Equity versus climate change:

How the fight over California's utilities illuminates flawed policies

California leads the way in pursuing the most aggressive climate agenda in the
US. The most populous state in the nation – with the world’s fifth largest economy – has
committed to going carbon neutral by 2045 by adopting a variety of aggressive policy
measures. Key to achieving this goal has been encouraging homeowners to adopt
distributed renewable energy systems, such as solar panels, by offering subsidies to
purchase them and compensation for when they send excess electricity to the utility
grid. The policy has worked fantastically, with solar ownership skyrocketing to over 1
million roofs in 2019. But not everyone is so pleased with the proliferation of solar –
most notably the traditional utility companies that are losing money and their remaining
customers stuck footing a higher monthly bill. Now utility companies are asking the
state: Make solar customers pay more so the utility customers no longer have to
subsidize the losses. The issue has put lawmakers between a rock and a hard place.
Do they keep incentivizing solar at the risk of burdening the poorest Californians
further? Or do they slash subsidies and threaten progress towards their climate goals?

Background
In 2006, then-Governor Arnold Schwarzenegger signed into law a goal of
building 1 million solar energy systems for homes, businesses, farms and schools. This
law would complement the state’s recently enacted Global Warming Act that set
aggressive goals for reducing greenhouse gas emissions. At the time, only 20,000
buildings across the state had solar.1 California offers a number of incentive programs to
help build the solar market, but one of the strongest incentives to adopt solar has been
California’s net metering program.
Solar home adopters are still connected to the utility grid in order to access
electricity when solar energy isn’t available – that is, when the sun isn’t shining. But
when homes produce excess energy they can sell it back to the utilities. In California,
utilities purchase this power at the full residential rate rather than the wholesale market
rate that other suppliers receive. This helps solar customers who often have substantial
upfront costs to install the panels earn their money back in as little as four to five years.2
Customers also end up paying far less for their monthly utilities bill.

Analysis
So now that solar customers are using less electricity, California’s utility
companies are simply making a little less money in kilowatt-hours (kwh) used, right? Not
exactly. In California, customers are charged more than just by the number of kwh they
use – they’re also charged for fixed costs, including wildfire mitigation and infrastructure
maintenance and improvement, which are all included into the hourly charge. Most solar
users don’t truly ever leave the grid, but now that their electricity bills are much lower,

1
Jacobson, Dan. Environment California. “Three Lessons from California’s Million Solar Roofs Milestone.” Accessed September 23,
2022. https://environmentamerica.org/california/articles/three-lessons-from-californias-million-solar-roofs-milestone/.
2
Stevens, Pippa. “Solar Power Advocates Slam New California Proposal to Reduce Subsidies.” CNBC. Accessed September 23,
2022. https://www.cnbc.com/2021/12/13/solar-power-advocates-slam-new-california-proposal-to-reduce-subsidies.html.
their contributions towards the fixed costs is much lower. And those fixed costs don’t go
away – instead, California utilities shift them to their remaining customers’ bills. An
analysis by the Energy Institute at UC Berkeley’s Haas Business School found that, on
average, California customers without home solar pay an additional $65/year to make
up for the shift in fixed costs.3
Californians already pay the highest for utilities in the nation. A study by the
Energy Institute at Haas and the nonprofit Next 10 4 found that:

● PG&E customers pay about 80% more per kwh than the national average;
● Southern California Edison charges 45% more;
● and San Diego Gas & Electric charges double.

As more and more customers switch to home solar, the price charged per kwh
keeps rising for the remaining utility customers. This increases the incentives for those
with the means to switch to home solar and lower – if not eliminate – their monthly utility
bill. The cycle of home solar forcing utility prices up and driving customers out
perpetuates the “utility death spiral.” But California’s major utility providers are crying
foul. They say that the incentives for home solar owners aren’t just unfair to them –
they’re fueling inequity across the state.

Net Metering Reform

● Reducing payments for solar customers who send electricity to the grid;
● Adding a monthly “grid participation” charge of $8 per kilowatt for homes; 5
● Creating a “storage evolution” fund to provide rebates to encourage homeowners
to purchase batteries;
● And creating an equity fund to help low-income neighborhoods transition to clean
energy electricity sources.

Solar companies and some climate activists were outraged at the proposal,
forcing the CPUC back to the drawing board. They challenge that California would
reverse course in its positive progress towards reaching 100% renewable energy. Data
from the US Energy Information Administration shows that in June 2022, 41% of
California’s electricity came from non-hydroelectric renewable sources.6 It’s unclear how

