California’s rooftop solar industry provided ratepayers with a $1.5 billion net benefit in 2024, according to a report from the California Solar and Storage Association (CALSSA). However, state regulators have challenged this conclusion, arguing that rooftop solar created an $8.5 billion cost shift.
The Battle Over Rooftop Solar Policy
In California, investor-owned utilities and residential solar installers have battled over rulemaking decisions related to billing structures and regulations. Utilities successfully lobbied for changes that slashed rooftop solar export rates by about 75%, a policy shift known as Net Energy Metering (NEM) reform. This decision coincided with rising interest rates, leading to a 45% decline in rooftop solar installations in 2024, according to Wood Mackenzie.
The policy upheaval has significantly disrupted the residential solar market. Once accounting for half of the nation’s solar installations, California has seen major solar companies struggle. Some, like SunPower and Titan Solar Power, went bankrupt, while others, including Sunnova Energy, now face financial instability.
Cost Shift or Net Benefit?
Investor-owned utilities have justified NEM cuts by claiming that rooftop solar shifts $8.5 billion in costs to non-solar customers. However, CALSSA and M.Cubed dispute this claim, arguing that rooftop solar provides a substantial financial benefit to all California ratepayers. Their report highlights major flaws in the cost-shift calculation and reveals that rooftop solar actually saved ratepayers $1.5 billion.
Four Key Flaws in the Cost-Shift Argument
1. Mislabeling Rooftop Solar Self-Generation as a Cost
The Public Advocates Office (PAO) of the California Public Utilities Commission included self-generated rooftop solar as a cost to utilities. CALSSA argues that utilities do not own a customer’s electricity usage and should not expect guaranteed revenue from electricity that customers do not purchase. By removing these “phantom costs” from the analysis, $4 billion of the alleged $8.5 billion cost shift disappears.
2. Errors in Electricity Rate Calculations
The PAO report contains miscalculations related to solar capacity factors, time-of-use rate reporting, and other rate-setting errors. Correcting these mistakes removes another $2.5 billion from the cost-shift claim, reducing the total to $2 billion.
3. Failure to Account for Infrastructure Cost Savings
Utilities base electricity rates on projected infrastructure spending. However, they fail to acknowledge the cost savings from distributed solar resources that reduce the need for expensive transmission and generation investments. CALSSA points out that if California had not installed 17 GW of rooftop solar, utilities would have built additional infrastructure, raising electricity costs for all ratepayers.
Instead of using the forward-looking “Avoided Cost Calculator,” CALSSA’s analysis incorporates historical investment costs that utilities would have incurred without rooftop solar. This adjustment reveals another $2.2 billion in net savings, flipping the cost-shift argument into a $150 million net grid benefit.
4. Ignoring Ongoing Utility Payments from Solar Customers
The PAO analysis assumes that solar customers do not contribute to utilities’ fixed costs. However, most solar customers still pay $80 to $160 per month on their electricity bills. These payments include:
- A $10 minimum bill
- A newly approved $24 per month fixed charge
- Time-of-use rate charges
- Additional electricity consumption beyond what their solar panels generate
When factoring in these payments, CALSSA identifies another $1.2 billion in net savings, further disproving the cost-shift claim.
Rooftop Solar Provides a Net Benefit
After correcting these four major calculation errors and removing an additional $160 million in misclassified CARE program subsidies, CALSSA and M.Cubed conclude that rooftop solar delivered a $1.5 billion net benefit to all California ratepayers in 2024.
Why Are Electricity Rates Rising?
Despite flat electricity usage over the past two decades, utility spending on transmission and distribution infrastructure has surged by 300%, far outpacing inflation. CALSSA argues that investor-owned utilities profit from excessive infrastructure spending, as higher capital expenditures allow them to justify rate increases. As utilities raise rates, their profits grow, creating a perverse incentive to spend inefficiently.
The fight over rooftop solar continues as regulators and utilities push for policies that favor centralized energy generation, while solar advocates highlight the financial and environmental benefits of distributed solar and battery storage. California’s solar future will depend on whether policymakers prioritize consumer savings and grid efficiency over utility profits.
