is a registered user.

@sherry re: Solar Panel mandate on new buildings. One additional thing to consider is that the proposed grid connection fee ($8 per Kwh) will become a tax (as there is no way out of the mandate). Larger point being that if solar on roofs creates more problems for the State than it solves, maybe there shouldn't be a mandate :)

Posted by EPL, a resident of Menlo Park: The Willows,
on Jan 18, 2022 at 7:30 am

EPL is a registered user.

(From Sherry) " FWIW, my understanding is that a big driver of increasing rates is transmission and distribution costs going up. And climate change is just making that more expensive. This whole thing is not easy, for sure."

That's my understanding too. As a quick reference point, my bill is 24% generation, 54% distribution, 19% transmission, other costs are the rest. Local generation may reduce that 19%

Posted by Candace, a resident of another community,
on Jan 18, 2022 at 8:01 am

Candace is a registered user.

I am not a solar owner but I have looked into it. The upfront costs are very high and to finance solar plus battery storage, without tax rebates, is about $ over 20 years at prevailing mortgage rates. My electricity bill is $250 a month on a partially electrified home. Once I go all electric, it will still be well below the financed cost of solar. I don't see these upfront costs being figured into the calculations. Are they?

I think a lot of this argument contains oil and gas propaganda. I would include your graphic under that description. Instead of cost shifting, why don't we call the extra cost I am paying as renewable energy cost sharing? And how much extra am I paying, anyway? That is what I need to know to see if I am paying too much for the benefit I receive from faster changeover to clean energy. Let's get out of the billions over 20 years argument because in 20 years we are looking at a radically changed world. What is it costing me today?

Rooftop solar has installed as much solar in California as large utilities. This is an amazing success for private initiative and an epic failure for utilities. If they can't move faster, we are doomed. Let's see, how much is that worth on your bill?

Posted by Allen Akin, a resident of Professorville,
on Jan 18, 2022 at 10:51 am

Allen Akin is a registered user.

@Sherry wrote: "this is a policy that is driving a large and growing cost shift from wealthy, older homeowners to younger, poorer renters. All in the service of deploying some very inefficient, low-value energy."

If that's all it did, I'd agree. Other factors have been mentioned in comments above, and in the references, so I guess I don't see a compelling argument either way. If your dominant concern is correcting economic inequality, or maximizing generation efficiency, or even minimizing GHG emissions, then probably we ought to be concentrating on different topics.

From a practical point of view, one of my neighbors is coming over to look at my system and talk about PV for his house. I guess my recommendation is going to be "don't bother; the rules are about to change in an unclear but probably adverse way".

Posted by KOhlson, a resident of Old Palo Alto,
on Jan 18, 2022 at 11:49 am

KOhlson is a registered user.

Congratulations on posting that has generated such a large number of comments!

A few points:
- In PA, NEM2 says that PV residences sell electricity back to the city at approx 11 cents (near wholesale) and buy at about 20 cents (near or at full retail. I think most people are OK with that, though not many installs are happening. The issues I have is the reported $75/mo connection fee rumored for NEM3. That is more than I pay for electricity for 8 months a year.
- According to PA's solar webinar in November, the invited contractors said that the price for solar installation is $3-4/w. This included everything, including permits. All 3 contractors said that batteries are not economically viable at this time. They would install them, but that people should get them only if they are worried about outages. My take from this is if they don't make economic sense with "free" electricity, they certainly don't with utility rate arbitrage.
- I would not consider using a car battery to power my home, at least at this time. Batteries have a limited life, and those installed cars can cost $10K to replace - easily more than an engine rebuild. Using up a car battery to watch TV isn't a tradeoff I am prepared to make.

Posted by skay, a resident of Menlo Park: The Willows,
on Jan 18, 2022 at 1:10 pm

skay is a registered user.