3
Davis, Lucas. “Why Am I Paying $65/Year for Your Solar Panels?” Energy Institute Blog (blog), March 26, 2018.
https://energyathaas.wordpress.com/2018/03/26/why-am-i-paying-65-year-for-your-solar-panels/.
4
Michelena, Liliana. “Here’s Why Your Electricity Prices Are High and Soaring.” CalMatters, March 13, 2021, sec. Debt.
http://calmatters.org/california-divide/debt/2021/03/california-high-electricity-prices/.
5
Roth, Sammy. Los Angeles Times. “Everything You Need to Know about California’s Plan to Slash Solar Incentives,” December 16,
2021. https://www.latimes.com/environment/newsletter/2021-12-16/california-plan-to-cut-solar-incentives-boiling-point.
6
“U.S. Energy Information Administration - EIA - Independent Statistics and Analysis.” Accessed September 20, 2022.
https://www.eia.gov/state/analysis.php?sid=CA.
much of that came from home distributed energy systems. But the proposed Net Energy
Metering reforms would lead to an estimated 20% annual drop in rooftop solar systems,
analysts from Bank of America Global Research say. 7 Some estimates also calculate
that the payback period for solar investors will increase from an average of five years to
as high as 19 years.8
Yet, even though cheaper solar materials have made them more affordable and
widely available for Californians, the disparity between who owns solar and who doesn’t
remains. A 2019 study found that the average income of a solar adopter is 54% higher
than the California median.9 And renters, who make up 45% of California residents,
have no opportunity to adopt home solar.

Conclusion
As the leading home solar market in the nation, California officials now find
themselves in a difficult situation as they try to balance issues of equity and climate
change. As utility companies face the dreaded death spiral as they lose customers to
distributed renewables, they want solar customers to pay what they think is their fair
share. This can be achieved by reforming the net metering/solar payback program, they
say. But climate activists and solar companies worry this will impact progress on
lowering the state’s emissions and hurt a flourishing solar industry.
While it’s clear from this analysis that California’s utility pricing needs to be
reformed, it’s unclear just how much the proposed changes from the CPUC will impact
California’s emissions trajectories. Will more money from solar customers allow utilities
to transition faster to renewable sources like wind and solar farms? Or will emissions
increase as a result of fewer home solar adopters, as solar companies claim? More
analysis needs to be done.
Policy makers should look into rate reform, not simply just for solar customers but
for all customers. California’s unusually high grid costs will only continue to grow as
climate change creates warmer and drier conditions that stress the utility systems.
Some researchers propose shifting to a more progressive, income-based pricing model
that takes the burden off of low-income households. Solar adopters could operate on a
similar pricing model, paying monthly grid fees and utility fees progressively-priced on
income. Without any kind of reform, California may reach its 2045 goal of zero-carbon
electricity generation. But is it worth it if only the wealthy benefit?

7
Penn, Ivan. “A Fight Over Rooftop Solar Threatens California’s Climate Goals - The New York Times.” Accessed September 20,
2022. https://www.nytimes.com/2022/01/24/business/energy-environment/california-rooftop-solar-utilities.html.
8
Roth. “Everything You Need to Know.”
9
Borenstein, Severin. “Solar Subsidies Punish the Poor; Reforming Rooftop Solar Incentives Is the Right Move for California.” Los
Angeles Times. March 28, 2022, sec. Main News; Part A; Opinion Desk.
https://www.proquest.com/docview/2643891965/citation/B1A786D9B25F4FD6PQ/7.
 Bibliography

Borenstein, Severin. “Solar Subsidies Punish the Poor; Reforming Rooftop Solar
Incentives Is the Right Move for California.” Los Angeles Times. March 28, 2022, sec.
Main News; Part A; Opinion Desk.
https://www.proquest.com/docview/2643891965/citation/B1A786D9B25F4FD6PQ/7.

Davis, Lucas. “Why Am I Paying $65/Year for Your Solar Panels?” Energy Institute Blog
(blog), March 26, 2018.
https://energyathaas.wordpress.com/2018/03/26/why-am-i-paying-65-year-for-your-sola
r-panels/.

Jacobson, Dan. Environment California. “Three Lessons from California’s Million Solar
Roofs Milestone.” Accessed September 23, 2022.
https://environmentamerica.org/california/articles/three-lessons-from-californias-million-s
olar-roofs-milestone/.

Michelena, Liliana. “Here’s Why Your Electricity Prices Are High and Soaring.”
CalMatters, March 13, 2021, sec. Debt.
http://calmatters.org/california-divide/debt/2021/03/california-high-electricity-prices/.

Penn, Ivan. “A Fight Over Rooftop Solar Threatens California’s Climate Goals - The
New York Times.”January, 24 2022.
https://www.nytimes.com/2022/01/24/business/energy-environment/california-rooftop-so
lar-utilities.html.

Roth, Sammy. Los Angeles Times. “Everything You Need to Know about California’s
Plan to Slash Solar Incentives,” December 16, 2021.
https://www.latimes.com/environment/newsletter/2021-12-16/california-plan-to-cut-solar-
incentives-boiling-point.

Stevens, Pippa. “Solar Power Advocates Slam New California Proposal to Reduce
Subsidies.” CNBC. December 13, 2021.
https://www.cnbc.com/2021/12/13/solar-power-advocates-slam-new-california-proposal-
to-reduce-subsidies.html.

“U.S. Energy Information Administration - EIA - Independent Statistics and Analysis.”