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Why net metering is such incredibly bad policy

Uploaded: Nov 13, 2022

Are any of you getting sticker shock when shopping for holiday flights? Yeah, me too. It made me wonder what it would be like if California ran an airline the same way it runs its utilities…

What if California ran an airline the same way it runs its utilities?

Imagine that a few months ago you booked a low-cost flight on Bear Air from SFO to Lisbon for only $650 round-trip, a great deal on an off-season red-eye. But now you realize you can’t make it. When you return the ticket, Bear Air informs you that they have a special “Golden Bear” exchange program for frequent travelers like you. You pay $400/year and in return would get to exchange any tickets for “credit miles” which you can apply to other tickets. For example, the round-trip to Lisbon is 11,362 miles, so you would get credit for that many miles. Whenever you need to fly for the next 12 months, your tickets are free as long as you don't travel more than 11,362 miles (unless you’ve exchanged other tickets). You can cash out whatever’s left at the end of the twelve months. You can exchange as many tickets as you want, as long as you’re enrolled in the program.

You listen carefully, scratch your head, do a little calculation, and wonder who exactly Bear Air is employing in its accounting department. Then you jump on the offer, pay the enrollment fee, and bank the 11,362 credit miles, because you are going to save thousands on your air travel. Later that week you get a last-minute ticket to see family in Minneapolis over Thanksgiving, a round-trip that would have cost $500 but is easily covered at just 3178 miles. Then you splurge on a spring break flight to Hawaii (4734 miles) with some college buddies, snagging business-class seats that would have been $2000. You just got $2500 worth of flights for your $650 returned ticket, and you still have 3450 credit miles left.

You continue doing this throughout the year, buying low-cost flights, returning them for credit miles, and then cashing in those miles for pricier last-minute, holiday, or business-class flights. In fact, everyone who is enrolled in the program does the same thing, and more people keep enrolling because it’s such a good deal.

As you can imagine, Bear Air immediately loses money on this program, and more as enrollment grows. Ironically, it is losing money on what should be some of its best customers. The airline has to repeatedly raise fares to cover its costs. Customers in the Golden Bear program are largely unaffected by the price increases since their flights are covered by these ultra-cheap exchanges. But people who aren’t in the program -- who don’t fly much or who can’t afford to enroll -- are forced to pay increasingly exorbitant rates when they do need to travel. Bear Air’s prices quickly become uncompetitive and it would start hemorrhaging customers if it weren’t a state-run monopoly. Californians are forced to use it and many are being squeezed dry, especially those who can least afford it.

This is, and I’m not exaggerating, how California runs its rooftop solar program. Customers with solar rooftops freely exchange their excess low-value solar power for high-value late afternoon and evening power. Installers will encourage homeowners to maximize their rooftop to save even more. All of this costs utilities a lot of money. PG&E’s solar customers pay only 18% of the costs they incur. Utilities are losing billions of dollars, and more each year as more people adopt rooftop solar. They are forced to raise rates to cover their costs. This results in a major equity problem since the rate increases primarily affect non-solar customers who are more likely to be low-income and renters. Unfortunately, none of these customers can just “stop flying” -- electricity is an essential utility. Instead they get locked into higher rates that they can ill afford.

No airline in their right mind would operate this way, and California utilities don’t want to either. But their hands are tied because they are regulated by California and to date California has insisted that they reimburse rooftop solar customers in this manner. The utilities have been loudly complaining and the ratepayer advocates have been loudly complaining, all while hourly electricity costs have gotten ever more differentiated. Both parties have been saying that they want to manage solar the way that airlines actually manage ticket exchanges, namely crediting customers based on the dollar value of the energy (miles) being exchanged rather than on the number of kWh (miles) being exchanged. That is, they want net billing and not net metering.

The state responded to the clamor in 2016 by, well, doing nothing. The solar industry convinced the California Public Utilities Commission (CPUC) that net metering was working well and they should just gather more data. During that time, large amounts of utility-scale solar were deployed, making midday energy worth even less. And more customers signed up for the good deal that was rooftop solar. As a result, utilities lost even more money on rooftop solar customers. By the time 2021 rolled around, the data was really not good, and eventually most everyone agreed that indeed net billing was a better idea than net metering.

But there were still many things to negotiate. When a rooftop solar owner contributes a kWh to the grid, how much should they be credited? And when they consume a kWh from the grid, what should they be charged? The latter seems like it should have an obvious answer -- we all pay for power, so any customer should just pay the going rate. But the utilities don’t charge what power actually costs, which is much more in the evening than midday. Time-of-use rates are a help but still aren’t differentiated enough. This means that customers aren’t doing enough to use midday electricity and avoid evenings. (1)

What the CPUC wants to do is align rates with costs. If a customer puts a kWh on the grid, then they should be reimbursed based on the “avoided cost”, or what the grid would have had to pay if it didn’t get that kWh. (2) Moreover, if a customer consumes a kWh from the grid, then they should have to pay what it costs to produce that kWh. By aligning rates with costs, the customer is encouraged to make efficient use of energy, using more when it’s cheap and less when it’s expensive. A solar customer would be strongly incentivized to use their solar energy when it’s produced and to minimize evening use and/or get a battery.

Indeed, this is the proposal that the CPUC released earlier this week, which they are referring to as “Net Billing”. Solar customers who export energy to the grid will be credited with the “avoided cost” of that energy. Solar customers who import from the grid will be charged with something more closely resembling the actual cost of the energy. PG&E will use its soon-to-be-launched “Electric Home rate” for these customers, which looks like this:

PG&E’s new “Electric Home” rate, shown above, will apply for new solar customers when they consume electricity from the grid. It is designed to better reflect the hourly and seasonal variation in electricity costs. Rates are lower than E-ELEC across the board except for 4-9pm in the summer, when they are considerably higher.

