A recent report released by the California Public Utilities Commission (CPUC) on the impacts and cost effectiveness of state utilities offering their customers with solar photovoltaic (PV) systems retail credit for excess electricity generated on site is creating controversy among stakeholders in the solar industries.
The draft California Net Energy Metering Cost-Effectiveness Evaluation, prepared for the CPUC by Energy and Environmental Economics, Inc., (E3) was issued for comments on September 26. Its purpose is to provide an evaluation of the costs and benefits of California’s net energy metering (NEM) program and provide the CPUC and all interested parties, including the California Legislature, with a better understanding of who benefits and who bears the economic burden, if any, of the program.
“As we near the end of the landmark California Solar Initiative, solar and distributed generation more broadly are at a crucial turning point, and NEM is increasingly a major factor in people’s decision to go solar,” said Sachu Constantine, CCSE policy director. “Consumers want influence and control over their energy choices, and rooftop solar and other renewable technologies offer just that.”
Shortcomings of the report
Constantine said the report, mandated by utility-backed legislation (AB 2514) passed last year, is limited in scope and relatively incomplete and outdated. The way in which the legislation was written pretty much guaranteed the study would find that net metering is a cost burden on the utilities, he said.
In fact, the CPUC Energy Division’s introduction to the draft NEM evaluation notes that the study focuses exclusively on the utility ratepayer impacts of NEM and does not include consideration of the overall societal benefits of deployment of clean energy resources.
According to Constantine, a more comprehensive study of the state’s NEM program would take into account significant job growth in clean energy industries and other economic benefits, as well as environmental and public health benefits, including greenhouse gas emissions reductions and improved air quality, among other societal benefits.
He also points out that the draft NEM evaluation arrives too early to reflect the changes to residential electric rate structures called for in AB 327, a rate reform bill signed into law on October 7 that grants the CPUC the authority to redefine residential electric rate structures and allows the utilities to recover costs of maintaining the distribution grid. These new rate structures will differ greatly from those upon which the draft evaluation is based and will address many of the cost impacts associated with residential NEM identified in the study.
The good news
Despite being limited in scope, the draft NEM evaluation notably finds that solar customers do pay more than their share of the cost of service. The study finds that “overall, based on limited information for a single year, the NEM accounts appear to be paying slightly more than their full cost of service,” ultimately concluding that, in aggregate, the NEM accounts are paying 106% of their full cost of service. While this still results in a cost shift to other ratepayers, it is only because rates themselves are creating a distorted price signal, with typical middle- and upper-income consumers paying vastly more than the cost of service. Rate reform will address this directly and allow the CPUC to set an appropriate NEM rate so that everyone benefits from solar and distributed generation.
“In fact, despite being outdated and incomplete, the study clearly shows that there is a strong value proposition for solar and NEM, particularly when accompanied by strong rate reform,” Constantine concluded.