The sunny southeastern corner of California seems like a natural place for the adoption of rooftop solar systems. But in the past few years, the number of residents putting panels on their homes has plummeted.
In 2016, 1,696 residential solar systems were installed by homeowners served by the Imperial Irrigation District — a utility that serves Imperial County, a small portion of San Diego County and the Coachella Valley cities of Indio, Coachella, La Quinta, and parts of Palm Desert. In 2017, that number dropped to 707, then dropped further to 262 in 2018 and 229 in 2019.
Why? In 2016, IID lowered the rate it pays solar customers to buy back excess electricity from the grid.
Meanwhile, adjacent cities served by Southern California Edison — which did not lower rates — solar installations continued at a brisk pace. Palm Springs alone has a total of 5,554 installations, and Cathedral City has 4,155, compared to a total of 5,714 in all of IID territory at the end of 2021.
Now, California utility regulators are considering changes that would essentially do for the whole state what IID did in 2016.
Proponents of the idea — including big utilities — say the program has outlived its purpose of incentivizing early adopters of rooftop solar, and that current rates unfairly shift costs onto customers who can’t install panels.
Kathy Fairbanks, a spokesperson for a coalition called Affordable Clean Energy for All, which supports the proposed changes, says it’s time for a change. The rate structure, she said, “was designed back in 1995 to be very generous.”
Fairbanks said the rate was designed to incentivize people to install solar at a time when people were less familiar with the technology, and when the installation costs were more expensive.
“But fast forward 26 years later, and the price of solar panels has come down, but the incentives have kept going up,” she said.
The coalition of over 100 member organizations, which ranges from business groups like the California Chamber of Commerce to electrical workers unions and faith-based groups like Inland Empire Concerned African American Churches, is sponsored by the state’s three major utility companies: Southern California Edison, Pacific Gas & Electric, and San Diego Gas & Electric. A recent investigation by Inside Climate News found that of 124 coalition members, 71 received charitable donations or other financial support from the utility companies in 2020, with a total of more than $1.67 million provided to member organizations in the coalition.
Opponents — including rooftop solar companies — say the proposed changes would cause the state’s rooftop solar installations to drop off as the economic incentives become less attractive. And some point to what happened at IID as proof that such changes will kill interest in rooftop solar.
“This eviscerated solar choice for the ratepayers,” said Vincent Battaglia, CEO and founder of Palm Desert-based Renova Energy. Battaglia says the proposed changes will similarly impact residential solar installations in California.
Possible changes coming to NEM
The program in question is called net energy metering, or NEM, and it was launched in 1995. Since then, more than 1.3 million residential solar systems have been installed across the Golden State — more than any other state.
The program allows residential solar customers to sell whatever excess solar energy they don’t use back to power companies at the retail rate for power, typically resulting in a discount on their energy bills.
The California Public Utilities Commission is now weighing changes to net energy metering that would instead pay residential solar customers at the lower “avoided cost” rate, based on what the utility would have spent to purchase that power at wholesale rates.
The California Solar and Storage Association estimates that the avoided cost amount under the proposed NEM change would amount to about 5 cents per kilowatt-hour, down from about 20 to 30 cents today.
The Imperial Irrigation District implemented a similar change more than five years ago. As a publicly owned utility, IID is not subject to the CPUC’s jurisdiction, and in July 2016, IID discontinued its NEM program after meeting a state-mandated net metering threshold.
While customers enrolled before then remain in the net metering program, new solar customers who installed solar panels after that date were enrolled in IID’s new net billing program, which compensates customers for excess solar energy at 6.98 cents per kilowatt-hour, based on IID’s lowest wholesale solar contract cost.
When Indio resident Maggie Rodriguez bought her home three years ago, it already had solar panels installed and was grandfathered into IID’s net metering program. She wasn’t initially looking to buy a home with solar, but after looking into the programs decided it was worth it — but says she would have thought differently about buying a home with solar under the new program, or installing solar on a home today.
“I think the first program has been worth it, but I don’t think the second program would have been worth it,” she said.
With solar, her highest summer bills are now around $200, down from the $500 or even $600 a month she paid at her previous Coachella Valley home. In non-summer months, her bill is sometimes as low as around $10.
Battaglia points to Imperial Irrigation District as “the genesis” of the proposed changes to net energy metering.
Imperial Irrigation District had a total of 5,714 residential solar systems out of 137,541 residential customers at the end of 2021 — about 4.2% of all customers. By comparison, next door, in the portion of the Coachella Valley served by Southern California Edison, there were over 21,700 homes with solar out of 145,525 customers — nearly 15% of customers.
“[Renova] installed alone, in one year, the same amount of systems that were installed in five years in IID. So did net billing have an effect on a consumer’s right to choose solar in IID? It absolutely did,” said Battaglia.
Utilities: NEM shifts costs to non-solar customers
According to Affordable Clean Energy for All and Southern California Energy, customers without solar systems pay an average of $245 more annually on their bills than they should because of NEM. The groups say that could increase to more than $550 per year by 2030 if the current program remains in place.
“When you pay your utility bill, you’re paying for the cost of electricity, and you’re paying for grid maintenance, for all of the employees who go out and fix the grid, the power poles,” said Fairbanks.
