Changes To Net Metering In CA Could Hurt Solar Power Industry
The California Public Utilities Commission is evaluating what changes to make to the state of California’s net metering policy. The utilities want to reduce payments to customers who generate electricity from solar power and add fees, but doing so would damage or potentially destroy the California solar power industry, some say.
Brad Heavner is the Policy Director at CALSEIA, the oldest state-based solar energy association in the US. He answered some questions about the situation for CleanTechnica.
Why is there a change in solar power policy being considered now?
The California Legislature has raised the cap on net metering several times. The utilities are currently required to offer net metering until it makes up 5% of combined customer peak demand. As we began approaching this cap, the Legislature directed the California Public Utilities Commission to look at whether the net metering structure needs to be changed before removing the cap altogether. So the timing is somewhat arbitrary and is potentially disastrous because it coincides with the scheduled changes to the federal Investment Tax Credit.
What is under consideration to change?
The Commission needs to create a new tariff for solar customers. It can be based on a net metering structure or a feed-in tariff structure, or a hybrid of the two as the utilities have proposed. There are three primary questions: 1) How should customers with solar or other distributed generation be compensated for the power they provide to the utility? 2) Should there be any new fees that are charged only to solar customers? 3) What added features are necessary to ensure solar growth in disadvantaged communities?
The current net metering tariff provides for bill credits at full retail rates and no solar-only fees. Utilities want to cut the compensation in half and add fees.
What potential impacts will there be if a policy change is made?
If the Commission adopts the utility proposals, the opportunity for customers to go solar could be virtually eliminated. The utility proposals would result in capital recovery periods of 13-20 years. Data from the National Renewable Energy Laboratory, which is consistent with solar company experience, shows that very few customers would consider solar with a simple payback of more than nine years. Customers going solar with PPAs under the utility proposals would either lose money by going solar or save a negligible amount.
Fortunately, the law says the new tariff has to ensure that solar “continues to grow sustainably,” so the utility proposals are in clear violation of the law and we do not expect them to be approved as written. However, any reduction in compensation or new fees would be damaging to the opportunity to go solar.
California is the US solar power leader currently, and solar power seems to be doing well in California, so it doesn’t seem that sensible to make a policy change. What is the motivation to do so?
Utilities are afraid that when a lot of people go solar there will not be enough customers left to pay for the grid. This is a very long-term problem. Currently, only three percent of California customers have solar. This is not harming the utilities’ ability to recover costs. When half of all customers are generating their own power there will need to be a vastly different rate structure, but that is a long way off. Plus, utilities can modernize their planning and forecasting to spend less money on infrastructure when people buy less power from them.
Is the solar power industry following potential policy changes and do they have any influence in making such changes or responding to proposed changes?
CALSEIA and our allies have been very active in this proceeding. We have filed hundreds of pages of technical analysis and have met repeatedly with decision makers. We also filed a net metering proposal that is being considered alongside the utility proposals. Our proposal includes new fees for solar customers, but those fees would not begin until the industry has recovered from changes to the ITC.
What can concerned California citizens do if they want to voice their concerns to public officials?
California ratepayers can send a message to the CPUC commissioners by emailing public.advisor@cpuc.ca.gov.
What gives the California Public Utilities Commission authority to make decisions that impact the solar power industry?
All utility tariffs have to be approved by the Commission, which is an important consumer protection. The solar industry is dependent on those tariffs because customer savings are a factor of how much they pay before and after installing solar. It is a necessary arrangement given that utilities are monopolies, but it results in a very top down structure. The solar industry itself is intensely competitive but we operate within a strictly regulated environment.
Instead of the kind of policy changes that are under consideration, what do you think would be better for solar power in California?
The Commission is obligated to consider the utility proposals, but it can and should reject those proposals in their entirety. It can set up a process to look at this question again in a few years after changes to residential rate structure have settled in and the industry has adjusted to changes in the ITC. We will have a better picture at that time what future utility rates will be and how low solar prices can go. We can come back in a few years and set a course for gradual changes to net metering.
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CALSEIA has apparently accepted the principle that simple net metering has to end, and is simply asking for more time, and a slow transition to sub-retail FITs that keep a reasonable ROI for householders. The latter was the guiding principle of EEG 1 in Germany in the successful 2000s, before it was abandoned to protect the coal industry.
The German Renewable Energy Act (German: Erneuerbare-Energien-Gesetz, EEG) was designed to encourage cost reductions based on improved energy efficiency from economies of scale over time. The Act came into force in the year 2000 and was the initial
spark of a tremendous boost of renewable energies in Germany.
When you say, “before it was abandoned to protect the coal industry,” do you mean the changes in the German feed-in-tariffs of 2014? And are you mostly referring to onshore wind, or to all of the renewables addressed therein?
TOU pricing minus a 2c/kWh transmission fee. Period.
Conversation over. This covers the transmissions costs and the grid use by solar owners while still giving them a fair value for the energy the provide to the grid. That, and it’s self balancing so we never have to have this debate again.