Faced with this change, solar companies asked for a gradual transition, or “glide path”, so that they can adapt their business. The CPUC agreed to a 5-year transition period, with additional payments to solar customers that are funded by ratepayers. The CPUC acknowledges that this will prolong the cost shift and potentially increase bills for non-participants. But they point to a state law, often cited by the solar industry, that directs the CPUC to ensure that the rooftop solar industry “continues to grow sustainably”. The CPUC concludes that they need to balance objectives of grid efficiency and equity with this need to grow the industry. This reasoning is repeated throughout the proposal, for example in discussions about the payback period. The authors acknowledge that while a longer payback period for solar installations might improve equity and reduce bills, their hands are tied because the rooftop solar industry needs to “grow sustainably”, and the payback period impacts solar purchase decisions. Section 8.2.1 (pages 55-57) of the proposal has more discussion on this requirement to grow the rooftop solar industry.

The CPUC’s proposal also reverses parts of an earlier proposal (from December 2021) that would have further reduced the cost shift by adding an $8/kW “grid benefits charge” to cover fixed costs, instituting a $10 minimum bill, and revising rates for customers whose systems are paid off. Rather than moving forward with these changes, which the solar industry strenuously objected to, the CPUC omits them and defers to a newer proceeding (July 2022) that is considering an income-dependent fixed charge for all customers. (3) It remains to be seen if the solar companies will fight the charge in that proceeding as well. (4)

The end result, if this new Net Billing proposal goes through, is a grid that remains inefficient and inequitable, where lower-income non-rooftop customers continue to subsidize higher-income rooftop customers.

Efficiency and equity metrics for residential rooftop solar for PG&E, non-CARE rates. The program costs the grid more than it benefits the grid (TRC < 1), the solar participants do well (PCT > 1), the general ratepayers do poorly (RIM < 1), and even with this latest proposal, each solar customer costs the grid around $1000 in just the first year.

The solar companies say that this new compensation structure will hurt their business and that the transition is too abrupt. Ratepayer advocates are dismayed that unfair rates will be baked in for years to come. I for one am pretty shocked that with all the state’s focus on equity, and its explicit acknowledgement about how unfair these rates are, the CPUC nevertheless is proposing to continue a sizable cost shift. While the solar industry claims that the best way to rectify this inequity is to deploy solar for low-income households, they simply are not getting access to solar.

The colors in this chart show the percentage of Area Median Income for solar customers. Only 30% of solar adopters in California have incomes below median, and that ratio hasn’t changed much in the last ten years. This data does not account for size differences, which would indicate an even worse distribution. (Panels on a multi-family building will provide much less economic benefit per household, for example.) Source: Lawrence Berkeley Laboratories (2022)

In my view, the evolving proposals in this proceeding show the power of monied, vested interests with powerful lawyers, lobbyists, and legislators on their side. I can only hope that the next rate proceeding goes better for the average ratepayer.

Note: The new solar rate structure will not impact households in Palo Alto, which has its own utility setting its own rates. It will affect all customers in PG&E, SCE, and SDG&E territory when it goes into effect, likely some time next year if approved, but with a five year transition period.

Notes and References
1. This is even worse in Palo Alto, where we live in the dark ages with no smart meters. We pay flat rates for a very non-flat commodity, and as a result use electricity very inefficiently.

2. Palo Alto made this change years ago. As a small municipal utility with many rooftop solar customers, it saw the writing on the wall and knew it wouldn’t be able to keep rates low if it continued to overcompensate solar customers.

3. One proposal is to greatly reduce per-kWh rates and instead levy a new income-graduated fixed charge, as I have written about before. This “Demand Flexibility” proceeding is also looking at dynamic rates that reflect real-time grid conditions and “smart” appliances that can optimize their use around those rates to minimize electric bills (and emissions). I will write about it in a future blog post.

4. The Solar Energy Industries Association (SEIA) says “SEIA believes that fixed charges have a role to play in California’s future rate design, but that role should be a limited one. In the long run, there are very few utility costs that are truly fixed and that do not vary with customers’ usage.” (In contrast, some economists have said that most of our electricity rates in California are fixed costs that should be moved out of rates.)

5. In case you are wondering, the solar industry did not get everything they asked for. They wanted higher compensation for solar exports (power sent from solar panels to the grid). They wanted a shorter payback period. They wanted models to incorporate a higher cost for solar installations. In almost all of these cases the CPUC picked a middle ground between what the solar companies were asking for and what the ratepayer advocates wanted.

6. One interesting thing that caught my eye in the proceeding was the discussion about solar + storage. All parties agreed that the solar industry should transition from solar-only installations to solar-plus-storage. However, the solar industry pointed out that it will take a while, citing “the still relatively high price of storage, increased demand for storage resources in light of growing electric vehicle adoption, outdated building codes and standards, and limited contractor expertise.” That sounds about right to me. I think our best bet on storage may be EV batteries, but it’s not clear to me if they can take daily cycling (e.g., storing midday solar for evening use) vs just occasional use during times of grid strain or outages. And supporting them still requires a lot of training and work on the distribution grid.

7. Another interesting thing to me was a discussion about land conservation. The solar industry argued that they weren’t getting enough credit for the land they are saving by using existing roofs for solar. Without rooftop solar, utility scale solar would need to expand and use more land. But the California Wind Energy Association argued that less rooftop solar would just mean that more baseline resources like wind and geothermal get more runtime, and the CPUC found the land conservation argument to be unconvincing.

Current Climate Data (September/October 2022)
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Posted by SRB, a resident of St. Francis Acres,
on Nov 13, 2022 at 8:51 am

SRB is a registered user.

Appreciate the complexities of managing the grid, but the proposed changes (Time of Use, Net Metering, Solar Connection fees.....) risk making for incomprehensible (and possibly impredictible) monthly bills.

Imagine if phone or internet or streaming service had also time of use to manage bandwidth at peak times?

Who would put out with this?

There ought to be a simpler and more predictable billing scheme for the end customer ... especially for the lower income customers.

Posted by Sherry Listgarten, a Almanac Online blogger,
on Nov 13, 2022 at 12:15 pm

Sherry Listgarten is a registered user.

@SRB: I agree! I was wondering how they plan to explain this to people, and it's right there in Appendix A (page 230 of this pdf) if you want to take a look.

