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Clouds Form In Solar Sector

Hans Rosenberger’s Altadena Energy and Solar Inc. has for years been steadily adding solar rooftop residential customers across the San Gabriel and San Fernando valleys.

But now, Rosenberger fears his pool of new customers will shrink, thanks to a new set of rules put forward by the California Public Utilities Commission earlier this month. The rules, which the commission could vote on as early as next month and implement by next spring, will reduce the rates at which utility ratepayers who install solar power systems are compensated for the power they send back onto the grid – in some cases by as much as 75% from current rates. That in turn will lengthen the average time residential solar customers will need to recoup their upfront investment in the solar technology to nearly nine years from the current six years, the commission said.

“It will be a major drop in the economic return of solar (rooftop) systems,” Rosenberger said. “It could discourage some people from signing up. That’s my major concern.”
But dissatisfaction with these rules is not limited to solar rooftop installers like Rosenberger.

The state’s giant investor-owned electric utilities – including Southern California Edison, a subsidiary of Rosemead-based Edison International – also oppose the rules. The utilities want the compensation credits reduced even more to stop what they term the shifting of costs to maintain the state’s electric grid to those unable to go solar: chiefly low-income residents and renters.

A worker installs the solar panel system on the rooftop of a home in Altadena. (Photo by Ringo Chiu)
A worker installs the solar panel system on the rooftop of a home in Altadena.

“The proposed (PUC) decision needs to be changed so that it ends the outdated and overly generous incentives for current and future rooftop solar customers – specifically, the artificially inflated above-market compensation rates these solar customers receive for the excess energy they generate and send back to the electric grid,” said Southern California Edison spokesman Ron Gales.

 

Solar rules overhaul

The new set of rules is the result of an overhaul of the state’s incentive programs for solar rooftop customers that were put in place in the mid-1990s to spur the nascent solar industry. At that time, state policymakers had a vision of getting 1 million homeowners to install solar panels on their rooftops. The main incentive was rebates for the installation of panels to reduce the up-front cost. That was supplemented with compensation for power that solar rooftop customers sent back to the grid; the compensation is in the form of credits that appear on power bills. This system of credits has become known as net energy metering.

The up-front rebates have gradually been scaled back, especially in recent years, as a flood of cheap Chinese-made solar panels has driven down prices. But the net energy metering credits have lingered on, even as the number of homes with solar rooftop systems surpassed the 1 million statewide goal in 2019 and is now near 1.5 million.

The explosion in the number of homes with solar rooftop systems has had a downside. The combination of drawing less energy from the grid and putting more power back onto the grid has meant the utility bills for many homeowners often shrink to near zero. That has meant a steady decline in the number of revenue-generating customers for the electric utilities.

But even as their customer pool has shrunk, the utilities are still responsible for the fixed costs of maintaining the grid and the power-generating infrastructure. That put an increasing financial load on the remaining utility customers, including large numbers of renters not able to install solar panel systems and low-income residents who couldn’t afford the up-front costs of installing solar.

Over the last several years, the state’s three major investor-owned electric utilities – Southern California Edison, San Francisco-based PG&E Corp., and San Diego Gas & Electric, a unit of San Diego-based Sempra Energy – have led a campaign to reduce and eventually eliminate the rate credits paid out to solar rooftop customers.

In 2013, they successfully pushed a bill through the Legislature requiring reforms of the net energy metering system of credits.

 

Proposals spur outcry

But that reform has taken a long time to prepare. Last December, the PUC released its first take: a set of proposed rules that slashed the compensation rate by about 80%, to around 5 cents per kilowatt hour for power that solar rooftop customers put back onto the grid. The commission also proposed a separate fee for solar customers that would average out to about $57 per month, with the money going to offset grid maintenance charges for other utility customers.

This proposal resulted in an outcry from the solar power industry, which claimed it would eliminate almost all new customer signups. They called it a “giveaway” to the investor-owned utilities.

The PUC tabled that proposal and went back to the drawing board, resulting in the revised set of rules put forward earlier this month.

The new rules jettisoned the grid maintenance fee for solar customers and lessened the decrease in compensation rates for those putting power back on the grid. And they widened the rate spread between peak and off-peak hours to incentivize the use of battery systems along with the solar rooftop panels.

With battery systems, solar customers can time-shift their solar-generated power use away from peak early evening hours, freeing up more power to go back onto the grid.
“It’s less bad than the original in that they got rid of the solar tax,” Altadena solar rooftop panel installer Rosenberger said. “But it will still be very challenging.”

Rosenberger added that he expects solar rooftop customers will opt more for battery systems under this new set of rules. But at today’s prices, adding a battery system would nearly double the up-front installation cost, to nearly $40,000 for a typical single-family home.

And there are additional complications for battery installation, according to Jim Jenal, founder and chief executive of Pasadena-based solar rooftop installer Nopec Inc., which does business as Run on Sun.

“Municipalities are now drawing up safety rules for battery installations, requiring minimum distances from windows, vents and vehicles,” Jenal said. “If these rules stay in place, many homeowners may find that the configuration of their homes will not allow for battery installations.”

 

Bewildering rates

Jenal also pointed to another challenge with the new proposal: the array of new rate classes for compensating solar rooftop customers for putting power back onto the grid.
“With all these classifications, it complicates and confuses things tremendously,” Jenal said.

Others in the solar industry are also concerned, including Anaheim-based GigaWatt Inc., which does business as Go Green Solar. Deep Patel, chief executive at Go Green Solar, said the compensation rates in the revised proposal are extremely low compared to the current rates and that the transition to the new rates will be way too abrupt.

“We’re talking a cliff here between the old rates and the new rates,” Patel said. “That will create a rush of customers before the deadline, overwhelming local regulators who need to approve the systems.”

He added that if the new rules take effect without significant changes, he’s likely to focus more on selling solar rooftop installation kits in other states, especially Texas.

Meanwhile, Southern California Edison and its allies want to see the compensation rates slashed even more for power that solar rooftop customers put back onto the grid.
It will now be up to the PUC to sort through these conflicting demands. The commission has scheduled the matter for consideration at its Dec. 15 meeting, with the possibility of a vote to follow.

Howard Fine
Howard Fine
Howard Fine is a 23-year veteran of the Los Angeles Business Journal. He covers stories pertaining to healthcare, biomedicine, energy, engineering, construction, and infrastructure. He has won several awards, including Best Body of Work for a single reporter from the Alliance of Area Business Publishers and Distinguished Journalist of the Year from the Society of Professional Journalists.
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