California’s Supreme Court has agreed to weigh in on controversial new rules that slash the financial incentive for people who install rooftop solar on their homes.
The high court has agreed to hear arguments from a trio of environmental groups that oppose the changes, which went into effect last year and affect 1.8 million Californians.
In December 2022, the California Public Utilities Commission approved a third iteration of the state’s net energy metering program, or NEM 3.
Under the program, new solar customers are paid a much lower rate for the excess energy generated by their systems. One group has estimated the average rate of compensation would drop from 30 cents per kilowatt-hour to 8 cents.
The rules were a response to criticism that utility customers without solar were paying more than their fair share for the fixed costs that come with maintaining the electricity grid.
Q: Should California’s Supreme Court overturn new rooftop solar rules?
Economists
Kelly Cunningham, San Diego Institute for Economic Research
NO: Pricing of rooftop solar power ought to reflect actual expenses of energy generation, usage and battery storage, including fixed costs to deliver and maintain the electrical system. The true value of solar energy generation should be self-sustaining and unsubsidized, otherwise real worth is inaccurate and misleading. Those previously committed to circumstances calculated at the time need to be fulfilled, otherwise it is unfair to change afterwards. The complicated new rules move toward satisfying these conditions.
Lynn Reaser, economist
NO: The appellate court’s upholding of NEM 3 is a best compromise solution. Disruptive technology has drastically reduced the cost of solar systems so that a continued high subsidy is unwarranted. Adding energy storage capability with a battery pack gives nighttime power an avoided cost payback at about twice that of best current daytime. The most efficient generation of solar power comes from large scale solar farms, which are under the control of CAL ISO (Independent System Operator). Legacy infrastructure needs to be ed.
Alan Gin, University of San Diego
NO: Using the “actual avoided cost” makes sense economically. There is less benefit when supplying electricity when it is less needed, i.e. during daylight hours. The incentives to add battery storage helps consumers pay for the system and shifts electricity to the evening hours when it is more needed. There is concern about the shifting of the burden of maintaining the grid to those who can’t afford solar and to renters, especially as institutional investment has forced more people into renting as opposed to buying homes.
James Hamilton, UC San Diego
NO: The Public Utilities Commission made a poor decision that will severely set back California’s use of solar energy. But it’s not the role of the courts to try to find the best policy. There are complicated issues here involving grid stability and covering the fixed costs of electricity provision. Addressing these requires full participation of the legislature. The more we allow judges to make key policy decisions, the further we get from having the functioning democracy we need to solve big problems.
Norm Miller, University of San Diego
YES: Our California bullet train ing self-generating solar became a coal-fired steam engine overnight with the recent changes in buyback rates, nearly killing the industry. The market works best when the rules are not changed midstream, which is what happened here, after many homeowners had already invested in a solar photovoltaic system and calculated payback. At the very minimum, whatever rules exist at the time of installation should be held in place for at least 10 years for those who made the investment.
David Ely, San Diego State University
NO: The UC should find an appropriate balance between encouraging the installation of rooftop solar systems and covering the fixed costs of the electric system. Over time, it is reasonable for the priorities of the UC to shift from incentivizing rooftop solar to ensuring that the costs of the electricity infrastructure do not fall increasingly on households without rooftop solar and on providing incentives to pair rooftop solar with battery storage.
Ray Major, SANDAG
YES: The new NEM 3 program undermines the state’s desire for clean energy. By law, residents of the state will be required to use more electricity in the future as internal combustion engines and natural gas are outlawed. Where will all the needed electricity come from? The state should be encouraging, not discouraging the use of residential solar s and discouraging utility monopolies like SDG&E, which posted nearly a billion-dollar profit last year.
Caroline Freund, UC San Diego School of Global Policy and Strategy
NO: The Supreme Court is evaluating legality. That said, from an economic perspective, reform is needed, as Californians pay too much for energy despite growing renewables. First, everyone needs to contribute to paying for the grid — even houses using solar. Second, energy should be traded at one price. Solar households would add competition and depress daytime prices if everyone faced true costs, incentivizing s to charge cars and do laundry when prices are low.
Executives
Gary London, London Moeder Advisors
YES: This approach to energy efficiency is wrong. Solar ing costs have come down but remain a very substantial upfront investment that takes years of reduced energy bills to recover. To save the grid, the state must encourage more installations. Rather than arguing over the homeowner compensation credit, why not cut a deal between the utilities and the state to pay or finance the upfront solar installation cost? Then, the compensation issue wouldn’t matter.
Chris Van Gorder, Scripps Health
YES: Millions of California homeowners have invested tens of thousands of dollars each in rooftop solar. They did this in response to calls to help the environment and with the promise of it significantly cutting their power bills. Shifting fixed costs to those without solar is an issue that needs to be addressed. But doing so by not honoring the promised pricing incentives is unfair to those who made huge financial commitments based on those promises.
Austin Neudecker, Weave Growth
YES: SDG&E has used its statutory monopoly and lobbying power to increase prices and reshape the playing field against alternatives. We pay among the highest electricity prices while solar incentives are substantially degraded. Further, shifting energy rates to more fixed and interconnection fees enables utilities to charge solar producers regardless of net consumption. We live in a region with prime solar potential and an appetite to address climate change in the clutches of entities with opposing incentives.
Jamie Moraga, Franklin Revere
YES: California has undermined its energy goals by eliminating a big carrot. The state ed laws to achieve 100 percent net zero electricity by 2045 and all new enger vehicles sold in the state will be zero-emission by 2035. With these new rules, customers have been disincentivized to purchase solar as the cost now outweighs the benefit. Installations have dropped an estimated 77 percent to 85 percent. These policies threaten California’s ability to meet its ambitious targets and should be overturned.
Haney Hong, San Diego County Taxpayers Association
NO: When the academic research shows that approximately 20 cents of every dollar of a non-solar customer’s bill is to finance what a solar customer like me isn’t paying into maintaining the grid, we’ve got a serious problem. We ought to balance the dogmatic pursuit of a cleaner environment with the financial problems we pile onto working-class families, and NEM 3 was a fair compromise. Let’s just move on — we have plenty of other problems to tackle.
Phil Blair, Manpower
NO: This is not an issue the California Supreme Court should get involved in. It should be settled by elected officials using their legislative powers. Rooftop solar s are a piece of the puzzle to fight climate change, but need to be fair and equitable to all. Homeowners need to store the excess electricity they generate on-site and become self-sufficient, or acknowledge their fair share of the cost of infrastructure necessary to allow them to access power when they need it. The new reimbursement policy seems to be fair. It also allows a very long wait period for solar buyers who installed before this change.
Not participating this week:
Bob Rauch, R.A. Rauch & Associates
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