You know what's really funny is that apparently even the program administrators can't keep this stuff straight. Again from the proposal: "Joint Utilities contend that under the current NEM 2.0 tariff, it is possible for customers to receive double payment for the same exports — one
payment at the NEM 2.0 retail export compensation rate and another at the Net Surplus compensation rate." So the proposal directs utilities "to discontinue the NEM 2.0 practice of double compensation". See paragraph starting at the bottom of page 155 of that same pdf and see if you can understand it. I can't.

Amazingly, things don't get much simpler in the next proceeding on real-time rates, in which they are suggesting that customers can hedge their electricity purchases to keep their bills more stable. You can pre-purchase curves or something like that. I am not kidding.

Posted by PH, a resident of Woodside: Emerald Hills,
on Nov 13, 2022 at 2:48 pm

PH is a registered user.

It sounds to me like my rooftop solar generates energy during the day for which I'm essentially overpaid. If I'm paid in KWh credits rather than spot prices that I can debit later when spot prices are expensive then you probably could have just said that and saved about four paragraphs of metaphor.

Is that idea that rooftop producers should be paid the spot rate at the time they provide the energy?

Recently I installed an intelligent battery backup system. Now, rather than putting my solar-generated energy on the grid, I store it locally, and, during expensive hours at night, I use that stored energy instead.

Is this really much different than net metering? To "the grid" I look like a reduction in demand during peak pricing hours, essentially dropping off-grid leaving on-grid users to pay their own way.

Also, my solar app keeps track of my generated CO2 savings and puts a price on it. I just checked. This year I've saved $600 worth of C02.

Does "the system" compensate me for the fact that I'm producing C02 free energy and others are not? Are they being made to pay for externalized cost of "dirty" in their rate plans?

"Dirty" is pretty expensive. I bet my compensation is actually low.

Finally, daytime electric rates were probably much higher before the saturation of cheap solar during the day. Have people's daytime heating and cooling costs gone down because daytime spot costs are now cheap? If so, shouldn't they be paying me and other solar producers for reducing their daytime energy costs, and aren't they sort of doing that with net metering?

Once local storage is really viable, we solar producers are essentially going to be off grid, and when solar producers go effectively off-grid doesn't that leave dirty producers and consumers holding their own dirty bag anyhow?

Posted by PH, a resident of Woodside: Emerald Hills,
on Nov 13, 2022 at 3:02 pm

PH is a registered user.

As for network providers. They generally size their networks for peak hour use and roll that infra cost structure back into their fixed rate plans. They can and do bill on amount (not time)of use, but they can do things like throttle. I think "low use" plans are the mechanism for addressing lower income markets.

The metaphor breaks down because PG&E manages both pipes and stuff that runs through the pipes. Networks only have to manage pipes.

Posted by SRB, a resident of St. Francis Acres,
on Nov 13, 2022 at 6:56 pm

SRB is a registered user.

@Sherry - I skimmed through Appendix A - Customer Explanation of Net Billing Tariff

First of all, if the explanation doesn't fit in one page , it's probably too complicated to start.

That's also written as if each customer was managing the P&L of a mini import/export electricity business.

I for one have zero interest in getting deep in that business. I just want a clear predictable bill that hopefully accounts for my investment in solar panels.

And if it's already that complicated with PG&E , I can only imagine what it will look like with SVCE :(

Posted by Sue, a resident of Adobe-Meadow,
on Nov 14, 2022 at 9:53 am

Sue is a registered user.

Net energy metering policy is simply cost shifting from customers who take advantage of the policy to customers who do not. Any utility that claims to value "equity" should not allow net metering. If customers want to install behind the meter generators, they should be allowed to do so, but other utility customers should not be forced to pay those customers for their energy, nor should customers have the right to feed into the grid. Net metering is massive policy failure increasing inequality on the power grid.

Posted by Asher Waldfogel, a resident of Old Palo Alto,
on Nov 14, 2022 at 12:04 pm

Asher Waldfogel is a registered user.

Thoughtful piece.

The only sustainable place for the utility industry is to get fixed charges right. Which is politically very hard to do. The secondary issue is to recover stranded costs as customers shift away from using ratepayer assets.

Have you written about local gas system transition plans? Curious how we plan to allocate gas system rate base costs as customers electrify?

Either we charge a stranded asset fee to customers who cancel gas or we need to raise rates on remaining gas customers. At the same time we need to raise electric rates to upgrade electric distribution facilities. There is a way out, but no political will to schedule discontinuing gas service as each distribution district is fully depreciated.

Any thoughts on a best path?

Posted by Nancy Rader, a resident of another community,
on Nov 14, 2022 at 12:34 pm

Nancy Rader is a registered user.

Re "the California Wind Energy Association argued that less rooftop solar would just mean that more baseline resources like wind and geothermal get more runtime, and the CPUC found the land conservation argument to be unconvincing" -- more accurately, the CPUC did not address this argument.

Posted by Sherry Listgarten, a Almanac Online blogger,
on Nov 14, 2022 at 1:05 pm

Sherry Listgarten is a registered user.

These are some great comments, thank you! A few thoughts…

@PH: Ha, yeah, there are shorter ways to say this than the airline metaphor. I just thought people might relate to this rendition…

You ask: “Is the idea that rooftop producers should be paid the spot rate at the time they provide the energy?” Yes, though there are arguments about what that rate should be. Wholesale rate of energy? A fraction of the retail rate? Avoided cost (which includes emissions, renewable portfolio value, etc)? Etc. They settled on avoided cost. There are whole proceedings just about how this is calculated. But to your point, it does include the fact that the energy is clean.

Your question about a battery system is a great one. If your system is not putting any energy on the grid, then the problems with net metering don’t apply because you aren’t getting any credits. The heartache that the utilities and grid have with this, though, is that most of these systems still rely on the grid (e.g., a cloudy few days in a row) but pay little for the grid upkeep and fixed costs. That is where the debates about the fixed charge come in, even with battery storage.

