The monthly connection fee is good for the climate.
Regular readers of this blog are well aware that the California Public Utilities Commission (CPUC) released a Proposed Decision on Net Energy Metering (NEM) reform for residential rooftop solar last December. One of the most controversial elements of the proposed decision is the requirement that households installing solar power in the future pay a monthly fixed connection fee to help cover the various fixed costs associated with solar distribution. electricity in California. It was derided as a “solar tax” since, under the proposal, only solar homes would pay the connection fee.
Over the past few months, several confusing and, I would say, misguided arguments have been advanced in favor of maintaining the status quo of the NEM. Most curious is the widely circulated argument that the reform of the NEM are a step backwards in California’s climate leadership. In fact, the opposite is true. For many years, NEM has been a growing obstacle to the centerpiece of California’s current climate plan – electrification of households and transport.
How could the NEM hinder climate progress? It’s really not that complicated.
- Under the current NEM, houses with solar panels on the roof does not contribute much the cost of electrical infrastructure, wildfire mitigation and compensation, investments in new clean technologies, and many other programs that utilities have to pay for.
- These costs are always recouped through the price of electricity, so the more homes that switch to solar power, the higher the cost of electricity for everyone. It’s the real solar tax – the one paid by non-solar houses.
- Rising electricity prices are making the switch to electric vehicles, space heating and water heating less and less attractive for the majority of state-owned Californians. climate framework plan account to electrify their way of life.
Critics of the proposed decision by the CPUCs point to the fact that in areas of California where the NEM has already been changed – places, by the way, with public property utility systems not utilities owned by “profit-seeking” investors – solar installations have declined sharply. The implication is that this in turn blocks progress towards renewable energy targets. It is simply not true. This perspective ignores the fact that solar power on residential rooftops is not the only way to generate clean electricity. It’s not even the only way to generate solar electricity. It’s only the Very expensive way to generate clean electricity.
“Dirty” energy moved by solar on the roof
Since the state has already committed to providing 100% clean electricity, rooftop solar does not make the grid cleaner, it simply crowds out other, cheaper types of clean electricity. So the NEM reform will not harm the solar industry or make our electricity system less clean, it just hurt the residential roof solar industry.
What NEM reform would like doing is to help slow the inexorable rise in electricity prices for non-solar homes. This would help stave off the very real possibility that refueling an electric car in California will become more expensive than refueling a conventional car. According to research by Dave Rapson and Erich Muehlegger at UC Davis, EV fuel savings are already lower in California than almost anywhere else.
Savings per kilometer by driving electric vehicles (Rapson and Muehleggar, 2022)
Mine recent research with Severin Borenstein indicates that electrical appliances and vehicles must be a lot less expensive to use than they actually are at current electricity prices. Heating homes and water with electricity is penalized compared to gas in California, even though it should cost about the same. So if we really care about climate goals, we won’t focus on offering electrification incentives just for solar homes to the detriment of everyone else.
The solution, which makes too much sense to be widely adopted in California, is to make the NEM unnecessary. We have spent too much time discussing the rates paid by solar homes and not enough time discussing the rates paid by everyone else. The monthly flat rate offered (e.g. solar tax) is simply a means of recover fixed costs power distribution in California. But we must not stop at solar houses alone. The way to electrification is to change everyone to a tariff structure that encourages electrification, which accurately reflects the high costs of connection to the grid and the low costs of real electricity consumption.
This means moving everyone to a monthly connection charge and lowering the marginal price of electricity by an amount that offsets the revenue generated from the connection charge. It’s not a revolutionary idea. A lot of electric utilities already do. Our gas services in California already do. In fact, California’s CPUC-regulated electric utilities are about the only utilities in the country to not charge a monthly connection fee.
Fixed monthly charge for residential electricity service (darker is greater)
So why didn’t California opt for this two-part pricing structure? One of the reasons has been equity concerns. These can be dealt with by creating connection fees for low-income peopleOr other more creative solutions. The other reason is that it would hurt the rooftop solar industry. If all homes faced volumetric prices (per kWh) that reflected the true cost of electricity, few people would see a call to pay twice as much for rooftop solar. However, in California, we seem more concerned with getting 10% of our homes really, really, REALLY clean than with reducing total greenhouse gas emissions statewide seriously.
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Suggested citation: Bushnell, James. “Everyone should pay a ‘solar tax'” Energy Institute BlogUC Berkeley, February 14, 2022, https://energyathaas.wordpress.com/2022/02/07/monster-trucks/