Lots of numbers and they all don't make sense.
1. In Menlo Park, I have solar and I pay a monthly figure to be on the grid.
It is about $10/mo was about $5 and doubled in 1 step. Seems like a fair
amount to me. When I use more than I produce I pay by the kilowatt and
thus paying twice.
2. At the end of the year if I have a surplus, I am paid at the wholesale
rate, about 3 cents a kilowatt. Don't like it, but it seems fair.
3. If more local people have solar, It would cut down on some of the long
distance transmission losses.
4. Cars should pay taxes based on miles driven and WEIGHT. It is the weight
uses up the roads not just miles.
5. There was some mention on gas tax but the units in the response are
wrong. 12,000 miles and 0.50/mile is $600. The .5 should be .5/gallon.

6. Solar panels on cars. Would probably lose more in aerodynamics than you
would gain in solar energy.

Posted by Sherry Listgarten, a Almanac Online blogger,
on Jan 18, 2022 at 2:17 pm

Sherry Listgarten is a registered user.

Hey all. Thanks for the continuing thoughtful comments! A few short remarks…

@Candace: Yes, the upfront costs are figured into the “payback period” and other metrics. To your other question, the cost shift increased your electricity rate by about 10% in 2019 if you are in PG&E territory. “The cost shift from all that solar is growing at a disturbing rate. In 2019, it accounted for 4.5 cents of SDG&E’s 29 cent average residential price (2.5 cents of 26 cents for PG&E, 1.4 cents of 21 cents for SCE” (source). Finally, why do you think there is as much rooftop as utility-scale solar in CA? Do you have a reference? My references say otherwise. And remember that only a portion of rooftop is residential, with much of it being commercial, government, and community.

@Allen: If your neighbor is in Palo Alto (I’m assuming so?), I don’t see any changes coming down the pike explicitly for solar customers. Palo Alto already adjusted its fees to avoided cost back in 2017. The city may be looking at a larger fixed charge to reduce the per-kWh rates to encourage electrification, but that would be across the board, not just solar. (They would also have to figure out how to avoid it being regressive.) They are doing a cost of service analysis this year to evaluate how they might evolve their rates to encourage electrification.

@KOhlson. Well, half the comments are mine :) You have the import/export prices right for Palo Alto. This statewide NEM 3.0 discussion doesn’t affect Palo Alto, though. We are a municipal utility, so get to do our own thing. Kudos to Palo Altans in 2016 for approving Palo Alto's version of NEM 2.0 which largely addressed the cost shift in the city. IMO your contractor is right about home batteries. They are not (yet?) cost-effective. You get them if you want resilience or you want to make a donation to the grid.

@skay: Oops, thanks, I changed that comment from $0.50/mile to $0.50/gallon, which is what I had intended. Good point about vehicle weight!

Posted by PH, a resident of Woodside: Emerald Hills,
on Jan 18, 2022 at 2:57 pm

PH is a registered user.

First a bit of background.

The "fair" net metering policy has been a pet policy strategy of the conservative PAC ALEC for years: Web Link

ALEC has advocated fair net metering to kill off the solar industry.

Koch brothers, big utilities attack solar, green energy policies Web Link

" At the nub of the dispute are two policies found in dozens of states. One requires utilities to get a certain share of power from renewable sources. The other, known as net metering, guarantees homeowners or businesses with solar panels on their roofs the right to sell any excess electricity back into the power grid at attractive rates.

Net metering forms the linchpin of the solar-energy business model. Without it, firms say, solar power would be prohibitively expensive."

Here is an article in today's NY Times from former Governor Schwarzenegger that paints the bigger picture. Web Link

.... In Nevada, for instance, the state's rooftop solar adoption rate plummeted 47 percent in the year after the state's public utilities commission ...[added] higher fixed costs on net-metering customers and reducing the price paid to customers for the excess energy they generate

In ... California outside the utility commission's control, ... When the Imperial Irrigation District in Imperial Valley abandoned net metering in July 2016, residential solar installations declined 88 percent over the next two years as measured by added megawatts. The Turlock Irrigation District ended net metering at the beginning of 2015; within two years, annual residential solar installations declined 74 percent.

Posted by PH, a resident of Woodside: Emerald Hills,
on Jan 18, 2022 at 3:37 pm

PH is a registered user.

