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California regulators adopt new solar panel rules that reduce incentives to install

California regulators approved the most dramatic overhaul of the state’s rooftop solar rules since the state began subsidizing the technology in 1996.

The California Public Utility Commission voted 5-0 to approve proposed changes to the state’s Net Energy Metering (NEM) rules.

The new plan cuts the value of solar-generated electricity sold back to utilities — and that reduces the financial benefit of installing solar panels.


Instead of paying homeowners a few cents less than retail for rooftop-generated power, as NEM 2.0 rules currently do, electricity sold back to the grid will be a lot cheaper for the utility.

“That is only one part of the customer saving equation,” Commissioner Cliff Rechtschaffen said. “A larger portion of their savings comes from powering their homes from panels when they won’t have to pay for electricity from the grid.”

The change makes it more difficult for rooftop solar owners to recover the thousands of dollars they spent installing the solar arrays.

The proposal also seeks to incentivize the installation of batteries that can store solar-generated energy during the day and reduce the demand on the grid between 4 p.m. and 9 p.m. That is when the state relies heaviest on power plants that use fossil fuels.

The CPUC Public Advocates Office urged the commissioners to pass the proposal, saying the current NEM rules are too generous and the new rules are better.


Matt Baker, director of the Public Advocates Office, said he recommended a subsidy that focuses on reducing the cost of installation, instead of rolling the cost of a solar and battery subsidy into the cost of a kilowatt of electricity. Baker argues that the current system creates an open-ended benefit that pays solar owners too much money during the first 20 years they own their systems. However, there are no existing state credits for the installation of solar and battery systems.

Current solar customers are not affected, and the 20-year NEM deals that were in place when existing systems were installed remain in effect.

Critics worry that the new solar rules will stunt the nation’s most successful solar marketplace. More than 1.5 million homes in California have solar panels, and the industry employs about 68,000 workers.

The revisions came about as part of a review mandated by the state Legislature, and it marks the third iteration of California’s NEM rules.

Solar advocates, who represented more than 90% of the public comment at the meeting, called the plan too extreme for California. They argued that the state needs to make solar more affordable, not less affordable.

“Your proposal will stop combined solar systems by putting them out of reach,” said Barbara Morton, a San Diego solar owner and San Diego Gas & Electric customer. “SDGE has the highest rates in the nation. Sempra paid the highest dividends in the nation. And you are trying to kill solar?”

Critics repeatedly told commissioners that NEM 3.0 is bad and comes at a time when the climate needs help. Discouraging solar adoption will make it tougher for the state to hit carbon-neutral energy goals, they said.

One resident said California created incentives for early adopters and then changed the rules just as more people started considering adding solar panels.

“This net-billing scheme pulls the rug out from under the majority who are ready to adopt solar,” said Tim McKeever, a California resident.

The state’s investor-owned utilities have only commented publicly on the issue in regulatory filings or formal CPUC hearings. Through surrogates, they argue that the current NEM system allows solar owners to avoid grid-maintenance costs that are baked into current electricity prices.

“Solar installations have become a major industry,” Commissioner John Reynolds said. “Our support for this industry has produced a cost shift from solar customers to nonsolar customers.”

Utilities lobbied hard for mandatory monthly grid-connection fees based on the size of a solar energy system as a way to balance that shift.

“The CPUC got this vote very wrong,” said Rev. Frank Jackson, chief executive officer of Village Solutions Foundation. “Low-income families are struggling to buy gas, put food on their table and pay for everything, including utilities. Continuing to pay hundreds more a year to subsidize mostly wealthy Californians is unfair.”

Community advocates argue that keeping solar unaffordable for low-income residents and the state’s underserved communities is the real inequity, and the new rules make it harder for community organizations and moderate- and low-income residents to install solar.

The new net-energy-metering rules do not include a so-called solar tax. Those mandatory recurring charges, based on the size of a homeowner’s solar array, were expected to be about $50 a month.

The companies argued, often through surrogates, that solar owners were not paying to maintain the grid and those costs were unfairly being shifted to utility customers without solar.

Community advocates said the real inequity was that solar is becoming less affordable for low- and middle-income consumers, and that keeps power generation in the hands of utilities.

Regulators are waiting for the state to allow access to a $630 million fund to help low-income residents pay for the installation of solar systems, Reynolds said.

That money is part of a $900 million state funding package to help residents install solar panels. That initiative is not part of the NEM proceeding.

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