California is the nation’s leader in solar power. And that’s no accident.
Since the late 1990s, through policies such as net metering (in which owners of solar panels are compensated at the retail rate for the power they supply to the grid) and programs such as the Million Solar Roofs initiative, California has shown that providing clear market signals to consumers and businesses can enable brand-new clean energy industries to bloom.
So, after decades of prioritizing long-range clarity and certainty in clean energy programs, it’s strange that California regulators are proposing to adopt a bewildering new policy to compensate owners of rooftop solar systems. The new policy, proposed in December and due to be finalized at the end of this month, would treat solar customers like contestants in a game of “pin the tail on the donkey” – creating so much uncertainty and confusion as to make it virtually impossible for Californians to assess when or if “going solar” will yield dividends.
Before we get into the details, let’s back up and look at the big picture: California has committed to obtaining 100% of its electricity from clean, carbon-free sources by 2045. To get there, the state is going to need more Californians to adopt rooftop solar. As we described in our July 2021 report, Rooftop Solar at Risk, state officials are expecting installations of rooftop solar to remain reasonably steady in the years to come to meet California’s clean energy goals. And as my colleague Bryn Huxley-Reicher wrote in another report last summer, the unique attributes of rooftop solar power – including the speed at which it can be installed and the ability to install solar on already-developed land instead of sensitive wilderness – make it an all-around environmental winner.
It is bad enough that the California Public Utilities Commission’s (CPUC) proposed rewrite of the state’s solar rules would include the nation’s largest “solar tax” and dramatic reduction in compensation for power sold to the grid – policies that have, in other states, caused small-scale solar installations to grind to a virtual halt. But the CPUC’s rules include two additional provisions that further increase the risk of future solar investments.
First, rather than tie compensation for the power solar customers supply to the grid to the retail electricity rate – an easily understandable metric for most consumers – the CPUC proposes to link it instead to the avoided-cost calculator, a complicated model that changes annually. In its new solar compensation proposal, the CPUC acknowledges that it is hard to predict the value of solar (as estimated by the calculator) many years in advance. But the CPUC’s solution is to force solar consumers to bear the burden of that uncertainty, guaranteeing compensation levels for only the first five years.
If you’ve ever considered “going solar” – or made any kind of investment, really – you can see the problem. If you’re making an investment that will last 20 years or more, having guaranteed compensation for only the first five years – with compensation after that tied to the whims of a model built on speculative assumptions that has at times been quite volatile – exposes you to a lot more risk.
And it gets worse. Because at the same time the CPUC is ratcheting up the risk for new solar customers, it is also proposing to undermine trust that it will follow through on any promises it might make in the future.
In both previous iterations of the state’s solar compensation program, the CPUC guaranteed solar customers that they would receive the same rate treatment for 20 years. That’s important, because it puts the expected lifetime of the investment and the financial treatment of it on the same time horizon.
Now, however, the CPUC is proposing not only to shorten the rate treatment guarantee for future customers to 15 years,* but also to go back on the 20-year promise made to previous solar customers, shifting them to the new, unfavorable system for solar compensation only 15 years after they originally installed their panels. As a result, some Californians who installed solar panels “before it was cool” in the 2000s will suddenly find themselves forced to pay higher electricity bills, five years earlier than anticipated.
The message this sends to Californians who made good-faith investments in solar based on the CPUC’s prior promises is clear: You messed up, you trusted us. And it’s a message that will be heard by future Californians who might consider joining the clean energy transition.
The result of this added uncertainty is that there will be Californians who want to “go solar,” and for whom it would otherwise be a good investment, both for themselves and for the grid, who will choose to remain on the sidelines. It would be an own-goal of colossal proportions for the state that has shown the nation so much about how to get clean energy policy right to make such an avoidable mistake.
There is still time for the CPUC to revise its solar rulemaking, and Gov. Gavin Newsom has an important role to play in encouraging the commission to fix what’s broken. At a minimum, that means cutting the punitive solar tax, restoring California’s promises to existing solar customers, and finding ways to assure that rooftop solar power will continue to grow to play its part in meeting the state’s clean energy goals.
* In case there’s any confusion: The new system proposed by the CPUC would guarantee specific solar compensation rates for the first five years, with compensation for the next 10 years based on annual outputs from the avoided-cost calculator. After 15 years, the CPUC could choose to move to some other system of compensation – or eliminate it entirely.
Photo: Simone Hogan via Shutterstock
Associate Director and Senior Policy Analyst, Frontier Group
Tony Dutzik is associate director and senior policy analyst with Frontier Group. His research and ideas on climate, energy and transportation policy have helped shape public policy debates across the U.S., and have earned coverage in media outlets from the New York Times to National Public Radio. A former journalist, Tony lives and works in Boston.