I think Arnold sees the big picture.

Clean renewable energy still requires subsidies and regulatory incentives to force Big Dirty energy to participate in its own demise. There will be short-term economic winners and losers from the regulatory shock, but there's a compelling public benefit to a competitive clean energy industry.

Changing NEM *NOW* might be too early in the lifecycle of the solar industry that might stifle solar demand and impede price innovation. If the issue is simply to restore "equity" to grid pricing, there are other policies that could do so without impeding solar development and innovation. NEM price changes might be better policy a few years down the road.

The NEM analysis is flawed. It always omits the externalized cost of dirty energy. Non-solar users *also* cost shift to solar users in a different way by emitting carbon. As a pollution pricing policy its not "unfair" to move some energy costs from solar users to non solar users. Dirty Energy is subsidized because its pollution is unpriced. We pay in the form of wildfires and power outages and health care.

Much of the efficiency needed to make commercial solar viable might be due to price reductions brought about by early rooftop solar demand. Why shouldn't rooftop solar "investors" be rewarded in the same way that grid and dirty energy investors are rewarded? We adopted early because a.) we invested capital and b.) we saw the big picture, and c.) there is a huge social benefit to a clean energy industry.

Finally, the power grid is a monopoly. How much do we pay in "rents" because PG&E is inefficient? It rewards shareholders at the expense of customers some of whom are now quite literally dead because PG&E neglected to invest in grid upgrades and maintenance. What will happen to grid economics when local storage becomes feasible and customers drop off-grid? Won't the price still go up for remaining grid users? What then?

Posted by EPL, a resident of Menlo Park: The Willows,
on Jan 18, 2022 at 4:29 pm

EPL is a registered user.

>> This statewide NEM 3.0 discussion doesn't affect Palo Alto, though. We are a municipal utility, so get to do our own thing <<

I knew that PA was not in PCE but I didn't know that you were a full fledged utility. That gives you a lot of flexibility. Kudos.

Posted by Former PA resident, a resident of another community,
on Jan 18, 2022 at 4:59 pm

Former PA resident is a registered user.

Sherry, thank you for another thoughtful, illuminating, and thoroughly researched post on a very meaty topic. It's a real breath of fresh air after reading our former governor's op-ed in the NYT today, which was so slanted and misleading that I couldn't sleep last night after reading it. (It takes real gall to call the act of finally undoing a horribly regressive subsidy for solar customers a "solar tax.")

Two other quick comments:

- I wouldn't say that solar customers are "having their rates changed retroactively." No one is going to be taking any of the $$ out of their pockets that non-solar customers have been putting there over the past ~15 years. The rate changes proposed by the CPUC would go into effect on a going-forward basis (and with a very generous phase-in period too, I'd add). When customers choose to install solar on their homes or businesses, no one gives them a guarantee that their rates/rate structure shall forevermore remain as they are at that time.

- If the state's objective is to encourage electrification, then they should be making an across-the-board change to utility rates to get utilities' fixed costs out of the volumetric portion of customer rates. (They could incorporate it into customers' monthly fixed charges or, as you suggested, recover it through an income tax in order to recover these fixed costs in a more progressive manner.) That would cut volumetric electric rates roughly in half, which would make electrifying everyone's buildings and vehicles a far more attractive proposal. I certainly am rooting for them to do this.

Posted by Holden, a resident of Leland Manor/Garland Drive,
on Jan 18, 2022 at 6:36 pm

Holden is a registered user.

Meanwhile, here's some more to consider about EVs as home batteries.   :)

A Tesla Powerwall+, which is arguably the price leader for home storage, costs $8500 (if you can get them!), and has a capacity of 13.5 kWh.  That's a little more than $600/kWh of storage, not including installation.

A Chevy Bolt EV, currently the low-cost leader for a largish-battery EV, costs perhaps $25,000 if you shop and dicker, and stores 65 kWh.  That's a little less than $400/kWh of storage. 

