CPUC decision based on incorrect assumptions and will kill California’s solar industry



The Californian Public Utility Commission (CPUC) released a proposed decision on December 13, 2021, that, according to a new survey of solar interested homeowners, will reduce the number of new solar installations in California by 95%, devastate the solar industry, put over 68,000 people out of work, and provide no savings to California utility customers that do not have solar. 

The decision in its current form has two key policy changes, both of which will reduce the savings that will be obtained by people that buy a solar system:

  • Reducing the amount new solar system owners are paid for excess solar energy they export to the grid from a near retail rate (18-24 cents per kWh) to an "Avoided Cost Rate" expected to be 4-5 cents per kWh.
  • The introduction of an $8 per-kilowatt monthly grid usage charge for solar customers, effectively a "solar tax"

It will provide zero benefits to the non-solar utility customers who, after the decision, will still have to pay for NEM 1.0 and NEM 2.0 solar customers, and will completely eliminate any benefit that would have come from solar customers with batteries. 

Compensation for exported solar power at the avoided cost rate, instead of the full-retail rate 

The first element of the decision is a reduction in the amount customers are paid for excess solar energy that they feed into the grid, from around 20 cents per kWh under NEM 2.0, to around 5 cents per kWh under the proposed new "Net Billing Tariff". 

Without going into too much detail, it changes the compensation for exported solar energy from a rate close to the retail value of power under NEM 2.0, to the Avoided Cost Rate, which is the rate at which the utility could have purchased the same power from a gas or coal-fired power station.

The SolarReviews survey of more than 4,000 people who are currently considering solar shows that 68% of these people will not buy solar if this change is made.

The most concerning thing here is that 68% said they would no longer consider buying solar even before they were told about the new $8 per-kW, per month solar tax discussed below.

While SolarReviews does accept that there needs to be some changes made to reduce the cost burden that solar systems without battery storage have caused non-solar owning utility customers, we believe that such reform needs to be introduced more slowly - starting with a rate that is 200% of the avoided cost rate and slides down to 100% of the avoided cost rate.

This would still reduce compensation for new solar customers by approximately half, would allow the industry time to adjust, and keep solar payback periods under 10 years. SolarReviews has developed a solar cost and savings calculator that models the effect of the CPUC decision on payback periods and savings. Homeowners and policymakers can use the assumptions tab to the right of the calculator to select "Assume NEM 3 decision proceeds". The results will show the effect of the proposed CPUC decision on savings and payback periods.

A grid usage charge of $8 per-kW per month 

The Commission is also proposing an additional grid usage fee for all  new solar customers, essentially a "solar tax".

95% of the respondents to our survey(which was sent to more than 100,000 California homeowners who were considering solar before the CPUC decision) said they would no longer consider solar if there was an $8 per-kW per month fee levied on them.

It is incomprehensible to think that people will spend $15,000-20,000 of their own hard-earned money to buy something that will now not only have a  much longer payback period but will also expose them to a new monthly tax. 

The CPUC decision is based on two incorrect assumptions: 

The first is that all solar customers shift costs onto people that do not have solar. This is not the case. When solar customers pair battery storage with solar they do not export much (if any) power to the grid and their batteries help to stabilize frequency on the grid and reduce the need for grid upgrades by alleviating demand during peak times.

The second incorrect assumption is that people will continue to buy solar systems while paying a tax to have solar of $8 per-kW per month, which is about $64 per month for a fairly typical 8kW system. The SolarReviews survey shows that 95% of homeowners who were interested in solar prior to this CPUC decision will now not buy solar.

SolarReviews is prepared to provide the Commission access to this data so that it can verify these results for itself and see that the proposed decision will destroy solar and offer no-cost reduction to non-participating ratepayers. The assumption that the payback period is the only driver of consumer behavior does not take into account the extreme aversion consumers have to what is effectively a "solar tax".

The only winner from the proposed CPUC decision is the utilities because it kills off solar and battery storage as a potential competitor and makes it more likely that the commission will have to approve the utilities spending more CAPEX on their grids to upgrade their capacity to cope with electric cars. Utilities are allowed to make a return on this CAPEX and so this effectively grows the profitability of the utility business.

The Commission must consider real data on the effect this decision will have on the demand for solar systems and the SolarReviews data is the most valid source of data.

The fact that dozens of experts can spend an entire year developing a decision and this is what they come up with - a decision so logically incorrect  - is simply beyond belief.

The Commission has relied on NREL government studies from 2013 and 2017 about the drivers of demand for solar systems that are out of date and didn’t focus on California specifically. 

The NREL studies did not ask customers what impact a solar tax would have on their buying decision.

The shareholders of SolarReviews have been involved in the solar industry around the world and to the best of their knowledge, there has never been a successful residential solar program in which those buying a solar system were charged an extra monthly fee for having solar.

It is already difficult to convince people to pay $20,000 or more of their own money to buy a solar system, but it is practically impossible to sell the same system if the buyer is levied with a new monthly fee for no other reason other than buying it.

With that said, we invite members of the CPUC into our office to talk with real customers, of which we get approximately 200 inquiries from California per day. The true impact of this proposed decision will be instantly clear once they try to sell solar to even one customer. We urge the Commission not to make decisions based on an academic guess as to how it will affect consumer buying behavior when it is so easy to use real data and speak to real homeowners.

SolarReviews believes the current CPUC decision represents an opportunity lost 

SolarReviews accepts that, to date, solar system owners on the generous NEM 1.0 and NEM 2.0 rates have caused a cost burden that has been felt by non-participating customers. We also accept that behind-the-meter solar systems that are not paired with battery storage are not as cost-efficient as utility-scale solar and wind power systems.

