When it comes to solar energy, California is a leading force thanks to groundbreaking financial incentives. But a new proposal by the California Public Utilities Commission might put some serious clouds over California’s solar future. 

Proponents say that the legislation will increase solar proliferation in the Golden State while helping lower-income residents access green energy. But the proposal has drawn major criticism from environmental agencies and big industry players like Elon Musk.

What exactly does this new proposal… propose, and what could it mean for solar energy not just in California, but for the whole United States?

We thought these questions deserved a deeper dive today on Two Bit Da Vinci.

Right now, California has over 1.3 million residential solar customers, with more solar capacity than the rest of the United States combined — producing roughly 40% of the nation’s total residential solar energy. 

California’s solar electric industry dates back to the groovy 70s — when amateur farmers used solar energy to grow some… questionable crops. (Kolodny, 2021) (Roth, 2021) (San Diego County Solar, 2018)

Solar was expensive, but state legislators knew the significance of clean, renewable energy. In the coming decades, The Bear Republic began rolling out revolutionary Net-Metering laws allowing residents who adopted solar technology to receive payment from utility companies for offsetting energy consumption, especially during peak hours. (Calma, 2022) (San Diego County Solar, 2018)

These incentives lead California’s solar industry to explode over the next 30+ years. (Rogers, 2020)

Today, over 20 states offer incentives for owning solar panels, making this legislation all the more crucial. Where CA goes, so goes the rest of the country. (EIA, 2016) (Groom, 2021) (Secaira, 2022) (Sun Run, n.d.)

We won’t dive into the full 200+ page proposal here — we’ll link it in the description below if you do want to read the whole thing — [https://docs.cpuc.ca.gov/SearchRes.aspx?docformat=ALL&docid=430903088] But really there are just a handful of main sticking points.

First, the proposal adds a number of new fees to homeowners with solar — including a controversial grid connection rate of roughly $8 per kilowatt of installed solar. This would mean a six-kilowatt system could cost between $50 and $60 per month. (Allcot, 2022) California Public Utilities Commission, 2021) (Kolodny, 2021) (Roth, 2021)

The legislation would also reduce payments solar customers receive for selling their surplus energy back to the grid. Instead of retail rates between $00.20 and $00.30 per kWh, customers would receive the lower “avoided cost rate,” at roughly $00.05/ kWh. (Allcot, 2022) (Kolodny, 2021) (Roth, 2021)

The proposal does include a “market transitioning credit” to help shoulder the higher upfront costs for households that want to go solar, as well as a net-billing credit to help customers pay off their systems in 10 years or less. (California Public Utilities Commission, 2021) (Roth, 2021)

Now, if you’re a fan of this channel, or if you own solar panels, you might be pulling your hair out right now wondering why in the world the state would even consider something like this. And you’re not alone. The proposal has already drawn some pretty heavy criticism. But before we jump into that, let’s take a moment to look at some of the motivations behind the proposal. 

For the CPUC, the motivations are rather simple — encouraging residents to install not only solar but energy storage systems like Tesla Power Wall, while also aiming to make clean grid energy equitable and accessible to all California residents, not just those who can afford to put solar panels on their homes. (Allcot, 2022) (Kolodny, 2021)

But the biggest and most controversial motivations lie in the CPUC’s stance that the current net metering program “disproportionately harms low-income ratepayers” and “negatively impacts” customers without rooftop solar. (Calma, 2022)

There’s a lot to unpack here. One pillar of this argument is that solar adopters are receiving rates up to six times higher than the actual value of the energy since the retail rate that solar customers receive includes things like grid maintenance costs — costs that solar owners wouldn’t necessarily pay back. (Calma, 2022)

To make up for these costs, utility companies are forced to raise their rates for non-solar customers, many of whom are already considered “low-income,” who pay between $60 to $200 more each year on their bills. (Calma, 2022) Groom, 2021) (Kolodny, 2021)

There are even some consumer advocacy groups, like the Natural Resources Defense Council, who view net metering as a massive giveaway from the poor to the rich. (Roth, 2021)

But if we actually break down the data, we’ll see there’s a lot more here than meets the eye. 

It is true that over the last 10 years, California electricity rates have skyrocketed. The trend is not entirely unique to California, power rates all over the country have seen steady increases over the last 10-20 years. But in California, it’s a different story altogether. (One Energy, 2020) (Historical State Electricity Prices, n.d.)

In 2020, the average residential electricity bill in CA was 2.6% higher than in 2010, while the US national average, excluding CA, only grew by about 1.6%. (NRG, 2020) 

So yes, prices in California are going up. But is it really because of solar?