To be fair, the Bolt EV does not support bi-directional charging (yet), but the Leaf, Hyundai Ioniq, 2022 VWs, and other EVs either currently support it, or have publicly announced support in their upcoming EVs. It seems that this will soon be just a checklist feature of all EVs.

So EVs are cost competitive with stand-alone home batteries, and you get a free car with every purchase!

It seems to me that EVs are a natural fit for soaking up California's excess/cheap solar power when plugged in during the day, and then can supply power to our homes and grids in the evening when electricity rates are high.  And most of our homes consume only a handful of kWh overnight, so this wouldn't be much of an impact to the longevity of our (relatively large) EV batteries, particularly with newer, cheaper chemistries (like LFP).

A final point:  We currently have a huge demand for batteries that is constraining EV volumes.  Until we have sufficient global battery supply, why not utilize the batteries we do have as productively as possible?

Posted by EPL, a resident of Menlo Park: The Willows,
on Jan 18, 2022 at 7:06 pm

EPL is a registered user.

I didn't realize how much cheaper is electricity in Palo Alto compared to PG&E. Our rates will vary depending on the plan and the time of year. In the summer, the BEV plan was $0.18/kWh off peak and $0.50/kWh peak. Even a small, well insulated house can end up paying a fair amount of $$s if they have to charge electric vehicles, which sometimes happens at peak time (3pm to midnight).

We all have different perspectives on the value proposition of distributed energy generation and storage. For some, it is a way to contribute to the grid. Others it may be a way to insulate from PG&E. Others is reliability / resilience.

Again, thanks for the post and the (long) thread.

Posted by Bill Michel, a resident of another community,
on Jan 18, 2022 at 10:00 pm

Bill Michel is a registered user.

The "fixed costs" also includes Hawaiian Junkets for CA Legislators.
As for the Nuclear Decomissioning; this should be borne by Shareholders.
We told them when they built those things that the "too cheap to meter"
stuff was nonsense.

Posted by Umbra, a resident of another community,
on Jan 19, 2022 at 3:39 pm

Umbra is a registered user.

I think disincentivizing solar installation is short- term thinking. I disagree with focusing on “ energy equity" as the problem- we need more clean electricity generation. The solar tax will kill further incentives to install panels for those who are willing and able to pay for them. People who have low incomes don't install them now, and will never consider them if all incentives are removed.

Also- the use of daytime electricity increases dramatically in the summer- particularly in the hot parts of the state like the Central Valley, Southern California, inland empire. Air conditioners are increasingly required to live on these places for many months. It's important to look at the climates of other parts of our state- not just the temperate peninsula.

Also- with the impending loss of Diablo Canyon nuclear power- recently discussed here- why create disincentives for installing green electric generation? We risk having no electricity available when the summers are getting increasingly hot.

Posted by SRB, a resident of St. Francis Acres,
on Jan 19, 2022 at 4:53 pm

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@Umbra - Note that since there is now a mandate for solar panels on new homes' roofs, over time low income folks will also be subject to what will amount to a solar tax (even as a rent pass through).

Posted by Running hard to stay in place, a resident of Menlo Park: Downtown,
on Jan 19, 2022 at 5:24 pm

Running hard to stay in place is a registered user.

New York Times opinion on this matter in plain English from former governor Schwarzenegger:

Web Link

Posted by EPL, a resident of Menlo Park: The Willows,
on Jan 20, 2022 at 7:18 am

EPL is a registered user.

Since this is the closest I've seen to a community forum on distributed solar generation, adding a link to an article at Canary Media discussing a variation on rooftop solar - Community Solar: Web Link

The Verdant analysis discussed Community Solar in a few places. Community Solar was proposed by CCSA (Coalition for Community Solar Access) and also was one of the proposals by Sierra Club. The CCSA ranked fairly well on several of the Verdant metrics. At a personal level, I wish the CPUC final decision allows for Community Solar.

Posted by Alan Levenson, a resident of another community,
on Jan 20, 2022 at 11:16 am

Alan Levenson is a registered user.