@Asher, you are right to worry about how we are going to maintain the gas system as people use less, and the similarity with rooftop solar. I have this as a “to do” on my (long) list of blog topics. There are relevant reports from Gridworks and from EDF. I know that Palo Alto is interested in encouraging whole blocks to transition because that would allow them to dismantle parts of the gas infrastructure. That is hard, but they have been thinking of incentives like undergrounding electric lines for those blocks. I'd be up for purple water! But imo the case for electrification would have to be very strong in order for incentives like that to tip the balance.

@Nancy, FWIW, the CPUC said the solar companies didn’t make a compelling case. “Neither CALSSA nor SEIA/Vote Solar offer any evidence that increased net energy metering installations will directly result in decreased utility scale projects…. The Commission is not persuaded by the arguments for a land-use societal benefit.” We have seen evidence that Diablo Canyon (for example) would be heavily curtailed in coming years because of the penetration of solar. That is part of what makes it so expensive to operate. With less solar, it might just be that the more baseline energy sources, which we need for evening energy, just run a little more often in the day. That’s why the CPUC is asking for more evidence for the solar companies’ claim.

Again, thanks for the great comments, and for even reading the footnotes!

Posted by Alan, a resident of Menlo Park: Belle Haven,
on Nov 14, 2022 at 5:31 pm

Alan is a registered user.

I am always a bit torn by these schemes to induce behavior. On the one hand - getting people to go solar, and use their rooftop real estate for it serves useful societal purposes. On the other, once you provide a subsidy, people will fight to keep it forever, and will use it as a crutch. There's both environmental sustainability and financial stability. The greatest financial stability is achieved when solar can compete on its own, without any regulation; I think it can in many cases. If solar companies can rely on this pricing scheme, there's less incentive to cut their own costs. I believe half of the cost of home solar is not in the panels and other equipment, but in the installation. There needs to be incentive to get solar panel companies to innovate in that regard, and setting pricing to heavily favor them doesn't do that.

Posted by Parent and Voter, a resident of Danville,
on Nov 16, 2022 at 6:58 am

Parent and Voter is a registered user.

Not sure I agree with the premise that some "greedy" solar panel owners are oversizing their systems to game the system. A couple of years ago I went solar and the size of the system could not exceed expected usage.
And of course the solar panel components and installation was not "free" but would pay for itself over time. Apparently that is not good enough for some people.
I would have hoped that people who were concerned with traditional energy usage would be promoting Solar instead of making solar panel usage less desirable by adding more costs. And it appears more cost is the direction being taken. Don't we already have escalating costs everywhere else ... and now this?
Just my opinion.

Posted by Sherry Listgarten, a Almanac Online blogger,
on Nov 16, 2022 at 10:22 am

Sherry Listgarten is a registered user.

@Parent, thanks very much for taking the time to write. I agree with you. Instead of saying "Many will oversize their solar systems to maximize evening use." I should probably say something like "Solar installers will encourage homeowners to maximize their solar rooftop". There are policies that constrain rooftop size to use, or to projected use, but they vary and enforcement is inconsistent, and they don't check whether the use is daytime or not.

But the larger point is the following. Most solar rooftop owners that I know can barely read/understand the bill, let alone appreciate all of the economics behind the policy. It is absolutely appropriate that people are installing these roofs. The policy we have encourages it. My beef is with the policy and not with the owners, and I should be clearer about that. My hope in writing this post is that people will be somewhat skeptical about what the solar installers are telling them about the policy changes, and will consider that maybe, yes, they have gotten or are about to get a good deal but maybe it's not something we want to perpetuate into the future for new solar rooftops because it significantly raises the electric bills of people who can least afford it.

Anyway, thanks again for taking the time to write.

Posted by Ko, a resident of West of Foothill,
on Nov 16, 2022 at 10:35 am

Ko is a registered user.

This is what happens when you try to mix social policies into infrastructure. The organization that needs fixing is the CPUC. Build a policy for energy delivery... include access cost & usage cost separately. Bill & credit according to actual costs for the time of sale/credit (I would suggest small intervals like maybe 5-10 minutes). Then separately build social policies to help cover access & usage costs. Yes, this would be politically difficult, but the current "solution" satisfies no one at substantial cost to everyone.

I would imagine that Californians would be OK subsidizing access to electricity & some moderate usage for lower incomes & other disadvantages. Plus, if you want to subsidize new installations of solar or heat pumps or what have you, go ahead & subsidize them directly, just not via infrastructure.

The difficulties would then come in when trying to figure out what's a reasonable cost. For example, if you choose to live in a place that has no power infrastructure, how much should access cost? The actual cost to run & maintain safe power connections over rough terrain or an average cost or something in the middle. Similarly, on the usage side, subsidies for medical equipment & UPS might get hard to evaluate fairly. Access cost would also have to have some factor built in to cover "standby" charges where you have to pay the utility to maintain some amount of infrastructure to manage your "peak" usage.

Posted by SE Hinton, a resident of another community,
on Nov 16, 2022 at 10:48 am

SE Hinton is a registered user.

As a rooftop solar owner of more than 5 years, I appreciate PH's comments. We currently do not have a Tesla style battery in our home but, due to weird, shifting, fairly incomprehensible utility and state policies, will most likely buy one and go off the grid. Then people left on the grid can then play with their power usage as obsessively as they like in order to minimize their rates. BTW, a great amount of electricity in California is hydro-generated, through dams. As we know, there is persistent drought and there may not be enough water in some reservoirs to continue to generate as much power. The state's solution seems to be building bigger reservoirs ... which ... if there's not enough water, would do what exactly? Then we'll have bigger holes with not enough water. Wouldn't a more sensible idea be to have MORE rooftop solar, rather than discouraging people? Instead of paying for giant useless projects, help more homeowners put solar on their homes.

Posted by Carl Jones, a resident of Palo Verde,
on Nov 16, 2022 at 12:11 pm

Carl Jones is a registered user.

