CPUC Avoided Cost Calculator for Solar Fails to Avoid Controversy

California’s success at building utility-scale solar has lowered the value of local rooftop solar to the system, threatening its present economics.

The California Public Utilities Commission’s 2021 avoided cost calculator update quantifies the costs avoided by using distributed energy resources. The avoided cost for local solar is the lowest it has been in a decade, said Arne Olson, Senior Partner with Energy and Environmental Economics (E3), the commission’s ACC consultant.

The drop in the newly calculated avoided cost of distributed solar is “a success story about the improving economics of utility-scale solar and storage, and feedback on the economics of rooftop solar," CPUC Energy Division Director of Cost, Rates, and Planning Simon Baker said.

Bu rooftop photovoltaic advocates are concerned the reduced avoided cost could lead to a lower successor tariff in the net energy metering 3.0 decision later this year, impeding the growth of rooftop solar.

Net energy metering is the compensation rate paid to rooftop PV owners. The NEM 3.0 proceeding is grappling with how to grow solar resources without shifting system costs to customers who don’t own PV projects.

“If the commission uses the 2021 Avoided Cost Calculator for the new NEM 3.0 compensation rate , it would not produce the distributed solar growth the state needs to meet its climate goals,” said Solar Energy Industries Association Senior Director and Counsel for California Rick Umoff.

But former commission staffer and Independent Energy Producers Association Policy Director Scott Murtishaw pointed out that the cost calculator is not a final measure of value but a way to inform commission decisions. The problem for solar advocates is that the NEM 3.0 decision will come before the 2022 cost calculator revision, and that could make the decision on compensation for distributed solar generation “less favorable,” he added.

The cost calculator represents an average avoided per MWh marginal cost for all 8,760 hours in all California climate zones. Its calculation considers avoided costs for key attributes like energy, reliability, infrastructure, and emissions.

A glide path

The commission needs to use the NEM 3.0 proceeding to design a transitional glide path from full retail credit for solar owners, VoteSolar’s Ed Smeloff said. “Dropping immediately to something like the new avoided cost will disrupt the industry and California needs a healthy distributed solar industry to reach its climate goals.”

The 2021 value shows it is possible to get to a decarbonized future at a lower cost, he said. But it “leaves distributed solar with three challenges” that must be addressed in the NEM 3.0 proceeding.

First, the solar program needs to allow greater access to distributed solar benefits for lower income customers and disadvantaged communities. Second, the only way to get the full value of solar is pairing it with storage to shift it for peak period use. That is why “the NEM proceeding must provide incentives for solar companies to become solar plus storage companies like Tesla ,” Smeloff added.

The 2020 Avoided Cost Calculator overvalued avoided cost and the 2021 ACC undervalued it, Smeloff said. “The 2022 revision will likely be better, but the commission needs to use other tools in setting the NEM 3.0 policy decision this year.”

The accuracy of the cost calculator is disputed

The commission’s 2019 decision ( D.19-05-019 ) required annual ACC revisions, but there is no consensus among stakeholders that the 2021 ACC changes are appropriate or accurate. That is according to a filing by the Clean Coalition .

DER advocates want to know how the avoided cost calculator was updated.

This year’s revisions found a 74% decrease in benefits to behind-the-meter solar, and “nothing that has occurred in the California energy market over the last year that justifies such a major drop,” according to a joint filing by solar advocates SEIA and Vote Solar .

But Climate Zone 4 , as detailed in the graph below, shows how the ACC has fallen steadily, except in 2020,” Baker said.

In 2020, the commission shifted to the RESOLVE modeling too l used in state integrated resource planning for the ACC, which is why the avoided cost values spiked that year, E3 ’s Olson said. The lower avoided cost is more in line with the pattern over the last decade.

But “the future is changing quickly,” countered Vote Solar’s Smeloff. The 11.5 GW net qualifying capacity procurement just ordered could increase the value of rooftop solar if the new standalone storage in that procurement is charged by utility-scale and distributed solar, avoiding the cost of using of fossil fuel generation for evening peak demand.

That outcome is uncertain, Olson said. E3 calculations show storage slowing the market value decline in all types of solar, but the amount of storage in the new order are similar to those already projected through 2030 and may not significantly increase the costs avoided by rooftop solar, according to both Olson and Murtishaw.

Sustainable growth of rooftop solar

Assembly Bill 327 , one of the key laws setting California’s climate goals, requires the commission to protect “the sustainable growth of distributed solar,” SEIA’s Umoff said. To do that, the commission should create a successor tariff for rooftop solar based on other factors in the NEM 3.0 proceeding.”

The commission “is bound by statute to ensure that distributed solar continues to grow sustainably,” the CPUC’s Baker agreed. Guiding principles adopted this year include compliance with AB 327, Senate Bill 100, and other state policies, and that means other factors must be considered in the NEM 3.0 proceeding that would serve those commission obligations.

The ACC is to establish a level playing field for resource valuation of all DER technologies and it is part of the commission’s effort to contain California’s rising electricity rates, Baker said. “In the NEM proceeding, it is “one among many factors the commission will be considering,” he added.