Rooftop solar is growing fast in California. Currently, solar constitutes about 3.8%, 3.4%, and 2.8% of generation capacity in the respective service territories of San Diego Gas & Electric, Pacific Gas & Electric, and Southern California Edison. At the current rate, all three utilities would expect solar to be more than 5% of generation capacity within the next few years.
The economics of investment in rooftop solar, and investment in other distributed generation, depend on the rules for net metering. Net metering determines the value of inputs of electricity from rooftop solar into the grid. Lower valuation means slower recovery of initial investment. Investment recovery occurs as a result of savings on energy bills, because net-metered customers must be net consumers of electricity. Inputs of electricity are presently valued at the same rate as withdrawals – the retail rate of electricity – so inputs essentially roll back metered withdrawals.
Yet net metering in California is in flux. In 2013 the state passed AB 327, a law requiring the California Public Utilities Commission to develop a new net metering tariff by the end of 2015. The legislation requires that the new tariff ensure sustainable growth. The new tariff will be used beginning in mid-2017 or once the state’s big three investor-owned utilities reach 5% generation capacity under net metering, whichever is earlier. SDG&E expects to be the first to reach 5%.
The California Public Utilities Commission is engaged in proceedings to develop the new net metering tariff. The Commission recently concluded its public process for developing the tool used for measuring stakeholder proposals for the new tariff.
California’s three big IOUs have proposed changes to their rules on net metering that reduce the value of investment in rooftop solar. The utilities’ proposals require a fixed payment from net-metered customers and a lower valuation of inputs into the grid. The utilities’ argue that net-metered customers are avoiding their fair share of costs for infrastructure and utility programs, forcing other customers to pick up the tab. The utilities note that net-metered customers are still reliant on the grid infrastructure for at least some of their electricity. Pacific Gas & Electric estimated that a typical net-metered customer’s savings on electric bills would fall from about 60% under today’s rules to about 50% under its proposal.
The proposals have garnered opposition from solar interests, environmental groups, and some cities like San Diego. Many have asked CPUC to keep net metering at its current valuation until 2020. The opponents point to the risk that the federal tax credit of 30% will expire, to the new minimum retail electric bill that can satisfy the needs noted by the utilities, and to benefits not captured in the utilities’ proposals. The opponents note cautionary examples like Arizona, where rooftop solar adoption recently fell by 96% after imposing a demand charge. Some parties also argue that the IOUs’ proposed changes could expose rooftop solar to tax risk depending on IRS interpretation, in contrast to today’s tax-free status. The Natural Resources Defense Council, for example, proposes that the new tariff include a demand charge based on transmission and distribution grid service costs, expanded time-of-use pricing, and a minimum bill that cannot be netted-out through net-metering.