1. As a home-roof-top solar (HRTS) system owner, I am perfectly happy to be compensated at wholesale rates for the electricity that my system delivers to the grid. I see no reason that I should get paid more, unless you want to give me credit for the cleanliness of my electricity.
2. I am not against paying higher prices for peak demand usage times. But I think that two things need to be considered:
2a. - some way of 'smoothing' usage costs for consumers - the comments about knowing what one's bill will be for planning and budgeting purposes is certainly valid.
2b. - consideration of adjusting the HTRS compensation (see #1) **if** the wholesale prices are actually higher during peak demand times. If not, no problem.
3. As to roof-top systems not contributing their "fair share" to grid maintenance, let me say this. If the utility (PG&E or Palo Alto Utilities or whomever) has a contract to purchase electricity from someone (let's call them a Bulk Power Producer for want of a term), then what is that BPP paying for grid maintenance?? Are they paying some additional fee or percentage of power delivered? If not, then presumably their contribution to grid maintenance comes from a slightly lower wholesale/contract price for the electricity. **SO**, if I as a home-roof-top producer am paid the wholesale cost for electricity, then I too will be paying for my share of grid maintenance.
-carl jones

Posted by Local Resident, a resident of Community Center,
on Nov 16, 2022 at 2:08 pm

Local Resident is a registered user.

Here are some key concepts I don't think are fully appreciated in this blog post:

* We need to be moving as quickly as possible to renewable energy so rooftop solar should be encouraged because it reduces the amount of fossil fuels burned.

* Electricity generated from burning natural gas is not equivalent in value to that generated from solar and other renewables. Solar energy is more valuable because slows global warming.

* When a homeowner adds rooftop solar, their installation is now part of the grid. They provide the land, investment capital and pay the maintenance. That value likely more than offsets their share of PG&Es utility costs so I don't think PG&E charging an infrastructure fee is warranted.

* Rooftop solar can reduce the amount of infrastructure needed both in terms of generation and transmission. That extra rooftop solar electricity is being used by one of their neighbors. It also means there is not the power and efficiency loss of sending over high voltage lines for long distances.

* Placing your bets on PG&E and others to successfully do large scale renewable projects that replace most of our gas and nuclear dependence does not appear to be a short-term prospect. PG&E is a profit motivated company.

* The utility paying avoided cost for solar is too little because it sounds like its just the extra cost to burn more natural gas when replacing the need for future gas burning or shutting down gas burning plants is of major value.

* Charging and reimbursing based on time of use sounds good. This also helps promote more home solar use of batteries, which is where we should be focusing incentives since solar already pays for itself when properly credited by utilities.

* Separating out the policy for subsidizing energy costs for low income households while also subsidizing rooftop solar seems like the way to go.

In conclusion, rooftop solar is a big positive for slowing climate change and valuable to our society and should be encouraged.

Posted by TK, a resident of another community,
on Nov 16, 2022 at 2:13 pm

TK is a registered user.

Thank you for this thought-provoking piece.
It seems the powers that be setup tension between
1) "equity"; reducing costs for low-income ratepayers and
2) "incentives"; crediting rooftop solar electricity at a higher than market rate.

I haven't quite figured out why, since the $/kWh and environmental cost of solar is lower than fossil fuel generation, a rising supply of rooftop solar can't also reduce costs for all customers. No matter though. If you can only have one of the two options which do you choose?

I choose whichever reduces the impact of energy generation on Climate Change and local pollution and water use (yes, solar uses less water per kWh than turbines).

I drive electric, powered by solar on my home.
I have a rental property (PG&E area) where I recently installed battery and solar and I noted the utility bill of the renters already had an "equity" bill reduction of ~30% based on income.
IMO, the equity stuff is just political clutter ejected by the utilities to obfuscate their poor track record of installing storage to capture all the excess mid-day PV so they could use that instead of expensive peaker plants from 4-9pm.

I choose option 2. The planet really doesn't care about option 1.

Posted by Sherry Listgarten, a Almanac Online blogger,
on Nov 16, 2022 at 8:33 pm

Sherry Listgarten is a registered user.

Wow, I appreciate so many of you reasoning about this and thinking of options or ideas, since it is complicated. Lots of good observations! A couple of small/random things.

@Ko: I think you make a great point that subsidies, whether for low-income or for solar or what have you, should be transparent and explicit. I agree! One problem with the solar rates today is the subsidy is implied (and enormous).

An aside regarding the difficulties of charging for actual cost: I just listened to an ex-President of the CPUC suggest that the utilities should stop extending the distribution grid to homes in wildfire areas. I mean, just stop putting power lines to those areas because the risk and therefore the cost of keeping them there is just too high. He said insurance companies are already doing that -- refusing to insure those homes -- and utilities should do the same with transmission lines. Keep them out of harm’s way so they don’t cause more harm. Basically, he said power to those homes has become unaffordable due to wildfire risk. Yikes.

@SE: I haven’t seen any proposals/models from the state that are counting on more hydropower to hit our energy targets. Virtually all of the growth I’ve seen is solar, storage, and wind (mostly offshore). Have you? To your other point, grid defection could be a real issue imo if the income-graded fixed charges are as high as I’ve seen suggested for the top quintile (more than $100 per month).

@Carl and @Local: I apologize, I forgot to mention what the “avoided cost” for reimbursement for solar power sent to the grid covers, which is: “generation capacity, energy, transmission and distribution capacity, ancillary services, Renewables Portfolio Standard, greenhouse gas emissions, and high global warming potential gases”. So it covers all of what you mention. Some things are not covered. I mention land in one of the footnotes. There was also a discussion in the proposal about resilience, and whether that is a private benefit or not. Some solar companies were arguing that resilience (e.g., the ability to still get power during an outage) is not just a private benefit, but in fact is a public benefit that should be subsidized because solar homeowners (with batteries) can invite neighbors to come over to (say) charge a phone. The CPUC didn’t consider that to be significant.

@Carl: I think the question is, if you are getting energy from the grid, if you rely on the grid to be there for you when you need energy, what is your fair share of the grid costs? The proposal in the newer proceeding is that those fixed costs should be paid for based on your income and not based on your use, because the way it is today (a) makes rates too high and (b) is very regressive (unfairly high for lower-income households), even with special rates. (The NEM proceeding is going to leave it all as-is, baked into the rates.)

