Could Rooftop Solar Kill Utilities? California Grapples with Solar's Success

California has been a champion of solar incentive programs and so far, those policies have largely worked: the state is home to more than half of all rooftop solar projects in the country.

But they may have worked a little too well in one respect. As increasing numbers of Californians generate their own electricity, they rely less on electric utilities and that’s raising major questions about the future of California’s utilities.

The utility business model has been largely the same for decades. Utilities build transmission lines, deliver power to customers and recover those costs via your monthly bill.

So it’s not hard to see why a customer like Chuck Pershing might make utilities nervous. “This is from PG&E,” he says, digging through a folder of bills. “Electric is $4.73. Here’s another which was $5.01.”

Chuck and his wife Suzanne Pershing pay next-to-nothing to Pacific Gas & Electric because of the solar panels atop their four-bedroom house in San Leandro. On a sunny afternoon, the panels are cranking out power – more than the couple are actually using. That extra power goes onto PG&E’s grid, where it supplies other homes.

“You can see where it says ‘received,” says Pershing, pointing to his electric meter. “So PG&E is receiving from us right now 4.32 kilowatts per hour.” PG&E keeps track of this and credits the Pershings on their bill. While they still have to buy electricity from PG&E at night when there’s no sun, it’s effectively cancelled out by the extra power they feed back to PG&E during the day.

It’s called “net energy metering” and it helps solar projects like this one make financial sense. “It’s great,” says Pershing, who says he can’t resist going outside and checking the meter daily.

Victims of Success

“It has been a great program so far,” says David Rubin, who works on net-metering at PG&E. “It was an appropriate thing to do to help the solar market grow. We do, however have a concern.”

About 85,000 PG&E customers have gone solar. Under state law, once these homegrown electrons make up five percent of peak demand, utilities don’t have to buy the power anymore.

The problem, Rubin says, is that solar customers aren’t paying their fair share. “Solar customers really use the grid more intensively than non-solar customers,” he says.

Everyone pays for the grid – building and maintaining the wires and substations – through the price of electricity. By reducing their bills close to zero, Rubin says solar customers avoid paying for power lines they’re still using.

“Those costs then become the responsibility of our other customers,” he says, who subsidize about $200 million a year in lost electricity sales. That’s why the state’s big utilities are bringing the issue to the California Public Utilities Commission, the agency that sets power prices. Utilities want to see the net-metering program changed, so solar customers get smaller credits or are charged a fixed monthly fee to support the grid.

“We don’t think that we are losing customers,” says Rubin. “We are proud that we represent that largest number of solar customers within the country. We just want to make sure it grows in a sustainable way.”

New Competition

“The utility anxiety is palpable,” says Edward Fenster, co-founder of Sunrun, a residential solar company based in San Francisco. He says the growth of rooftop solar is a fundamental threat to utilities and the monopoly they’ve held.

“PG&E has never had to compete in 140 years,” Fenster says. “It doesn’t have a sales force. Utilities just can’t raise rates forever now, without having to worry about a competitive force.

Solar companies don’t dispute that their customers still need PG&E’s grid. “In theory you should pay something for that,” says Fenster. “That said, you’re also providing a benefit to everybody, which is that you’re reducing the need for the utility to invest in transmission and power generation, saving everybody money.”

Several Bay Area solar companies including Sunrun recently formed the Alliance for Solar Choice, a coalition set up to defend net metering. Fenster says they only expect to fight more of these battles as solar claims more of the market.

“I think this is a 20-year journey for us,” Fenster says. “But again, I think the populous is very much behind solar. I mean, being on the wrong side of history, you can win battles, but it’s very difficult to win wars.”

The Death Spiral

“The real concern is that as we move toward higher and higher levels of renewable power on the customer side, we’re going to see bigger shortfalls and the utilities are going to have to raise more revenue,” says Severin Borenstein, an energy economist at UC Berkeley.

Here’s the catch: as utilities raise electricity prices, it encourages more of their customers to go solar. That equals an even bigger shortfall and utilities raise prices again. It quickly becomes what Bornstein calls a “death spiral.”

“Even for those who hate utilities, it’s not a death spiral that should make them happy because none of these solar customers are really energy independent,” says Borenstien. “They still require having a grid.”

The Public Utilities Commission is expected to release its net-metering analysis by the end of the summer. Many say whatever regulators decide to do, it will set a precedent not just for solar customers in California, but for the solar industry across the country.