The vote last Wednesday at the California Energy Commission to mandate solar on all new residential rooftops may have been unanimous, but energy experts are still definitely divided. Most prominently, UC Berkeley energy economists have been out in force to argue against it as economically inefficient.
First, Severin Borenstein drafted a hasty letter in opposition to the commission, and then his colleague James Bushnell drafted a Sacramento Bee op-ed against it. Bushnell also wrote a longer post explaining his rationale:
As more aggressive and difficult carbon reduction goals loom for California, there seems to be an inclination to grasp at every policy we can think of that can add to the carbon reduction body count. It’s a spaghetti on the wall approach to carbon policy. However, it’s now more important than ever to focus on the efficient tools and policies that can push our carbon reductions in cost-effective ways. We could get away with inefficient policies like net-energy metering and zero-carbon schools when they were relatively small polices. From here on out the costs are going to start to matter.
The points they make similar: rooftop solar is not cost-effective, compared to utility-scale solar, and the policy may actually cost more money than we think because it will leave existing investments in power plants and solar PV facilities essentially stranded as useless during sunny days. It will also force ratepayers without solar to continue subsidizing homeowners with panels.
To sum it all up, Vox’s David Roberts lists all the pros and cons to the policy. For my part, I find two of the “pro” arguments convincing. Especially this one:
Time-of-use rates mean new rooftop solar could drive new storage and demand shifting.
California’s three big utilities are shifting to time-of-use rates for residential customers — meaning ratepayers will be charged more for electricity when it is more valuable. This will also affect net metering; if retail rates are lower during the midday solar surge, net metering compensation will be lower too.
That will give homeowners incentive to shift some of their solar energy around, which they can do with home energy storage — and helpfully, under the new building code, storage counts as compliance with efficiency mandates. That should get a lot of storage, and with it a lot of responsive demand, into California homes, which should help stabilize the grid.
In the long run, California will not be able to maintain net metering as a policy to compensate solar rooftop owners for their surplus production. Like Hawaii, my guess is that the state will move to paying homeowners for excess solar at the wholesale rate, as a cash payment. Combined with time-of-use or real-time electricity pricing, homeowners will then have an incentive to buy home batteries to capture their surplus solar, rather than rely on credits from their utility. The resulting energy storage deployment (and change in electricity demand) will improve the economics of rooftop solar and also the grid profile of these homes, perhaps lessening the negative effect on existing utility-scale power plants.
Second, I find convincing the argument that the rooftop solar boom will drive down prices for solar, which will benefit everyone (including utility-scale installers), as well as help promote demand for clean technology more generally, from batteries to electric vehicles (a variation on the “rooftop solar is contagious” argument).
But perhaps more importantly, we should keep in mind two things about this decision:
- it cannot be viewed in isolation, as the state is trying out all sorts of policies to address climate change (and our housing crunch); and
- because it is a regulation, if facts on the ground change, the commission is well suited to reverse course or alter the mandate in some fashion in a timely manner. That’s the beauty of regulation over legislation.
Given the many potential upsides, it’s worth it for the state to pursue this experimental policy and ideally separately encourage electricity rates that optimize the rooftop solar deployment. And in the meantime, state leaders can monitor implementation and adjust it as technologies and other energy policies change.
As I blogged about yesterday, the California Energy Commission unanimously approved a new solar mandate for all new residential construction in the year 2020. I spoke to KPCC radio in Los Angeles and Reuters about the decision.
While I think the mandate is sound economically and environmentally, Severin Borenstein at UC Berkeley takes a contrary view on the economics. Severin doesn’t like rooftop solar in general, as opposed to more cost-efficient utility-scale solar, and he foresees problems with ratepayers subsidizing the installations.
For my part, I think it’s clear the state is heading away from the retail credit model of subsidizing excess solar production, which Severin doesn’t like. Instead, state regulators will likely to move to paying the wholesale rate for surplus solar from rooftops, as Hawaii basically now does. So new batteries will likely accompany these home solar installations, because they will be an economically sound technology to capture surplus solar rather than feed it to the grid for a relatively puny wholesale rate. That’s what we see consumers doing in Hawaii in response to the loss of retail credit.
And in that respect, the new commission rules could help, as they also give batteries “compliance credits” to reduce the size of the needed solar system. They also include incentives to move away from natural gas to new homes, as well as other efficiency measures.
Once again, California is taking a strong leadership position on the environment that will benefit clean tech deployment and save new homebuyers money in the process. The decision should be a major boost for these needed technologies.
The California Energy Commission is the state agency responsible for developing and enforcing energy efficiency standards for new buildings. The result of these stringent codes, starting in the 1970s, has been higher construction costs but saved energy bills and pollution overall.
Now the commission is poised to vote today on a significant new mandate: rooftop solar on all new all new single-family houses built after January 1, 2020, as well as new multifamily buildings up to three stories tall.
As the San Francisco Chronicle reported:
Together with tough new efficiency standards for windows and insulation that the commission will consider Wednesday, the solar mandate could add $10,538 to the cost of building a house, by the agency’s own estimate. The extra expense would hit at a time when California is suffering a severe and deepening housing affordability crisis.
The move’s supporters insist the solar homes would save their owners money by slashing monthly utility bills. That savings could be worth $16,251 over the 30-year life of the house, according to the commission.
The commission took years to develop this proposal and studied the costs and benefits carefully. The agency commissioned a detailed study last year summarizing these findings, which showed the benefits of the policy exceed the costs in every climate zone in the state.
Meanwhile, for developers who don’t like the added cost of the panels to the construction bill, it’s worth noting that a Lawrence Berkeley National Laboratory study from 2015 found that prospective home buyers place a $15,000 average premium on homes with solar compared to similarly situated homes without. This premium would more than compensate developers for the increased construction costs, as homebuyers properly value the utility savings going forward.
In the long run, the move may force the California Public Utilities Commission to scale back incentives for rooftop solar from the current arrangement of giving retail credit to homeowners for their surplus power generation. With every new home having solar, the policy won’t be financially sustainable going forward.
But for now, the upside of a mandate would be a huge boon for the solar industry, as well as significant greenhouse gas emission savings from reduced energy demand from the residential sector. It would also be a powerful statement on climate change and clean energy from the fifth-largest economy in the world, as well as a big boost for renewable energy generally.
