| Independently Powered Energy News

by Fereidoon Sioshansi

The U.S. solar industry had another record year in 2020 installing 19.2 GW of capacity, 43% above 2019. That is according to the U.S. Solar Market Insight 2020 Year in Review, released in mid-March by the Solar Energy Industry Association, and Wood Mackenzie. California, Texas, and Florida were the top three states for annual solar capacity additions for the second year in a row.

The bulk of new solar capacity additions are from utility-scale installations in California, as well as Texas and Florida. Although a small part of the solar pie, residential rooftops, particularly in the mid- to high-income end, are the new normal and growing. In addition, California’s building code virtually mandates that all new residential buildings have rooftop solar in addition to meeting high energy efficiency standards.

The growing popularity of rooftop solar is further boosted by generous net energy metering laws. California’s 25-year-old NEM law pays residents for any “net” solar generation–that is in excess of consumption–a credit equal to the retail tariff. In place since 1996, it kick started the installation of more than 1 million solar roofs. The last time it was adjusted was in 2016.

California’s big investor-owned utilities have been complaining that the existing NEM is overly generous and has led to “unfair and growing inequity.” They claim that the law has resulted in customers without solar systems paying about $3 billion more annually in their electricity bills to subsidize existing solar customers, who are largely well to do. The utilities have proposed including new connection charges and lower compensation for the excess generation fed into the grid.

In mid-March, Pacific Gas & Electric, Southern California Edison and San Diego Gas & Electric filed a joint proposal with the California Public Utilities Commission. The CPUC is considering amendments to the exiting NEM affecting only new installations.

Under the IOUs’ proposal, new rooftop-solar customers would receive a lower credit on their bills for the excess power they sell back to the grid to better reflect the actual value of that power. It has been in steady decline as more solar is added to the generation mix. The utilities also point out that the value of rooftop solar should more closely resemble the costs of large-scale solar since the retail tariffs in California are in the mid to high 20 cents/kWh, roughly 10 times as high as the cost of utility-scale solar.

The private utilities point out that as California marches toward its 100% clean energy target, it must select the least cost and most reliable options–whether distributed or utility-scale generation. In this context, they say rooftop solar customers should be compensated fairly–but not excessively–for the value that they deliver to the grid. This value, many experts agree, has been falling especially during the sunny mid-day hours when the network is overwhelmed with solar generation.

Additionally, the IOUs would like new solar customers to pay a monthly connection charge for grid services ranging from $12-24/month. California is not alone in having reached a stage where fundamental changes in who pays for what have to be decided.

The IOU’s filing depressed the share price of Sunrun Inc., the biggest U.S. residential-solar installer, and SunPower Corp. by 8.8% and 9.2%, respectively, even before the CPUC had a chance to consider the matter.

Utility profits vs. customer choice

The pro-rooftop solar parties also are out in force with predictable pronouncements.

Bernadette Del Chiaro, the California Solar and Storage Association executive director, complained that the private utilities need “to increase profits cuts against the consumer’s right to choose where and how to generate clean, reliable energy.”

The lobbying group Solar Energy Industries Association and Vote Solar, a non-profit pro-solar advocacy group, pleaded with the CPUC to adopt a compensation framework for future residential solar customers that promotes equity and incentivizes sustainable market growth.

Their preferred solution is net billing under which customers would pay retail rates for energy delivered to them and receive a separate payment as compensation for the excess energy fed into the network. “Net billing will align the benefits of distributed solar with California’s grid needs, placing additional value on resilience and energy storage that can meet peak demands,” according to Sean Gallagher, SEIA VP of state and regulatory affairs.

Net billing relies on time-of-use rates, which reflects the variable value of generated solar. It seeks to encourage self-consumption and energy storage and would be introduced in 2023 while preserving the current compensation structure for lower-income customers.

A decision by the CPUC is expected by the end of 2021, with some sort of compromise that will most likely equally displease both sides of the argument.

For those concerned about a chilling effect of less generous compensation for the future of rooftop solar, there are plenty of encouraging signs. The state’s zero net energy building code requiring solar installations on new homes, plus the falling cost of storage means that rooftop solar will continue to have a future.