California Regulators Debate Incentives for Solar Power as Costs Increase for Non-Users

California regulators debate incentives for solar power as electricity costs increase for non-users in the state.

The 26-year-old program to get people to put solar panels on their homes, known as Net Energy Metering, has incited a debate between the state's major utilities and the solar industry. State regulators may decrease incentives for the program.

Proposed reforms are expected to drop Monday from regulators at the California Public Utilities Commission, which supervises the state's major utilities and the rates they are allowed to set.

As of now, residential solar customers can sell whatever energy is unused back to power companies at the retail rate for power, which typically gives them a deep discount on their energy bills. However, power companies said solar customers are no longer paying their fair share for the operation of the overall energy grid because their savings are so high.

Pacific Gas & Electric, San Diego Gas & Electric, and Southern California Edison, major utility companies, said that solar customers are able to sell their unused energy back for more than it's worth. The companies said more must be done to ensure solar customers, a majority of whom are still dependent on power from utilities at night, pay their part.

Transmission, distribution, and even wildfire prevention work are just a few of the costs that go into power rates. As solar households pay lower electricity bills, they contribute less to those things. Thus, other customers are forced to pay more of the costs. The utilities said that cost is $3 billion, but the solar industry denied it.

The net metering program began in 1995 to try to increase solar adoption in California. The state currently has over 1.3 million residential solar installations, which is the most any U.S. state had, the solar industry said. Newly built homes in California must have solar panels, so that number will continue to increase.

Solar Industry, Debate, Reduced Incentives
This photo taken Wednesday, Feb. 12, 2020, shows solar panels on rooftops of a housing development in Folsom, Calif. State regulators at the California Public Utilities Commission are expected to propose reforms that would lower the financial incentives for homeowners who install solar panels. Rich Pedroncelli/AP Photo, File

The California Public Utilities Commission began a process for reforming the program last year with an eye toward ensuring energy grid maintenance costs are spread equitably and making it easier for residents of all backgrounds to purchase solar panels. Currently, higher-income households are more likely to have solar panels than lower-income households because solar costs a lot of money up front.

There are a wide array of opinions on potential reforms—18 groups including the solar industry, the utilities, ratepayer advocates and environmental groups submitted proposals to state regulators. A five-member commission will vote on the final PUC reform proposal, likely in January.

The solar industry warns a dramatic decrease in financial incentives would entice fewer people to add solar panels to their homes, jeopardizing the market and hurting the state's ability to reach its clean energy goals. California is working to power all retail electricity with renewable or zero-carbon energy by 2045.

Solar panels on average cost between $20,000 and $25,000 to install on a California home, said Bernadette Del Chiaro, executive director at the California Solar and Storage Association, which represents 700 businesses involved in the solar market.

It now takes about three to four years for homeowners to recoup installation costs by selling extra energy to the utilities, according to the utilities.

The utilities have proposed lowering the amount of money solar customers get back, meaning it would take longer—11 to 15 years—for homeowners to recover their costs. All residential solar customers would also have a "grid benefits charge" and a "customer charge" added to their bills that could be upwards of $70 per month.

The utilities' desired changes wouldn't apply to people who already have solar panels on their homes, only those who choose to install solar panels going forward. Low-income customers who install them within three years would pay lower fees.

The Utility Reform Network, a consumer advocacy group that frequently clashes with the utilities over rates, also wants to lower what households with solar panels are paid back for excess energy.

The group has suggested locking in a 10-year price so homeowners know what they'll be paid for excess energy before they install solar. They also want to increase the financial incentives for low-income households to participate.

"We are focused on affordability for everyone," said Matt Freedman, staff attorney for the group.

The solar industry and its allies, including some environmental justice and clean energy organizations, say regulators should be looking for ways to boost incentives for California residents to buy solar panels, not decrease them.

Del Chiaro said the state should also make it easier for people to buy solar storage systems alongside the panels. The systems cost about $15,000 to install and allow people with solar panels to store their own energy for use when it gets dark, making them less reliant on the energy grid.

As more people build storage systems, the utilities will need to spend less on new power plants or transmission lines, she said. But it also means they'll have fewer customers relying on them for energy.

"Utilities are really threatened now by batteries," Del Chiaro said. "They're really putting up a big fight to try to slow this market down."

The Associated Press contributed to this report.

Solar Industry, Debate, Reduced Incentives
California regulators debate incentives for solar power as electricity costs increase for non-users in the state. Newly built homes in California must have solar panels, so the amount of solar energy users will increase, with the state already have the most in the United States. In this photo is a rooftop solar array in Lafayette, California, on May 4, 2021. Smith Collection/Gado/Getty Images