As more solar goes in, the supply/demand curve changes and the cost during the day goes down, with peaks in the morning and evening. This will cause people to start facing panels east and west as, even though it generates less total power, it generates more valuable power. That will provide a good fit for our day time power fluctuations, leaving grid generation to fill in the base load and gaps with wind, solar thermal and storage (with a few biogas peakers).
Why is this a debate again?
I like what you are saying. One little tweak. If too many neighbors have a system, the the local wire might become a limitation, and the iverters may need to make sure they don’t put too much voltage on the line.
Ok, sure, in the permitting they may have to put export restrictions on grid segments because of load, but that’s a ways down the line for everyone outside of Hawaii. Important note though, the burden of proof there should be on the entity placing the restriction, not the entity trying to add the solar.
Instead of throttling supply, a local battery could be placed and the funds raised through temporary tariffs of $.02-$.05 per watt minus base load retail, until batteries are paid for. Then back to TOU minus 2.
This also has the benefit of disaster resiliency after storms for a locality – directly benefiting those who paid for it.
Or as the supply demand curve shifts, people will put in their own batteries… (your solution works too, I just prefer the people to control the transition and i’m not sure I believe how ‘temporary’ that tariff would stay…)
Add another 3 cents /kw hr for paying for dispatchable back up grid power with automatic fuel cost adjustment and you are on to something.
Or you could just do TOU based on the 15 minute price blocks the grid already operates on… That already covers the dispachable power costs (as that’s what drives it up) and already has fuel adjustment built in as they bid comparatively.
I would be shocked to find out that it’s anywhere near 3c/kwh though… Sure, it might be as high as $2/kwh, but those prices only happen 1-2 blocks a year. Average out over the whole year and it’s really quite low…
I find the argument that end-users should get the 15 minute time block wholesale price of electricity valid. Why should the utility pay one provider more than an other is paid?
I know that pricing in that matter wouldn’t push the installation of lots more rooftop solar but roof-top should be subsidized by the government, not by utility companies unless they benefit in some fashion.
Agreed. But I actually think the TOU model would substantially improve solar ROI for the immediate future as the day-time price is often 3-4x higher than the average. That, and if you did solar and EV and charged at night, using off peak power that’s 2-3x lower than the average, your EV mileage would hardly make a dent on your solar production. (Though this payback would get suppressed in a few years when we start to see the mid-day dip as germany has…)
If we’re looking for a solution then we need to keep in mind that midday wholesale prices may plummet as we eliminate the very high cost of gas peakers by end-user solar/demand decrease.
Take a look at how expensive peaker power is.
(Click on graphic to open large in a new tab.)
Oh yes, I fully realize. That’s why I mentioned that it might be an issue in a few years once we have the German issue. Ideally, basing it off of the market instead of feed in tariffs would cause more east and west facing panels in the near term as the mid-day is suppressed and prevent the duck curve from being so pronounced.
Also, keep in mind Lazard’s fuel prices are conservative (Though reasonable) and cost of capital is high. Both of these favor traditional ff plants to renewables in that chart. Solar is particularly hard hit as LCOE is typically about 60% cost of capital any more…
Utilities are quasi governmental AND quasi monopolistic by default. They don’t deserve protection from market forces pricing AND protection from societal needs pricing.
One or the other.
Actually utilities are all sorts of things. Some are run by municipalities and investor owned corporations. And there might be some sort of strange beast in between. And there is. TVA is non-profit corporation which was started with government funds.
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There are some people who believe that they somehow have a right to send any excess electricity they might generate to the grid and take back an equal amount when they wish.
That’s net metering.
That’s unreasonable. The utility, and consequently ratepayers, can be forced under that model to accept low value electricity and pay back with high cost electricity.
Utilities should not be required to lose money in order to provide societal needs. We don’t require car dealers to sell their cars at a discount because someone has a low income.
There seems to be a lot of utility-hate which I just don’t understand.
In fact, when the roof-top solar provider sells the electricity to the utility, it necessarily must be used at that time, if it is used by a neighbor, the line losses are negligible (will be some step up and step down losses though). At this point, the neighbor is charged at the current retail rate. So, there is never a time when your scenario happens.
Societal needs are promotion of clean energy to save the actual society that the utility counts on for customers. Since as as industry, it is responsible for a significant part of the problem, it needs to be held responsible for a significant part of the solution. Also, putting wires up all over the place provides us with electricity. This becomes a defacto monopoly. You pay for the absence of competition with more regulation. That is reasonable.
So, you see, it’s all quite reasonable and nothing at all like your car dealership analogy. However, it is something like the overall car market in CA. The market pollutes, but is not paying for it. Some profits must be allocated to fixing this problem or the whole market dies. Hence, certain emissions standards for the industry. Again, reasonable I think. What do you think?
“At this point, the neighbor is charged at the current retail rate. So, there is never a time when your scenario happens.”
If the solar owner sends a kWh to the grid at 1 PM and the grid sells it on for 8 cents and then the solar owner takes a kWh back at 6 PM when the rate is 14 cents the utility has been forced to take a loss.
