(Bloomberg) — California is poised to slash the incentive that encouraged more than a million residents and businesses to install solar panels atop their roofs — and which kick-started a multi-billion-dollar industry that cemented the Golden State as a green-energy pioneer.
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State regulators are scheduled to vote Thursday on a proposal that would cut the compensation that homeowners get for their systems’ excess electricity by about 75%. The existing program pays solar customers the full retail electricity price for that excess power, a perk that some state officials say disproportionately hurts low-income residents, who are less likely to own solar panels.
Cutting the rooftop incentive risks slowing installations and the growth of an industry that Governor Gavin Newsom calls “essential to California’s future” and could hamper the state’s ambitious goal to become carbon-neutral by 2045. It would also mark a significant shift in policy for a state — and its governor — that take pride as being at the vanguard of the energy transition, with implications that could reverberate well beyond California’s borders. States such as North Carolina, New Hampshire and Arkansas are also considering changes to their rooftop solar incentive programs.
“My biggest worry is this will spread like a contagion through the rest of the country,” said Ahmad Faruqui, an energy economist who has become more supportive of rooftop solar after testifying on behalf of utilities as a principal at the Brattle Group, a research consultancy. “The utility industry is hoping California will be the first to strike this mortal blow on solar.”
California is easily the biggest producer of rooftop solar power — thanks to the incentive program the state adopted more than two decades ago, which ultimately ushered rooftop systems into the mainstream. This year, the Golden State will account for about one-third of all US residential capacity installed, according to Pol Lezcano, an analyst at BloombergNEF.
Read: Fight over solar subsidy tests California’s climate commitment
The state’s subsidy has driven revenue for several solar installers and financing companies, including SolarCity, which Tesla Inc. acquired in 2016. About 1.5 million California homes and businesses now have solar systems with a capacity of more than 12,000 megawatts of renewable power, or the equivalent of 12 nuclear reactors.
But California’s investor-owned utilities say the incentive program has led to higher electric prices for those who can’t use or afford the pricey solar panels — which, they argue, isn’t fully rectified in the state’s new plan. Utilities — along with some consumer groups — say that customers with rooftop systems are able to reduce their bills to the point where they don’t pay their fair share of costs of maintaining the grid, which then fall on non-solar customers, driving up their collective utility bills to the tune of about $4.6 billion annually.
Earlier this year, Matthew Freedman, an attorney with the Utility Reform Network, told Bloomberg that the rooftop solar payments have a “reverse Robinhood effect” that is “profoundly unfair.”
The debate over solar subsidies comes as California officials have grown increasingly concerned about soaring electricity bills. Rates have increased by about 25% since 2017, according to government data, as utilities including PG&E Corp. pass along billions of dollars in costs from hardening the grid in their territory to prevent catastrophic wildfires and making other infrastructure improvements.
In addition to reducing payments for selling excess power, the plan also is intended to encourage new solar customers to get batteries. Under the new payment structure, the CPUC would adopt a variable pricing model, allowing utilities to pay homeowners more for their energy surplus during periods of grid stress, and less when there is ample power. Battery storage can help California ease potential power shortages on hot summer evenings when the sun goes down but demand for electricity remains high.
For at least a year, officials in the state have telegraphed looming wholesale changes to the solar subsidy. An original proposal would have imposed new monthly connection fees for rooftop systems, which the solar industry contended would crush business. That plan was criticized by celebrities, solar advocates including Tesla’s Elon Musk — as well as Newsom, who has staked part of his legacy locally and nationally to California’s carbon-slashing efforts.
While the revised plan no longer includes monthly fees, it has still garnered sharp pushback from solar companies. The California Public Utilities Commission’s plan “would protect utility monopolies and boost their profits, while making solar less affordable and delaying the goal of 100% clean energy,” said Bernadette Del Chiaro, executive director of the California Solar & Storage Association.
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