California Cuts Rooftop Solar Incentives. Here’s What That Means

For more than two decades, California has led the nation in getting solar panels on rooftops. But the incentives that got more than 1.5 million Californians to go solar are about to change.

A plan approved by the California Public Utilities Commission Thursday will, among other things, cut the amount of money new rooftop solar customers get for the excess energy they generate and send back to the power grid. Those cuts will amount to as much as 75% for Southern California Edison solar customers, according to estimates from the trade group California Solar and Storage Association.

As solar has gotten cheaper, investor-owned utilities and some environmental groups, including the Natural Resources Defense Council, argue that low- and middle-income Californians are increasingly bearing the burden of rising electricity costs, while wealthier households reap the most benefits.

And rooftop solar costs are going up again, as supply chain issues persist and solar companies raise their prices in response to the changing regulations.

The revised decision came after months of protests by the solar industry and clean energy advocates who say it is still too extreme and will decimate rooftop solar growth, kill jobs and further harm Californians’ pockets — and the planet.

“Cutting solar credits harms middle- and working-class households,” said Jessica Guadalupe Tovar, who grew up in an industrial corridor in East L.A. and is now an organizer with nonprofit Local Clean Energy Alliance. “Solar saves all ratepayers money, even those who do not have solar panels, by stabilizing the grid and lessening the need for ratepayers to foot the bill for more expensive transmission and distribution infrastructure, like the poles and wires and substations.”

(Quick context: investor-owned utilities don’t make money based on the amount of electricity they sell, but rather by increasing rates to build and maintain infrastructure.)

However, others say the new plan gets closer to a middle ground and it’s time for a change.

“How the rate is structured currently, low-income people were just paying into the system a lot more than they were benefiting from it,” said Alvaro Sanchez, vice president of policy at environmental justice nonprofit The Greenlining Institute. “I think [the new plan] does both keep California as one of the solar leaders in the country, if not the world, and brings more equity into the way that we're getting people into solar.”

The public utility commission’s independent watchdog office found that more than $3 billion was passed on to non-solar customers in 2021 as a result of the current payment structure. Rates are also rising as utilities increase efforts to mitigate fires and upgrade infrastructure — utility-run power lines have sparked at least half of the most destructive fires in California history.

The new rule goes into effect for homeowners installing solar after April 2023. Here are some highlights from the decision:

• It only affects Southern California Edison, Pacific Gas & Electric and San Diego Gas & Electric. The decision does not affect existing solar customers. 
• It cuts the amount of money new rooftop solar customers receive for the excess energy they generate and send back to the power grid — otherwise known as net energy metering — by about 75% for Southern California Edison customers, and more for Pacific Gas & Electric and San Diego Gas and Electric customers. The payments would ratchet down over five years. The CPUC says the change will save new customers on average $100 per month, with solar-plus-storage customers saving on average $136 per month. 
• Commercial and residential customers would see about a nine-year "payback period," or the amount of time it takes to make back, through lower electricity costs, the money you spent up front. Payback periods are currently about six years, though that can vary depending on the home.
• Although the plan would reduce the average rates that utilities must pay customers for their excess solar power, it would increase those return rates during specific times, particularly summer evenings when demand soars and solar power fades. The idea is to financially incentivize solar customers to also install batteries to store their electricity and alleviate pressure on the grid (if you remember that terrible September heat wave, it was largely energy conservation and battery storage that got us through without rolling outages). Batteries are now the highest-cost piece (and newest technology) in the solar home puzzle — the high cost and longer "payback period" is a reason some in the industry say new customers won’t be incentivized to actually purchase batteries with their solar. 
• It establishes a $900 million fund to help lower- and middle-income households install rooftop solar systems, with $630 million set aside for low-income households, though that funding still needs to be allocated by state lawmakers.
• It will allow solar systems large enough to support future purchases like electric vehicles, not just current energy demand.
• It removes a “solar tax” of $8 per kilowatt fixed charge per month on new residential systems that was in the initial proposal.

You can read the full decision here and read more about the original proposal here.