Ms. Sherry; While I appreciate the effort that went into the blog it seemed to omit discussion of a possibly important issue. It is my understanding that the investor owned utilities such as PG&E generate income (substantial?) from a guaranteed return on capital which in their case means expenditures on, for example, large solar installations and accompanying transmission lines. This puts them in direct competition with roof-top solar. As publicly traded companies they have an obligation to their shareholders to maximize profits. This obligation conflicts with whatever obligation they might have to their customer base. IMO it also calls into question any position they might take with regard to the various issues and proposals under discussion. They have an obligation to their shareholders to advocate for proposals most advantageous to their profitability which most assuredly does not include rooftop solar. It also calls into question any study with which they are involved in any way though I will admit that I am not familiar with their degree of such involvement. In the interest of full disclosure I am a resident of Saratoga and installed 44 panels 8 years ago and am completing the installation of a 3 battery system.

Posted by Mark Weiss, a resident of Downtown North,
on Jan 22, 2022 at 1:13 am

Mark Weiss is a registered user.

Sherry the article you link to is by Mark Jacobson not Rob Jackson, who has a b.a in economics from Stanford and a PhD from UCLA in atmospheric science �" he's an endowed chair in civil and engineering science.. He was also my school mate at Fremont Hills, Terman and Gunn. A walk-on in tennis, he eventually lettered. (650) 723-6836

Posted by Sherry Listgarten, a Almanac Online blogger,
on Jan 22, 2022 at 6:13 am

Sherry Listgarten is a registered user.

@Mark, thank you very much for pointing that error out, I have fixed it. I apologize to both professors for the mistake.

Posted by Sherry Listgarten, a Almanac Online blogger,
on Jan 22, 2022 at 11:21 am

Sherry Listgarten is a registered user.

BTW, relevant to a comment here, a reader pointed me to this short WSJ video (no subscription required) that reviews a few solar-assisted commercial vehicles that are in the works. These cars all have integrated solar, not separate panels. One (Sono Motors) gets about 10 miles/day, the two others (one very long/wide/low/$$$ by Lightyear, one a cheap and futuristic 3-wheeler by Aptera) get about 40-45 miles/day. Apparently the Tesla Cybertruck might come with 15 miles' worth. The video says that unless the car is designed around solar it cannot get very many miles from solar, in part because the panels are buried in protective layers that reduces efficiency, plus the light angles are often poor, garages don't work, etc.

Posted by Robert+Cronin, a resident of Menlo Park: The Willows,
on Jan 22, 2022 at 5:32 pm

Robert+Cronin is a registered user.

It appears that battery storage is being promoted for some reason that I don't understand. Who, or what entity, benefits from solar installations with battery storage? Where is the incentive to add battery storage to solar panels? I have a small (~1 kW) system fairly closely matched to my household electric usage. During the months from March through November, my system generates an excess of ~450 kWh. Because of serious shade from a neighbor's tree I use ~220 kWh from PG&E from December to February. So, to get through the winter without involving PG&E, I would need a 220 kWh battery, costing ~$130,000, and there would be a 230 kWh surplus to sell to PG&E at $0.04/kWh after the battery was fully charged at the end of summer. There is no way to make that economical. It would be more economical to to install more solar panels, and install a small battery to get me through the winter months, or get my neighbor to cut down the offending tree. Then I could go off the grid and the heck with PG&E.
Compared to non-solar customers, solar customers sometimes buy power from PG&E, and sometimes sell power. Does PG&E not want to do either?

Posted by Sherry Listgarten, a Almanac Online blogger,
on Jan 22, 2022 at 8:03 pm

Sherry Listgarten is a registered user.

@Robert, the battery is meant more for intra-day storage than inter-month(!) storage.

The main use-case for home batteries is resilience. They keep the power on when the power goes out. But there is another use case.

Power is much more expensive, and much dirtier, between 4-9pm than it is midday. The time-of-use rates do not typically reflect the full extent of the difference. I kid you not when I say that on spring days, the price for midday solar is often *negative*. California has to *pay* other states to take it.