@TK: The reason why rooftop solar is a net drain on the grid is because it is relatively inefficient and expensive. Utility-scale solar, for example, is cheaper per MW installed, even when you include transmission costs, land use, etc. It is also more efficient (better exposure, more sophisticated panel controls, etc). Since solar energy is relatively low value, it needs to be cheap to be competitive with other types of energy, and rooftop solar is pricey.

Also imo the planet absolutely does care about equity. To reach our climate goals we need everyone to electrify, so we really do need these solutions to be accessible and affordable.

Anyway, thanks again for the interesting comments, I love how you are thinking about this.

Posted by Carl Jones, a resident of Palo Verde,
on Nov 16, 2022 at 10:17 pm

Carl Jones is a registered user.

I have a follow-up question to your response that I hope you can clarify. You said: "I think the question is, if you are getting energy from the grid, if you rely on the grid to be there for you when you need energy, what is your fair share of the grid costs? The proposal in the newer proceeding is that those fixed costs should be paid for based on your income and not based on your use .."
So, ...
a) Is this independent of whether one has rooftop solar?
b) Does this essentially mean - the richer you are the more you pay?
And is "richer" based upon income? or wealth?

Posted by Local Resident, a resident of Community Center,
on Nov 16, 2022 at 10:34 pm

Local Resident is a registered user.

If utility solar really is cheaper than rooftop, where are the massive projects powering major metros that are being brought online? I believe rooftop solar has dwarfed utility projects in California to date. Why is Palo Alto one of the few cities to be powered by renewables and even then we are over reliant on dwindling hydro. There must be some hurtles that are preventing PG&E from building lots of solar powerplants?

Posted by Sherry Listgarten, a Almanac Online blogger,
on Nov 17, 2022 at 7:32 am

Sherry Listgarten is a registered user.

This chart may be interesting for some of you, from the just-released 2022 CARB Scoping Plan, which outlines how California's power sector can achieve its aggressive emissions reductions goals. There is massive growth in utility-scale solar, in behind-the-meter solar (albeit less), in batteries, in offshore wind, and in hydrogen. There is modest growth in a few other areas like pumped storage and demand-response.

These numbers are in MW, or capacity, so it's important to remember that the energy (MWh) produced is different because some generators have greater capacity factors. For example, while California's solar rooftops have about a 17% capacity factor, utility-scale is about 28% due to better siting and equipment. Offshore wind should have around a 50% capacity factor.

The behind-the-meter solar is afaict split about evenly between commercial and residential, but I haven't seen great data on this.

Posted by Sherry Listgarten, a Almanac Online blogger,
on Nov 17, 2022 at 7:34 am

Sherry Listgarten is a registered user.

@Carl, no proposal has been made, but the initial direction is it would be for all customers (solar or not) and based on income.

Posted by Local Resident, a resident of Community Center,
on Nov 17, 2022 at 10:04 am

Local Resident is a registered user.

That chart is helpful. Here are a few observations. Gas is not reduced so we can do better. Battery storage does not generate energy but just allow us to change time of use. Customer solar is the second biggest source of renewable after utility solar. Wind generates way less than even residential solar. It seems to me its decades too soon to be scaling back on residential solar growth and in the next several decades doing so will result in burning more fossil fuels. If utility solar is really so much more cost effective why is it ramping so slowly? Why isn't there a plan for California to be using 100 percent renewable energy by 2035? Is it because PG&E is a for profit company

Posted by Paige, a resident of another community,
on Nov 18, 2022 at 10:15 am

Paige is a registered user.

@Local Resident "It seems to me its decades too soon to be scaling back on residential solar growth"

I agree. I'm very confused now about how PG&E operates. I understand it runs a delivery grid for electric power connecting buyers to sellers. And I guess it must also make the power market by buying and selling power at (static) spot prices.

What I don't understand is

1.) As a former "customer" I must have somehow paid for grid charges along with power charges. Once I also became a solar "provider" did that incur new grid costs? Same grid. Same connection. Same customer. Does PG&E have to modify its grid to accept rooftop solar from me? If not, why am I being charged any new connection fees at all?

2.) In the chart above, customer solar is the third largest source. If a whole new set of energy providers makes available a new, cheap source of energy, did energy prices go down as a result? Or at least go "less up" than they would have had there been no new supply of rooftop solar? Why not?

I understand that because of rooftop solar, there might be surplus supply during the day, but why hasn't a glut of daytime supply reduced the price of daytime use? If I compete during the day with BIGDIRTY, and I sell cheaper, cleaner power than BIGDIRTY, wouldn't BIGDIRTY have to reduce its daytime price or reduce its daytime business?

I see that PG&E has a dumb grid that doesn't make an instantaneous market like NYSE. But somehow I think they are profiting off of my daytime rooftop solar that they sell during the daytime without having been made to reduce daytime prices.

Everyone SHOULD be benefiting from the new source of power in the way of reduced daytime rates.

If in its role as energy market maker, PG&E is able to buy needed daytime power at much lower prices than before, and yet it sells that energy at old-timey prices making a new fortune.

'Splain it to me.

Posted by Umbra, a resident of another community,
on Nov 18, 2022 at 10:44 am

Umbra is a registered user.

Folks living in Palo Alto have the luxury of a city owned utility, where users can question and complain to their elected leaders. The rest of us are held hostage to PGE for our utilites. We have few tools to combat price increases other than installing solar. I installed a moderate rooftop solar this year-over 20K from MY pocket- because the electricity costs during the summer have skyrocketed when using air conditioning. The people in the central valley and southern California are even more dependent on AC in the summer and fall. I think it very shortsighted to remove incentives for rooftop solar- particularly given the Biden initiative to continue the rebates for solar panels. Arguments using "equity" are diversionary, and move us into divisive political dead ends. We need as many sources of green energy as we can get.

Posted by Rustic Reader, a resident of another community,
on Nov 18, 2022 at 10:53 am

Rustic Reader is a registered user.