I understand what you’re saying, but I think there’s a but there. That kWh that the owner sends to the grid for 14 cents is the same one that is sold for 14 cents immediately unless it is stored and no appreciable solar generated electricity is being stored at this time.
No, Tim, I don’t think you understand what will happen as more and more solar is added to the grid. Let’s look at what has already happened in Germany. (below)
In the top price chart one can see a normal day on the grid pre-solar. Prices rise as the country wakes and goes to work and drop later as people head to bed.
In the second price chart there is a similar morning rise and then the price of electricity dives to the bottom as rooftop/end-user solar kicks in.
If the utility is using a TOU pricing system the retail price of electricity will be similar to the late night price. What they receive from the rooftop will be sold for a small price, not a high price.
Then as the Sun sets the utility has to access more expensive sources. The price rises.
If the rooftop sent in a kWh at 1 PM the utility received something of low value. Then if the rooftop wants that kWh back in the evening the utility has to purchase a much more expensive kWh and lose money.
I got it now. You’re right. Net metering could indeed work that way once solar hits a high enough percentage to change consumption to the duck bill. OK – point given. But until solar reaches such a high percentage that it can’t be compensated for, utilities are making bank off of the panel people. Plus cloudy days really screw with this a lot.
Still net metering should be the standard until smart meters and grid technologies allow something like what was suggested – TOU minus line losses. Presumably, your $35 monthly charge takes care of the grid costs. What do you think?
I’m not sure how to put together the best solution. I do think the fairest is for the utility to pay all providers the same rate in each block of time. That would take smart meters reporting electricity used/supplied but those sorts of meters are being installed.
I think it’s fair to charge each consumer a standard grid use fee. And then bill them for electricity used and electricity supplied based on TOU/S.
That will mean that some suppliers may find it more economical to install storage and use their own rather than sell/buy, but it would take cheap storage.
Now, if we as a state or nation want to encourage more end-user solar then we should do that separate of the business relationship between utility and seller/buyer.
It’s going to be a fight. Utilities will crunch the data with big analytics and come out with a cost that makes them the most profit. Then justify that price with BS. Consumers will carefully weigh that price with going off-grid.
We all need modular off-grid turnkey solutions that can be added to as time goes by. Additions would include turnkey plug-in batteries and more solar panels. It’s going to be a fight between these turnkey solutions and the greedy utilities.
All of this is madness. Punish the entire population of the state (and the world) so that monopoly utilities don’t have to make any adjustments to their business model. It’s just madness.
Federal and state energy agency policies, as well as those of public utility commissions, should have the ultimate mandate to end the use of all fossil fuels. Incentives should continue to go to both homeowners and utility companies until 100% of all energy in the U.S. is renewable. Any movement in the opposite direction is inappropriate.
Regarding “Plus, utilities can modernize their planning and forecasting to spend
less money on infrastructure when people buy less power from them.”
That’s exactly why the utilities are fighting this fight. Their profits go up when they spend more money on infrastructure, and down when they spend less. Their interests are diametrically opposed to the state policy established after the manipulated California energy crisis of around 2001, which is to save consumers money by minimizing additions to the rate base. We need to bring the history forward, and push the established policy, because the IOUs have been undermining it ever since it was established.
And that is why the monopoly must be broken up.
In the long run, when penetration levels get very high, net-metering is indeed not feasible any more. A good policy would gradually phase-out net-metering and introduce more market based prices. Of course this can only work if the rest of the electricity system is market-based as well* and there is a proper price on pollution, like a CO2 tax. With the entrenched positions in politics and the huge power of the vested interests this will be difficult to achieve. Thus fighting for some form of net-metering or feed-in-tariff will probably be the best tactical move. But this should not be the end goal.
By the way: some nit-picking on the lingo: if the price that you get for a kWh delivered to grid is different from the price you pay to the grid, than it is no longer “net-metering”, but a “feed-in-tariff”.
* I mentioned this before, but for newcomers: such a system would mean that production and retail are given to the free market, and there remains only a publicly owned grid monopoly.
Other countries, Germany is a good example, have a lot more solar power yet still have a perfectly healthy commercial power system. I think this ‘problem’ is a mountain made of a molehill. But if I am wrong and it’s all just terribly, terribly important, the thing to do about it is actually very simple.
Cut the rate of power by ten percent. Institute a monthly line fee, the same for each residential customer, that comes to about the same amount of money. This way the ‘problem’ vanishes due to a bookkeeping trick and it doesn’t matter whether it was real or not to begin with.
Take a look at what happens to the wholesale price of electricity on a sunny day. It’s a great illustration of why straight net metering does not work.
Before solar the wholesale cost of electricity was quite high. Now that there is only a modest amount of end-user solar the demand peak during the middle of the day disappears.
Any end-user electricity that the grid accepted would be of little value. They they would have to pay that back, kWh per kWh, with much more expensive afternoon/evening/morning electricity.
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Yes true. Either the net metering should end or there must be some changes made for people who use solar power and the ones who don’t. When solar panels have already made it to the market what’s the use of net metering.