What a home battery can do is basically convert almost worthless midday solar to precious evening power. That can save you money (though at this point not enough to offset the cost of the battery), it can save the grid money (because the NEM and TOU rates don't reflect the actual prices), and it can clean up the grid (less dirty power needed 4-9pm). But battery prices need to come down, and TOU rates need to be more aggressive, to make home batteries pencil out just for this purpose. The real reason to get them is resilience (e.g., during power outages), and this power arbitrage just makes them more affordable.

To your last question, solar customers tend to put low-value (midday) power on the grid and consume high-value (evening) power. PG&E can live with that if the imports and exports are priced properly. It really doesn't want to credit retail TOU rates for midday energy that would otherwise cost it a few cents or even negative.

Posted by WilliamR, a resident of another community,
on Jan 23, 2022 at 10:35 am

WilliamR is a registered user.

CNN has a story on net-metering in Florida.
Web Link

Posted by Duveneck neighbor, a resident of Duveneck/St. Francis,
on Jan 25, 2022 at 10:40 pm

Duveneck neighbor is a registered user.

A disturbing article written by someone whose opinion on these matters I used to respect.

Anyone who states, out-of-the-box, a belief against the value of residential solar PV -- and who then writes a detailed 'analysis' regarding that belief -- an 'analysis' created largely by those entities (PG&E, CPUC) whose self-interest lies with grid-scale provision of energy, and not local/micro-grid provision -- and, an 'analysis' which is presented uncritically, as a fait accompli -- is, by definition, biased.

Neither CPUC nor the for-profit utilities in our state acknowledge substantively the value of the capital provided by residential providers of electrical energy to the grid.

Neither CPUC, PG&E, nor even CPAU have specified additional costs which accrue to system with a bi-directional flow of electrical energy, as compared to one with the traditional, uni-directional flow of energy (i.e. a system where all electrical energy is generated centrally, and distributed to residential loads). It is certainly possible that a system handling bi-directional flows is more expensive, at the margin, than a distribution system which handles only uni-directional flows. Those *marginal* costs, it could be argued logically, should be borne only by residential providers of electrical energy (whether PV or wind or other). Instead, PG&E and CPUC have amplified (that is, over-stated dramatically) the costs which they wish residential energy providers to bear.

CPAU states these costs accurately, IMO. How? Residential providers of electrical energy to the CPAU grid receive virtually the same amount of money per kWh as their cost would be if they consumed that power (roughly $0.10/kWh).

(More in next post.)

Posted by Duveneck neighbor, a resident of Duveneck/St. Francis,
on Jan 26, 2022 at 12:10 am

Duveneck neighbor is a registered user.


CPAU does not appear to charge residential providers of electricity for the distribution of their power to the grid. One *could* argue, the distribution costs should accrue, whether electrons are consumed FROM the grid, or provided TO the grid. And clearly, since residential solar PV energy providers must have a bi-directional meter (which can measure flow in either direction), such accounting can be implemented. I would argue, however, that this apparent 'benefit' reflects more than fairly, several truths:

1) CPAU gets this power at cost; no financing costs accrue; no general-administrative-overhead costs accrue; and, the power is usually provided at times of high demand, during which CPAU receives more than the standard amount of revenue, especially by providing this power to its time-of-use customers.

2) The avoidance of carbon costs is implicit. And, I would argue, not charging residential providers a fee to distribute their power, reflects this avoided cost.

What is the social cost of carbon? Official estimates for the Obama, Trump, and Biden Administrations have been, respectively, $43, $5, and $51 per ton of carbon emitted.

According to the US Energy Information Agency, each kWh of electricity generates 0.85 lb of CO2, or 0.23 lb of carbon. According to my calculations for our PA home, if we replaced all our fossil-fuel-consuming systems (car, furnace, cooktop, water heater) with electrical systems, our annual electrical energy requirement would be 15,000 kWh. At about $0.10/kWh, this is $1,500/yr.

We would generate 1.725 tons of carbon, according to EIA. At $50/ton, the additional cost is $86.25. Not much.

(But, read my next post.)

Posted by Duveneck neighbor, a resident of Duveneck/St. Francis,
on Jan 26, 2022 at 12:36 am

Duveneck neighbor is a registered user.