Early adopters under NEM 1.0 had a great run by oversizing their arrays. NEM 2.0 trimmed off some ROI for everyone. NEM 3.0's original proposal was an IOU-driven soaking of PV owners. This November NEM 3.0 redux removes the monthly per-kW array charge, and applies a wholesale avoided-cost kWh credit and monthly(?) true-ups. Those last two COMBINED looks like overkill. Nobody NEEDS retail rates applied to annual true-up excess generation. They should end that and stick with retail market kWh credits. Those changes would IMHO accomplish fairness objectives and still incentivize batteries. The entire rooftop PV exercise in California has always been about mobilizing the application of homeowner liquidity to bring PV costs down. And, man, did it work! This round of rates intends to do the same with behind-the-meter energy storage, so that anyone with the cash can become good little energy arbitragers. A healthy ROI (6-8 year payoff) drives load reduction around the clock, and the virtual power plant structure now being tested chops peak demand at low, stable costs to all utility customers. Expand that peaking resources with LFP EV batteries, and let the more liquid customers shut down natural gas peaking plants.

Posted by Carl Jones, a resident of Palo Verde,
on Nov 18, 2022 at 12:22 pm

Carl Jones is a registered user.

@Paige - Thank You Very Much! My questions entirely.
@Umbra - I agree.
@RusticReader - I remain appalled at the NEM path to gouge money from homes with solar installations because, if you could afford to purchase one, then you can afford to pay additional spurious charges for made-up reasons.
@Sherry - when I read your post about pricing based upon income, I was surprised by my reaction, but nevertheless here is what it was: Basic Communism - from each according to his abilities (income), to each according to his need.

I installed a solar system to put my money where my mouth was - to do my part to reduce global warming by adding to the renewable energy supply and reducing my consumption of dirty energy. And now, "Gotcha!"

Posted by Sherry Listgarten, a Almanac Online blogger,
on Nov 18, 2022 at 6:10 pm

Sherry Listgarten is a registered user.

Okay, you guys are outdoing yourselves with terrific questions. The way that electricity pricing works is entirely unintuitive. I’ll give it a shot here.


First of all, PG&E doesn’t set electricity prices. The CPUC does that, based on strict guidance from laws, etc. PG&E goes in and argues for what it thinks the prices should be every few years, as do ratepayer advocates, businesses, etc. Also, PG&E doesn’t profit from high prices or low prices. The generators get paid for power (sometimes a lot -- see below) and PG&E gets paid back for operations, etc. What PG&E *does* make money on is capital investment. In the old days they used to build power generators, and that would be an asset that would earn them a “rate of return”. Nowadays it’s more transmission investments. This rate of return on capital investments allows them to pay back investors, so they can attract future capital so that they can make more investments. As you can imagine, the utilities are always reminding the CPUC how important it is that this rate of return is high, otherwise people won’t invest and they won’t be able to build the things necessary to grow our grid. The CPUC has some discretion over what this rate of return should be. Or maybe it’s the legislature, I forget. Anyway, as you can imagine, the utilities tend to prefer projects that have them building more capital projects, because that’s how they make money. You can watch this ad where the CEO of PG&E touts undergrounding, even though undergrounding is a very expensive way to address wildfire risk that should only be used in rare cases. It’s much cheaper to harden the wires.)

An organization called CAISO runs the electricity market. Various generators bid into the market and CAISO sequences them from cheapest to most expensive and picks the cheapest ones to operate until they have satisfied demand. The highest price that is chosen to operate is the price that every operating generator gets. So if you are a cheap solar plant but it’s a high-demand period when we have to choose a pretty expensive gas plant to run in order to meet demand, you will get a bucket of money. The market operates this way because it incentivizes generators to keep their prices low so they are selected to run. There are different levels of markets, day-ahead, and hour-ahead (I think?), fifteen-minute, and “right now” or something like that. I don’t know the details. The shorter-timeframe markets handle things like unexpected outages, higher- or lower-than expected demand, cloudy (solar) or calm (wind) periods, etc.

So this policy of marginal pricing -- using the highest one that is needed to meet demand -- keeps prices from varying a huge amount. But you can see in PG&E’s E-HOME pricing that energy prices are still lower in the day than in the evening. Evening is when demand is highest relative to supply, so prices are highest. So, yes, we have all benefited from lower-priced solar power coming online. We also benefit when demand is reduced because that also lowers that price that needs to be charged. That is especially important at peak times, when the price rises rapidly with each new GW of demand. That is why the grid can afford to pay all of us to use less energy at those times.

With regard to grid charges… The utility does have to do some extra work to make sure you can safely add power to the grid. That is one thing that will slow down vehicle-to-grid technologies for a while, where every EV can suddenly become a generator. But that is not what a “grid charge” is because that’s a one-time cost afaik. A grid charge just covers maintenance of the grid. Most of this is included in the per-kWh rates, but if you are a solar customer who doesn’t use many kWh’s but still relies on the grid, there is a larger grid charge. It’s still not large enough, which is one reason why there is still a substantial cost shift even after switching from net metering to net billing.

Electricity prices in California are way too high. Lots of households can’t pay their bills and it discourages electrification. So this new proceeding to fix prices (for everyone) will be interesting. The idea is to take all of the “fixed costs” out of rates and have everyone pay a substantial fixed charge, with wealthier people paying more. This would apply to all customers, even solar customers. This will make solar a worse deal, because you won’t be able to save as much, so expect solar companies to fight to make it as small as possible.

@Umbra/Rustic: The problem imo is that the revised NEM is still a large subsidy for the solar industry, one that is paid for by non-solar customers. See the metrics in the table above. As @Alan says, sometimes these subsidies are needed in the early days to give some momentum to a new business, but if businesses get addicted to them (or you put that subsidy into legislation, as we apparently did) then you have a problem, especially when lower-income people end up paying disproportionately for it.

@Carl: Re charging for fixed costs based on income, think tax. They want to pay for these out of taxes (or something similar) and not out of electric rates, which are much, much more regressive. I don’t know if that’s Communism or not, but it’s certainly not uncommon for people to pay taxes for infrastructure.

BTW, it’s great that you have solar. Just try to use the power when you produce it, and when you can afford it, get a battery. Both of those things will help to reduce the cost shift.

I hope this helps more than it confuses… Again, I love that you guys are really thinking about this!