Fairbanks said when the current rate structure eliminates or significantly reduces utility bills for solar customers, those customers are no longer paying for those other fixed costs.
“Those costs don’t evaporate into thin air, they still have to be paid… So if the rooftop solar homeowners aren’t paying it, then it goes to everyone else who doesn’t have rooftop solar, and that’s the cost shift,” she said.
Earlier this month, the CPUC announced that it was postponing the decision on net energy metering until further notice. The decision was initially slated to appear on the CPUC’s agenda on or after its Jan. 27 meeting, but CPUC President Alice Reynolds “requested additional time to analyze the record and consider revisions to the proposed decision based on party comments,” according to a procedural notice sent on Feb. 3.
In addition to changing the compensation for excess solar energy from the retail rate to the avoided cost rate, the proposal includes several other changes to the net energy metering program. These include implementing a grid participation charge of $8 per kilowatt on homes that install solar. This charge would not apply to low-income households under the California Alternate Rates for Energy program.
The proposed changes would also establish an equity fund with an annual cap of $150 million over four years to improve access to clean energy for low-income customers and disadvantaged communities, and a “storage evolution fund” that would provide rebates to existing solar homeowners who install battery storage to pair with their solar panels, if they also voluntarily transition into the new program. Otherwise, existing solar customers would remain on the current NEM structure until 15 years after their solar installation, at which point they would switch into the new program.
Local support for net energy metering
Cities including Palm Springs and Desert Hot Springs have passed resolutions in support of the current net energy metering.
The proposal supported by investor-owned utilities would “make customer-sited renewable energy more expensive, increase the amount of time it takes for customers to pay off their systems, and ground to a halt the installation of distributed solar in California,” states the resolution approved by the Palm Springs City Council.
In a letter asking Palm Springs not to adopt the resolution, Southern California Edison Government Relations Manager Jennifer Cusack argued that “energy storage is key to our clean energy future and the current NEM framework does not incentivize it.”
Cusack also wrote that electricity needs to remain affordable to incentivize the adoption of clean technologies like electric vehicles, “but the cost shift caused by NEM is putting upward pressure on rates.”
Incentivizing battery storage is also attractive to The Utility Reform Network, according to executive director Mark Toney, who said “it is not accurate to say more solar energy equals less fossil fuel,” since without battery storage, solar customers will still need to rely on power plants and other energy sources contributing to the grid in the evening.
Environmental nonprofit the Natural Resources Defense Council also supports the proposed changes, and says the updates to net energy metering would increase equity and incentivize battery storage.
But another major environmental nonprofit, the Sierra Club, says the proposal would “decimate rooftop solar.” Sierra Club estimates the proposed changes would cut the compensation rate for excess solar energy by 64% to 88% for new customers, and for existing customers after the 15-year transition period is over.
“The issue with the proposed decision is that it cuts the NEM incentive so drastically that we would expect the solar industry in California to drop off. And therefore we’d see far fewer actual new rooftop solar installations compared to what we see today. And that’s a problem because we’re trying to meet aggressive climate targets,” said Katherine Ramsey, an attorney for the Sierra Club.
Sierra Club previously called for an update to the rooftop solar program due to the gap between retail rates and the value of energy. But Ramsey said Sierra Club is opposed to the CPUC’s current proposed changes because the organization wants to see a more gradual move away from the retail rate.
“Sierra Club recognizes that there is a big mismatch in the retail rate and the system’s valuation of electricity and advocates for gradual step down in compensation,” said Ramsey. “But the reason we’re asking for something gradual is that we want rooftop solar systems to keep getting deployed along the transition period. We want a ramp for the industry and customers, as opposed to a big drop-off.”
Future of rooftop solar
Battaglia argues that both IID and the state’s major utilities want to reduce the amount of compensation for excess rooftop solar generation to “erase competition and maintain the monopoly.”
“And meanwhile, in the IID rates have gone up and services have gone down,” said Battaglia, pointing to recent cases of telephone poles getting knocked over during storms and causing power outages in IID.
IID changed its net metering program “to ensure that everyone pays their fair share for their use of the energy grid, including customers who want to install rooftop solar systems,” Robert Schettler, Public Information Officer for IID, wrote in an email to the Desert Sun.
“Our Net Billing program aligns prices with the actual cost of providing power for all customers. This necessary solution balances the interests of every customer IID serves in order to continue to deliver on our obligation to provide the greatest value at the lowest cost,” Schettler said.
Rooftop solar installations in IID have ticked up in recent years, corresponding with a new state requirement starting in 2020 that all new homes include solar power. The number of new residential rooftop solar installations in IID rose from 229 in 2019 to 309 in 2020 and 371 in 2021 — far short of the 1,696 installations in 2016.
In the first six weeks of 2022, IID has added 87 residential rooftop solar installations. That figure doesn’t include 175 applications currently being processed as IID handles applications for about 14 new residential developments in the Coachella and Imperial valleys, according to Schettler.
Fairbanks said there could be a “short-term change” to the number of solar installations after net energy metering changes, but that “solar is going to continue to grow in California.”
Erin Rode covers the environment for the Desert Sun. Reach her at [email protected] or on Twitter at @RodeErin.