Here’s where it gets interesting. In general, California has the highest electricity rates in the country. Compared to the national average, CA energy customers pay between 50 and 200% more per kilowatt-hour, according to a study at UC Berkeley’s Haas Business School. (Du, 2021)

But the reasons have less to do with residential solar panels and more to do with, you guessed it, our old pall Global Warming. 

How? Every year, our weather gets hotter and drier, meaning we are at greater and greater risk of wildfires. Yup — in CA we don’t have snow days — we have fire season! Included in CA electric bills is what’s called the “Fixed” cost which covers everything from system maintenance to power generation, and even disruption and mitigation relating to wildfires. One study showed that between 66 and 77% of Californian’s electricity bills are used to offset the cost of these programs. (Du, 2021)

Then there’s the relatively recent introduction of what’s known as Time of Use rates. During low-demand hours, between noon and 2-3 pm, power actually costs less for California consumers than it does during peak hours, usually between around 4 pm to 9 pm. Rates during peak hours can be between 40 and 200% higher than normal or “off-peak” hours. These numbers can be even higher during the summer months! The idea behind these fluctuating rates is to encourage less strain on the grid. But the result can be significantly higher figures on your monthly bill. (NRG, 2020)

So while California does have high power rates compared to the rest of the country, it’s a bit of a stretch to say it’s solely because more people are switching to solar.

But what about the wage gap? If low-income families can’t afford to switch to solar, doesn’t that put an unfair strain on them while giving more incentives to higher-income earners who can afford solar.? Again, let’s look at the data.

While research does show a broad income gap between those with and without solar, a report by the Lawrence Berkeley National Laboratory shows that solar households had a median income of $113,000 last year, compared to the median income for all U.S. households of $64,000. This gap is much smaller than it was in 2010 when the median income of a solar household was about $140,000. In fact, 21% of households that added solar in 2019 had incomes that were below 80% of their area’s “median income.” (Gearino & Gans, 2021)

So while state representatives argue that they are proposing this legislation to make solar energy more accessible, they may be doing the exact opposite.

This is why so many, from environmental advocacy groups to private companies like Tesla, have voiced their opposition to the new proposal. Tesla even gave a company-wide memo outlining what the proposal is and how to fight it.

Ok so before we get out the pitchforks and torches, let’s put the shoe on the other foot and look at this from the utility companies’ perspective. 

The issue with solar has always been that generation doesn’t align with demand. Peak solar production usually happens during off-peak energy consumption. In the previous NEM agreements, utility companies were basically giving customers a credit for 1 kWh when customers had excess energy and then letting them use that credit when the sun wasn’t shining and they needed it. This, in essence, makes the utility act as a free battery, with no cost to homeowners. 

There is so much sunshine and solar panels in California that in peak summer months utilities are forced to buy unwanted excess solar energy, and basically throw it away only to eat the cost of providing an equivalent kWh of energy later when they have to buy it. Grid operators feel forced to raise rates and come up with clever systems like time of use, to make up the difference. 

The answer is simple. Every homeowner who’s thinking solar should in the same breath be thinking about batteries. In fact, if Californians who have time-of-use billing forgot about solar and instead just got batteries, they’d be doing a major service. They could charge the batteries, during excess or super off-peak periods, then send that energy back to the grid. The utilities shouldn’t much care where they buy energy from, only that they can buy it at a wholesale price, and sell it at a markup, like any retailer.

I have talked about this in the past, but it is high time we tackle this issue head-on. The utilities aren’t exactly good samaritans or anything, but they do have a valid argument. The issue here isn’t the argument, but the solution they’ve presented. 

A flat rate on people’s energy bills is, how should I put this, utterly moronic. You could take a month-long vacation, use no energy, or even create energy with solar, and still be looking at a $50-$75 bill. This is pure madness.

Here is my proposal, instead of any base charges, let’s fix the buying selling price problems. Utilities should be able to work with local municipalities and establish guidelines for solar energy buying prices. These prices won’t be as good as the good ole days, but it will be something. These rates will depend on the time of day. For example, from noon to 2 pm, when there is absolutely NO demand for excess energy, they should offer homeowners next to no money, free market and all of that. 

This would finally provide a positive incentive for homeowners to invest in energy storage —which is part of the motivation behind the legislation. Homeowners can use solar when available, and either sell off excess or store it locally in batteries based on prices. Then at night, when solar generation wanes, they could run on that stored energy.

Better yet, let’s get crazy and develop what I call Grid 2.0 or a smart grid, where energy is bought and sold like the stock market. Where homes with solar and batteries can energy when it’s cheap, then store it to sell when it’s high. This would not only make homeowners some money, but it would bring stability and balance to a very needy grid. But this is a video for another day, one I’m working on I promise.

But what do you think? Could this proposal make solar energy more equitable and accessible? Or will it be the end of the solar industry as we know it? Sound off in the comments below.