Posted by David, a resident of Walnut Grove Elementary School,
on Nov 19, 2022 at 2:41 pm

David is a registered user.

This has to be the best comments section in the history of this site.

Posted by Eddie, a resident of Fairmeadow,
on Nov 19, 2022 at 4:50 pm

Eddie is a registered user.

When we remodeled in 2018, we added solar to be environmental (not to save money). I would have been happy to cover my entire roof with panels (but we weren't allowed, even though our new (post re-modeling usage) was underestimated, even though it wasn't forward thinking - e.g. what if we get an EV, get rid of gas usage...).

I would be happy to get a smaller credit for the daytime energy I produce and pay more for nighttime use. (And I wouldn't complain if Xfinity did the same with cable). Why is this concept hard to understand? In addition to Sherry's airline metaphor, I think about how Fastrak lanes are more expensive during rush hour. If you can drive in the Fastrak lanes or do your laundry in off-peak times, you save money.

I think the ultimate goal should be to get as much California roof square footage as possible covered with panels. Ultimately, we're trying to reduce CO2 emissions as much as possible. But we have to do it in a way that's fair. Every so often a municipality says that they want to buy your house to build a sports stadium. Why doesn't a municipality just pay people to rent the tops of their rooves to install solar panels?

Posted by PH, a resident of Woodside: Emerald Hills,
on Nov 19, 2022 at 7:18 pm

PH is a registered user.


Sherry, thank you so much for the time and effort in responding.

To recap.

PG&E operates the grid (network)
CPUC sets prices, which are relatively "static" and persist possibly across several years(?) even when demand and supply are dynamic, and
CAISO makes the market matching supply to demand.

For now let us put aside "grid charges."

During any hour H, the "spot" cost paid suppliers is the price set by the HIGHEST bidder needed to meet the full demand at that hour, even if say, cheaper sources provide 95% of the supply during that hour, and the price charged customers for that energy, is the price set by CPUC, possibly a year or two in advance in all its wisdom, probably based on cost set by the highest provider.

Is this so? Wow!

So basically, during the day, customers are being charged retail prices based on BIGDIRTY costs, set by CPUC even if they are getting our cheap, clean solar, and the excess retail money is being given in part to me, when I cash in my Net meter credits at night for "free", or, if not, then PG&E pockets the excess?

If that's basically a correct understanding of the "market" then yeah, there's a problem, but the real problem is that CPUC is basing retail rates on BIGDIRTY costs (at least during the day.)

Retailers subsidize us and we keep BIGDIRTY competitive, when it isnt.

We should be putting BIGDIRTYCOSTLY out of business, at least during the day. So CPUC should be setting its daytime supply costs and retail prices differently, so as to reduce the costs to customers, and it should be re-imbursing all suppliers differently, including BIGDIRTYCOSTLY.

In other words, there really isnt a true "market" is there? It's a bureaucratic pretense of a market.

IF CPUC doesn't change its rate algorithms, and bills at the highest marginal rate for suppliers passing that cost onto customers and we solar guys don't get as big a cut, then who is getting it?

Posted by Sherry Listgarten, a Almanac Online blogger,
on Nov 20, 2022 at 8:35 am

Sherry Listgarten is a registered user.

@Eddie, you ask “Why doesn't a municipality just pay people to rent the tops of their roofs to install solar panels?” I think because it’s expensive relative to utility scale solar. You can’t use the space efficiently, many roofs are partially shaded or poorly angled, it would be inconvenient to install and maintain, etc. Utility-scale solar is generally cheaper and more efficient than putting solar on a bunch of little roofs, even with land and transmission costs. Bigger and less shaded roofs are better though (think warehouses), and with transmission costs continuing to go up, there may soon be something there that can beat utility-scale. I don’t know.

@PH: One thing I forgot to mention is contracts (“power purchase agreements”). The utilities sign contracts with power providers (solar plants, wind farms, etc) to buy power. Their portfolio of contracts must meet certain guidelines specified by the CPUC, for example to ensure the state will have enough power at different times of day. The contracts cover most of the power that utilities buy, so they care a lot about the prices (and terms) of those contracts. The power providers in turn want their contract prices to be competitive, so they will likely share some of that surplus from marginal pricing with the utilities rather than keep it all to themselves. That will keep utility costs and therefore retail rates somewhat lower (and generator profit somewhat lower). This is pushing the limits of my knowledge though.

Posted by PH, a resident of Woodside: Emerald Hills,
on Nov 20, 2022 at 11:07 am

PH is a registered user.

This "market" is heavily regulated and I'm sure there's plenty of dumb to go around.

I understand the basics of why Net Metering, when viewed in isolation as a regulatory policy, overpays me for my solar production. I could even be convinced to take less IF I knew that the savings was being passed on dollar for dollar to daytime customers, but I haven't heard anything from your description that makes me think there is a regulatory linkage between CPUC rates for customers and CPUC payment rates for rooftop solar providers. If we are being subsidize by "poor" customers then the removal of that subsidy should go BACK to those "poor" customers. Instead I worry that "poor" customers are being used to justify rootop solar clawbacks that will instead line the pockets of shareholders.

But there is also a forest to worry about, not just the tree. Rooftop solar could probably still benefit from subsidies. Batteries surely can.

In your table, rooftop solar + battery must = BIGSOLAR. Rooftop must triple and battery increase six-fold. If battery technology follows XXXXs's law requiring multiple doublings of worldwide capacity to reduce unit price will it get there without subsidies and the continued growth of rooftop solar?

And, if rooftop solar + battery become only a thing of the 1% or 10%, and more and more, "we" drop off the grid, then "poor" customers are left to payoff PG&E and BIGDIRTY. Then, only huge increases in cheap BIGCLEAN will "trickle down" to poor customers.

I can see a regulatory scheme were rooftop reimbursement is reduced on a glide path targetting 10 or 20 years, or upon hitting fixed emissions reduction goals.

We're footing a big part of the bill for CLEAN right now. Including innovation costs. It's okay if everyone has skin in this game. How much skin? It's all a negotiation.

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