The Fresno Bee editorialized that the state’s rooftop solar incentive program, the 25-year-old Net Energy Metering (NEM) program, has been a “smashing success” at getting people to install rooftop solar.
That’s a good thing.
But with no meaningful reform over the past two decades, the program now has its downsides, too. Non-solar customers are paying increasingly higher electricity bills to subsidize credits given to homeowners with solar panels. Energy researchers at UC Berkeley likened NEM to an “offshore account” for wealthy people and called the program “inequitable.”
The NEM program needs to be updated to be more equitable for all utility customers. Everyone who uses the grid — which includes customers with solar and those without — should contribute to its maintenance. And all customers should pay their fair share of state mandated public purpose programs. Under NEM today, that is not the case.
Since 1995 when NEM started, the solar market has matured and costs for rooftop solar technology have decreased 70 percent. Yet the credits mandated by NEM are essentially on auto-pilot and continue to increase. So much so that power generated by rooftop systems costs eight times more than solar power bought on the wholesale market.
These inflated credits mean Californians can pay off an average-sized rooftop solar system in less than five years, but continue to collect these generous credits for 20 years. This sounds great until you realize who is paying for these subsidies.
Non-solar customers, including renters, low-income residents and those on fixed incomes — not the utilities — are the ones unfairly paying to provide bill discounts for their wealthier neighbors with rooftop solar. This cost shift is about $3 billion annually statewide. In San Diego’s territory, which has the most rooftop solar, customers without solar are paying an extra $240 per year per customer on average. If unchanged, these costs will grow to $5 billion by 2030.
Other states with similar rooftop subsidies have recognized this inequity and updated their programs to better align credits with the actual cost of the systems and the value of the power sent back to the grid. The reforms have worked to reduce the cost shift and still entice people to continue installing rooftop solar panels. California can and should do the same.
Rooftop solar works like this: When the sun is shining, homes with solar generate their own electricity, but they still rely on the grid for electricity in the evening, overnight, and on cloudy/rainy days when the sun isn’t shining. They also rely on the grid to send extra electricity generated by their solar panels back to the grid. NEM mandates that utilities buy this excess electricity from homeowners at the retail rate, and homeowners are given credits on their utility bills. As retail rates rise, so do solar credits, even as the cost of wholesale solar energy in the open market continues to decline.
The credits, which are in addition to federal subsidies for solar, are so generous that people with solar reduce their bills so much that they pay only a nominal amount each month and are no longer covering their fair share of costs for grid maintenance and other state-mandated programs, such as energy efficiency and low-income discount programs. Those costs are shifted to everyone else.
The NEM program grew rooftop solar from 10,000 homes in 1995 to 1 million homes today. This makes sense, given how lucrative the program has become not only for homeowners who can afford to install the panels in the first place, but for the corporations that sell rooftop solar and have taken advantage of the subsidies. Rooftop solar companies’ stock prices have shot through the roof.
So, you won’t be surprised to learn that the corporations that sell rooftop solar are strongly opposed to any significant changes to NEM that reduce their profit margins. On the other side of the debate are a surprising number of consumer and environmental groups and individuals who are normally at odds with utilities, but on this issue agree the NEM program is out of whack.
The Utility Reform Network, AARP, Natural Resources Defense Council, and the Public Advocates Office of the CPUC, along with the state’s three major electric utilities, have advocated for reducing the cost shift using combination of reduced credits and monthly fees. When consumer advocates, environmental groups, and the utilities are aligned on an issue, California should take note.
It isn’t fair nor is it sustainable to continue a program that is so unbalanced. We have a big challenge ahead of us to reach 100% clean energy. Rooftop solar has and always will be a critical part of that effort, but overgenerous subsidies that hurt lower income Californians should not be. California must reform NEM.
MICHAEL TURNIPSEED IS THE EXECUTIVE DIRECTOR OF THE KERN COUNTY TAXPAYERS ASSOCIATION.