Reforming Rates & Solar System Paybacks

By Published On: March 14, 2014

There’s little agreement over the length of time net metered solar system owners should get to recoup their investments before net metering ends. During a March 12 workshop, the California Public Utilities Commission’s proposed payback period of 20 years got mixed responses, with it being dubbed too long, too short or just right. Regulators are required to revamp the current rate structure under AB 327 passed last year to address the impacts of unfair cost shifting, in particular those associated with subsidized solar rooftops to those without systems. Under the bill, the CPUC is to allow solar system owners sized up to 1 MW to continue under net metering until the owners can recoup their costs. To that end, last month, Mike Peevey, CPUC president, proposed a 20-year payback period for small, net metered renewable systems that are installed before July 1, 2017, or hit the private utility 5 percent net metered cap, whichever comes first. “We all concede there is cost shifting,” Peevey told stakeholders and his fellow commissioners midweek. Peevey said the crux of the matter is what constitutes a “tolerable” cost shift. “Let’s get real here,” he said. For the Office of Ratepayer Advocates analyst Valerie Kao, the issue highlights the need for rate transparency to reveal what amount of cost shift is “appropriate.” The CPUC grappled with what amount of time constitutes a solar customer’s “reasonable expected payback period,” to continue to provide incentives for distributed renewable system installments on homes and farms and other commercial properties that feed energy back into the grid and get bill credits. On the table were a 10-year CPUC warranty, warranties of 20 years or more offered by solar system manufacturers, and actual system life. Utilities and ratepayer advocates pushed for a shorter payback, between four and 12 years. “We are fostering perverse incentives for customers,” said Jim Avery, San Diego Gas & Electric senior vice president. He warned that a 20-year payback discouraged energy conservation at peak periods in the day when solar production was high. He said a seven year payback was appropriate. A representative from Solar City called for a payback period reflecting a PV system’s actual life, which could be 25 years or longer. “Utilities make investments based on expected rates of return so, too, should customers who invest in solar systems.” Other solar advocates, including Vote Solar, agreed the payback should exceed 20 years, partly because some investors’ financing terms are longer than that. According to a CPUC analysis, the net cost of solar net metering for other ratepayers is estimated to cost between $370 million to $1 billion a year in 2020, assuming that the five percent net metering cap is hit in all three utility territories. The commission is expected to vote on Peevey’s 20-year payback proposal at its March 27 meeting.

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