California commission cuts paybacks to rooftop solar customers

Californians who install rooftop solar systems will soon receive less payback for the electricity they sell to the grid, following a contentious Thursday hearing at the state’s utilities commission.

The California Public Utilities Commission (CPUC) voted unanimously to approve the proposed plans, which were slightly revised by the commission’s judiciary branch just a day before Thursday’s hearing.

The decision will revamp the state’s “net energy metering” solar tariff, which has allowed Californian households to get credit on their electricity bills at retail rates and offset monthly energy expenses.

Existing solar producers will be able to maintain their current arrangements for 20 years. But future customers would face stricter terms, which industry experts say could reduce net metering credit by anywhere between 75 and 80 percent.

New customers will be subject to rates that are tied to how much electricity is worth at a given time of day. They’ll also need to pay a fixed monthly fee.

By approving the proposal on Thursday, the CPUC is axing a net metering system that “disproportionately harms low-income ratepayers, and is not cost-effective,” wrote Administrative Law Judge Kelly Hymes, in the introduction of the revised decision.

The new tariff structure, according to Hymes, must therefore “promote equity, inclusion, electrification, and the adoption of solar paired with storage systems,” while establishing a “glide path” so that “industry can sustainably transition” to these new terms.

To help accomplish these goals, the CPUC is harnessing $900 million of state legislature-approved funds in upfront incentives for residential solar adopters who also install battery storage. Of that total, 70 percent — $630 million — will be set aside for low-income customers.

Changes to the billing systems at California’s three major utilities will begin to take effect 12 months after Thursday’s vote.

But within 120 days of the decision — approximately April 2023 — new customers will no longer be able to participate in the previous net metering system.

The decision — a slight variation from a proposal released by the CPUC last month — has long been a subject of contention among Californians. Environmental groups have largely opposed the changes, arguing that these measures would slow California’s clean energy transition.

“It’s devastating to see California’s Utility Commission vote to dismantle solar incentives that have made California the nation’s leader in solar power,” Laura Deehan, state director of Environment California, said in a statement.

New solar customers “will suffer a sudden, drastic” cut in net metering credits, with steeper cuts expected down the line, according to Environment California.

“This misguided decision, which undervalues solar’s numerous benefits for all Californians, will dim the lights on the growth of solar in the Golden State,” Deehan added.

Those pushing for change — including the state’s three major utilities — argue that the current conditions harm lower-income families, who pay higher rates to offset the solar subsidy.

Yet those who wanted to revamp the net metering system were also dissatisfied with the outcome.

Affordable Clean Energy for All — a coalition representing 120 community groups, businesses and all three utilities — expressed “dismay,” in a statement issued following the vote. To these groups and companies, the decision simply didn’t go far enough.

The coalition described the decision as “an unfortunate missed opportunity” that will continue to provide “outdated, overly generous subsidies” to wealthy Californians.

“Today’s vote ensures this indefensible cost-shift will continue indefinitely,” Kathy Fairbanks, spokesperson for the coalition, said in a statement.

Under the terms of the adopted decision, new customers will need to take part in an “electrification time-of-use” plan — or pay varying prices to import electricity from the grid based on seasonal differences and time of day.

These import prices will be highest during the “peak” period between 4-9 p.m., according to a billing explanation for customers. Eligible customers would also need to pay a monthly charge of around $15.

The explanation justifies these “small charges” as a mechanism for maintaining the electric grid and helping low-income Californians afford electricity and access clean energy programs.

Such differentiated rates will also “incentivize customers to divert energy usage to lower-priced hours when their solar system is producing,” according to the proposal.

The widespread adoption of such behavior, the decision argued, will both “encourage electrification and help California reach its greenhouse gas reduction goal.”

Matt Baker, the director of the CPUC’s Public Advocates Office, substantiated these claims in an op-ed for CalMatters on the eve of the commission hearing — stressing that current policy incentivizes the use of solar power during the day.

While the price for electricity is currently about 5 cents per kilowatt-hour during the day, that figure can increase more than 20-fold at night, Baker argued.

Per the terms of the proposal, customers who installed rooftop solar panels prior to the decision’s adoption will maintain a 20-year legacy period in which they can continue to receive their original net billing terms.

In addition, households that connect solar systems before the end of 2027 — what the decision described as a “lock-in period” — will receive special conditions for their first nine years: time-of-use prices based on what was predicted before they installed their systems.

After the nine years expires, the prices these customers will receive will be set every two years, according to the decision.

The lock-in period, according to the decision, aims to “assist in ensuring sustainable growth of the industry during the transition time” and create greater financial certainty for both customers and industry.

Acknowledging that some parties recommended extending the lock-in period from nine to 15 years, the decision said that the nine-year period provides an appropriate balance between accuracy in electricity valuation and the need to ensure certainty.

Wednesday’s revised proposal also declined recommendations “to adopt a distinct and higher cost of solar for low-income households.”

A better forum to discuss such a change would be an ongoing proceeding in which the CPUC’s Disadvantaged Communities – Single-Family Solar Homes (DAC-SASH) Program is currently being evaluated, the decision argued.

The DAC-SASH program enables qualified homeowners to receive no-cost rooftop solar installations as well as certain discounts on their bills for participation in utility-scale or community clean energy programs.

Ahead of the decision’s adoption, the CPUC received criticism far and wide about the terms of the proposal.

Sean Gallagher, vice president of the Solar Energy Industries Association, questioned whether the “abrupt” transition would “slow the deployment of rooftop solar in California.”

“This comes as climate-related disasters continue to intensify and the electric grid remains vulnerable to aging infrastructure and volatile global energy markets,” Gallagher said in a statement issued prior to the vote.

Vikram Aggarwal, founder and CEO of the EnergySage solar marketplace, said he projected that the payback period for those installing solar will now increase from six or seven years to 10 years.

Aggarwal estimated that 20-year savings would also decrease by 60 to 64 percent, in comparison to current California net metering policies. This amounts to a $33,000-$40,000 loss in savings, depending on the customer’s utility, he explained.

“This decision by the CPUC won’t only impact California but the solar industry as a whole,” Aggarwal said in a statement.

“California is the first domino in line for all things solar, and whatever we witness here will undoubtedly influence net metering policies in states across the country,” he added.

Echoing these sentiments, Environmental Working Group president Ken Cook described the outcome as “a disgrace and disservice not only to Californians, but to the nation.”

“It’s a complete retreat from California’s unrivaled position of leadership in the clean energy revolution,” Cook said.

“This debilitating precedent by the leading rooftop solar state will threaten rooftop solar programs across the country,” he added.