But, another calculation of the carbon social cost, places the number at $130/ton (Web Link For us, that means $224 per year.

So, say a residential provider of solar PV electrical puts 15,000 kWh onto the CPAU. This foregoes CPAU purchasing that amount of *clean* power from a central-generation facility (say, an Oregon wind farm, or a California hydropower plant). The power is provided usually at peak TOU, allowing CPAU to command higher prices for this power. And, $224 in carbon social cost is foregone.

The question becomes, not why should residential solar PV energy providers pay more; but, why shouldn't they pay less?

And, all that discussion assumes the $50/ton, or $130/ton social cost of carbon (SCC) is accurate. Both of these numbers have massive discount rates built into their calculation. I, and others, argue the discounting is invalid, or at least overstated greatly.

If the discounts are removed, then the SCC becomes over $100,000/ton (Web Link

So, if this SCC were included, per CPAU my 15,000 kWh of energy would cost me, today, $0.05 to $0.075 for distribution, and $0.083 to $0.116 for the commodity per se, and $6.67 for the SCC. All per kWh.

PG&E and the other for-profit producers have created a byzantine structure regarding pricing for electrical energy in California. It is not transparent. It obfuscates what should be simple. And as a result, it makes it simple to delude people to believe that, somehow, residential providers of electrical energy should be punished, not lauded, for that provision.

Meanwhile, of course, PG&E has tilted the table unfairly against residential providers. They do this, by limiting what PG&E pays for peak power at around $0.04/kWh, while charging residents a $0.28/kWh base rate, and up to $0.60/kWh peak rates.

(1 more)

Posted by Duveneck neighbor, a resident of Duveneck/St. Francis,
on Jan 26, 2022 at 12:49 am

Duveneck neighbor is a registered user.

(Final post, 4 of 4)

A few final thoughts.

First, if one still thinks 'rooftop solar' generators are too 'privileged', then CPUC should demand that PG&E return to those residential consumers with low or medium income, some (if not all) of the excess profits which PG&E receives from what can only be characterized as their price fixing (similar to how wholesale fish markets control prices, by paying their providers -- fisherman -- low rates).

Second, consider that there is a value for local grid generation of electrical power. I agree, it's not necessarily to guard against outages; in 25 years, perhaps we've had half a dozen outages with CPAU; much different than in, say, rural Michigan, where multiple outages per year can be expected. But, reports of grid vulnerabilities, due to 'bad actors' taking over central generation facilities, and major and minor sub-stations, via software viruses, Trojan horses, and other means, are well-known; and, in a political environment of increased risk of conflict with Russia, grid disruptions cannot be discounted.

In conclusion, I've demonstrated the current rules promulgated by the for-profit utilities, and by CPUC, penalize 'rooftop providers'. I've demonstrated that CPAU has a 'better' way to account for both power consumption, and power provision (better, insofar as the distribution costs are clear, and the price CPAU pays for power provision is commensurate for the price it charges for consumption.) And, I've demonstrated that the failure to account for the full, social costs of carbon, render all of the pricing discussions, and all the 'analysis' of prices by CPUC, moot. Unless and until we address SCC, and the discounting issue/problem, we cannot understand that full costs and benefits of residential solar PV energy generation.

Posted by Sherry Listgarten, a Almanac Online blogger,
on Jan 26, 2022 at 8:00 am

Sherry Listgarten is a registered user.

For those who are interested, there is a debate today (Wednesday) at 1pm on California's solar net metering policy. You can find out more here. I will summarize here if I get a chance.

Posted by EPL, a resident of Menlo Park: The Willows,
on Jan 27, 2022 at 8:58 am

EPL is a registered user.

Thanks for the pointer, Sherry. I followed your link and I see the debate was recorded, so it is now in my "to watch" list.

Posted by EPL, a resident of Menlo Park: The Willows,
on Feb 16, 2022 at 7:46 am

EPL is a registered user.

In case anybody gets to the end of the list of comments... :)

This is an interesting development from Hawai'i.

Web Link

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