State's Proposed Cut to Rooftop Solar Incentives Purports to Protect Lower-Income Residents

California regulators proposed major changes to the state's booming residential solar industry Monday, including reducing the discounts homeowners with rooftop solar and storage systems get on their electric bills when they sell extra energy back to the power companies.

California's successful program to get more people to put solar panels on their homes has been at the center of a fierce debate between the state's major utilities and the solar industry, and the California Public Utilities Commission's proposed reforms have been highly anticipated.

The state's three major utilities — Pacific Gas & Electric, San Diego Gas & Electric and Southern California Edison — say the savings solar customers get now are so great that those customers no longer pay their fair share for the operation of the overall energy grid.

The CPUC's proposal would reduce the incentives for going solar and roughly double — to 10 years — how long it takes Californians to make back what they paid to install the systems. Buying rooftop solar panels and a system to store extra power costs about $40,000, according to the solar industry.

The CPUC said the reforms are designed to make the program, known as net energy metering, more cost-effective and to ensure energy grid operation costs are shared fairly. But the solar industry and its allies warned the changes will make it harder for the state to achieve its clean energy targets, including generating 100% of retail electricity from renewable or zero-carbon sources by 2045.

"The proposal will move us backward on clean energy and block many Californians' ability to help make our grid more resilient to climate change," said Susannah Churchill, western senior regional director for Vote Solar, a political advocacy group that pushes for clean energy adoption.

California launched the program in 1995 with the goal of encouraging more homes to go solar. It worked: California now has 1.3 million solar systems on homes, far more than any other state, according to the solar industry. That number will only grow because since 2020, all newly constructed homes in California must have solar panels.

But as solar panels proliferated, and the cost of installing them went down, criticism of the program grew. The three major utilities say the current setup allows solar customers to sell their energy back into the grid for more than it's worth. They say more needs to be done to make sure solar customers — most of whom still rely on power from utilities once the sun goes down — are paying for all the parts of the energy grid they use.

Power rates include many costs unrelated to energy generation, like transmission, distribution and even wildfire prevention work. When solar households pay significantly lower electricity bills — or no bills at all — they're contributing less to those things. That means more of the cost is shouldered by other customers, often households and renters without the financial means to install solar.

The utilities and the state peg that cost at $3 billion. The solar industry disputes that number, saying it doesn't take into effect the savings for everyone when the utilities need to build fewer power plants and transmission lines due to more residential solar.

"Today's net energy metering program disproportionately hurts lower-income Californians who don't own homes and who can't afford rooftop solar," said Kathy Fairbanks, spokesperson for Affordable Clean Energy for All, a coalition that represents the utilities. "They're paying higher utility bills to cover solar system costs for primarily wealthier Californians."

But proponents of the program — including many environmental groups and solar companies — say that argument is baseless, and that utility companies are trying to preserve their profits.

"Just under half of all new solar is now going into working- and middle-class neighborhoods," said David Rosenfeld, who runs Solar Rights Alliance, a nonprofit that's one of 600 groups in the Save California Solar coalition. "And we should be focused on accelerating that. But instead, the utilities' proposals would send us backwards."

Mohit Chhabra, a senior scientist at the Natural Resources Defense Council, said the CPUC proposal wound up striking a balance that displeased both sides: the solar companies and the utilities.

"This decision’s really trying to thread the needle between encouraging more rooftop solar adoption [and] focusing subsidies on lower-income customers while making sure that rate impacts are kept in check so that those who don't or can't have solar [don't] suffer," said Chhabra. "It's impossible to please everybody. This decision is about balance and I think it achieves a fair balance."

The CPUC's proposal would still allow residential solar customers to sell their excess energy back to the power companies, but at a significantly lower rate. Solar customers would also have to pay a grid charge based on how many kilowatts of energy they produce; it would cost $40 to $50 per month for most homes.

The charges aren't as great as what the utilities wanted. PG&E spokesperson Ari Vanrenen called the proposal a "step in the right direction to modernize California's outdated rooftop solar program." Still, she indicated the utility — the state's largest — would like to see regulators put higher charges on rooftop solar customers, but she declined to give specifics.

Southern California Edison said the proposal would reduce the burden on nonsolar customers. San Diego Gas & Electric declined to comment, with spokesperson Anthony Wagner saying the utility needed more time to review the proposal.

CPUC Commissioner Martha Guzman said the reforms are aimed at creating fairness while ensuring the financial benefits are still strong enough to encourage people to go solar. Regulators also proposed creating a $600 million fund to help lower-income households afford solar and storage.

The changes would apply only to new solar customers, with the new charges being phased in over four years. People who already have panels on their homes wouldn't operate under the new system until they've had their panels for 15 years. If they take advantage of a roughly $3,200 subsidy to build storage systems, they would move onto the new rate structure right away.

Residential rooftop solar reduces the demand on the electric grid up to 25% during the day, according to the CPUC. But California's peak household energy demand is from 6 p.m. to 9 p.m., when the state mostly relies on fossil fuels to power the energy grid.

The CPUC's proposal encourages people who already have solar panels to switch to storage by raising the power rates during those peak evening hours. And it would allow anyone with rooftop solar to install panels that provide up to 150% of the power they typically need. That would encourage people to switch to electrical appliances or buy electric cars they can charge at home, Guzman said.

"How do we transform a program that's about distributed solar — capturing the sun — to a program that has to do with a period when the sun is down?" Guzman said. "That's what this reform is about."

But the solar industry, including Bernadette Del Chiaro of the California Solar and Storage Association, which represents 700 businesses in the industry, pointed to the heart of the problem: Higher costs will discourage people from going solar in the first place.

The CPUC commissioners could change the proposal before voting on it early next year.

This story includes reporting by Kathleen Ronayne of The Associated Press and KQED's Laura Klivans.