Do owners of California rooftop solar shift costs to customers without photovoltaic panels? It’s a long running argument, with the latest contribution coming from economist Lucas Davis at the Haas School of Business at the University of California, Berkeley.
In a paper this week, Davis echoes Haas School director Severin Borenstein, who has earlier raised the solar cost shifting idea. Davis says that “because of the way rates work, every time another neighbor installs solar, my rates go up. I’m tired of it.” He calculates that each new rooftop solar installation causes the cost of electricity for a non-solar customer to go up $65/year.
“Today I want to figure out what this means for the rest of us. No fancy econometrics, no complicated model. I just want to do a simple back-of-the-envelope calculation to try to figure out how big of a deal this is.” His focus is “fixed costs,” such as the need for the distribution utility to maintain transmission and distribution lines.” They are fixed, not marginal, because they don’t depend on how much electricity is used.
“Who pays for these fixed costs?” Davis asks. “We all do. Every time you use electricity, you help pay for these costs.” In the past, the difference between marginal and fixed costs didn’t much matter, because electric customers didn’t have much choice about whether to consume electricity.
Rooftop solar changes that situation, says Davis, because it is “an opportunity for consumers to radically reduce the amount of electricity they buy from the utility. In Hawaii there is a lot of talk of ‘grid defection,’ but in 99.9%+ of cases solar homes continue to be connected to the grid. Solar homes use the grid just as much as other households, as they are always either importing or exporting electricity, it’s just that they consume much less grid-electricity.”
The house with the solar panels has a lower electric bill (particularly with net metering that pays the solar customer more for the power sent to the grid that what the utility saves by not having to supply that electricity), says Davis. So who pays for the fixed costs the solar customer used to pay? “Everyone else.”
How much solar cost shifting is going one? “Outside California, Arizona, and Hawaii, probably not much,” says Davis. But in Davis’s California, which has about half of all the U.S. rooftop solar, the amount is not negligible. “The total revenue shortfall works out to about $0.01/kWh, or $65/year for the average California household,” Davis concludes. “This is more than I expected.”
This view of solar cost shifting is not universal. Among many comments to the Davis blog, energy rate consultant Jim Lazar, who works with the Regulatory Assistance Project said, among other arguments, “One should also measure the societal benefit that non-solar customers receive as a result of the solar investment. The biggest of these is low natural gas prices. By flooding the market with solar, we have suppressed demand for natural gas, and gas prices have stayed very low. When I started my career, the Canadian border price of gas was $5.04/mmbtu; today it is closer to $2.50/MMBTU — in 2018 dollars.”
Karl Rabago, executive director of the Pace Energy and Climate Center, told The Quad Report, “Think about this for a minute – the blogger feels he is entitled to rates that result from the division of revenue requirement by a big sales number. And that it is unfair for anyone to reduce the cost dilution that comes from excess use. Where do you take such nonsense?)” He added that Davis “fails to acknowledge the very real possibility that the utility over-built or at least over-spent in the face of what should have been better forecasts of solar market growth. Akin to point above, who is and who should be responsible for better forecasting? Will the blogger send extra money when sales outpace forecasts?”
— Kennedy Maize