However, deployment of behind-the-meter battery storage is cost-effective compared to:

  • Utility-level battery storage,
  • Frequency stabilization services, or
  • CAPEX to increase the capacity of the grid

With the help of policies to promote battery storage, the ongoing cost of these existing NEM 1.0 and NEM 2.0 customers could be reduced. If each of these customers added a battery, then the ongoing cost shift from these customers to non-participating utility customers reduces substantially, and non-participating customers could start to see a cost reduction from the significant investment that has already been made to get these panels on rooftops, rather than an ongoing cost burden.

Simply adopting a set of tariffs as contained in the draft CPUC decision, is the worst of all possible results:

  • It does nothing to reduce the ongoing cost burden of NEM 1.0 and 2.0 customers on non-participating customers because so few new customers will actually buy solar and pay the tax.
  • It will kill off the solar industry in California, which, as of 2020, employed approximately 68,677 people. No industry can survive a 95% loss of business.
  • It will do nothing to promote the use of clean energy or fight climate change. In fact, it taxes customers who have spent their own money to adopt clean energy.
  • It will do nothing to upgrade the resilience of the grid and prepare it for the full electrification of our society. In the not-so-distant future, people will come home and plug in their electric cars, putting additional load on the grid at peak periods. We need to start planning for this by either upgrading the grid or increasing localized battery storage. Given they both have a similar cost, why not promote battery storage more heavily and use additional battery subsidies to reduce the ongoing cost burden of NEM 1.0 and 2.0 customers?

SolarReviews’ recommendation 

There should be no grid access charge for solar customers, as this will produce no benefit if 95% of people do not buy solar and, as a result, do not pay the charge.

Guesses in the CPUC decision about the affects of such a charge on demand for solar systems were wrong. The SolarReviews data is real and current and accurately reflects what the effects of this decision will be on demand for solar systems. 

The proposed decision will neither reduce the cost of NEM 1.0 and 2.0 customers or promote growth in the use of renewable energy and so will not achieve either of the PUC's 2 major objectives.

New solar customers with battery storage provide a net cost-benefit to non-participating customers because their battery storage provides grid frequency stabilization and shaves off demand at peak times (reducing the need for network upgrades). The CPUC decision should encourage NEM1 and NEM 2 solar customers, as well as new solar customers, to purchase battery storage.

There should be increased incentives offered for battery storage.

The current SGIP standard rate of $250 per kilowatt is too low to get a majority of people to buy solar batteries. This needs to be increased to $350 per kilowatt. Because solar batteries typically only have 10-year warranties, customers need to recover their money within 7-8 years in order for the investment to make sense. Currently, even with the federal tax credit and the $250 per kilowatt SGIP incentive, the payback period is too long.

Rooftop solar paired with battery storage has societal cost benefits, is cost-effective compared to utility-scale battery storage, and should be promoted very, very aggressively

California is about to see a flood of electric vehicles and a significant increase in peak loads on the grid. Behind-the-meter solar and battery storage is a very cost-effective way to ensure the grid can cope with such increases in demand.

The proposed CPUC decision will not only kill off solar, but it will have the collateral fallout of reducing the amount of battery storage installed on the grid, thereby robbing all utility customers of the cost benefits of this storage capacity.

If the Commission is determined to proceed with the $8/kWh per month solar tax (something we strongly oppose), then this tax should only apply to solar systems that do not have battery storage. This will encourage the adoption of battery storage and may mean that solar companies can make some sales of solar systems with battery storage and survive.

Putting such a tax on those people that invest enough of their own money to buy both solar and a battery is immoral and unfair. These people are the ones who are doing the heavy lifting of preparing our public utility grids for full electrification of our society. They are making the investment that the government should be making, and getting punished for it.

About the SolarReviews Survey

We conducted a survey that reached out to over 100,000 individuals that had shown interest in solar in California over the past two years. Our findings show that the overwhelming majority of those currently interested in solar will no longer be interested if this proposal is approved in its current state.

The questions, responses, and context are provided below:

Question 1. Have you already installed a solar system?

  • Yes: 53.3%
  • No: 46.7%

Question 2. Are you currently considering solar? 

  • Yes: 96.4%
  • No: 3.6%

Only respondents who answered “Yes” to either Questions 1 or 2 saw Questions 3 and 4. We provided the following context for Questions 3 and 4:

Change 1: Proposal to change net metering to an avoided cost rate plan, reducing the amount paid to homeowners for their excess solar power. On average, homeowners will receive only $0.04-$0.05 cents per kWh, versus the original rate of $0.22-$0.36 cents. *Note: If you have battery storage, Change 1 will not be a significant burden, your excess power is stored within the battery.

Change 2: The introduction of a “solar tax.” All new solar customers will pay $8 per month per kW of solar installed. Additional flat rate charges up to $16 per month are applicable based on your utility. Meaning, for an average sized 8kW system, there would be an added fee ("tax") of between $64 - $80 per month.

Question 3. Would you still consider solar if only Change 1 was made? (you will get paid less for exported solar power) *Note: If you pair battery storage with your solar, Change 1 will have little or no effect on you.

  • Yes: 31.6%
  • No: 68.4%

Question 4. Would you still consider solar if both Change 1 and Change 2 are made? (You get paid less for your exported solar and you have to pay the "solar tax.")

  • Yes: 4.6%
  • No: 95.4%
 - Author of Solar Reviews

Andrew Sendy

Solar Industry Expert

Andy is arguably the most qualified rooftop solar expert in America. He is in a unique position, having founded a large solar company but now being independent of any particular company. He has appeared on CNBC, has been referenced in public hearings concerning the rooftop solar industry ( such as the recent CPUC NEM 3 decision) and has been referenced by many major publications such as the Wall Street Journal, Business Week and many others.

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