California regulators voted unanimously on Thursday to significantly reduce how much utilities have to pay homeowners with rooftop solar panels for power they send to the electric grid — a decision that could hurt the growing renewable energy business.
The five members of the California Public Utilities Commission said the existing payments to homeowners through a program known as net metering amounted to an excessively generous subsidy that was no longer needed to encourage the use of solar panels. Under the proposal adopted on Thursday, compensation for the energy sent to the grid by rooftop panels will be reduced by about 75 percent for new rooftop solar homes starting in April.
The move could have national ramifications because regulators in other states often follow California’s lead. Debates about how far states should go in encouraging the use of renewable energy have been simmering across the country. Many utilities have long opposed net metering, arguing that it does not adequately take into account the cost of maintaining electric grids and that it places too high a value on the electricity supplied by rooftop panels.
“This decision is significantly more equitable than the status quo,” said Alice Busching Reynolds, president of the California Public Utilities Commission. She added that the solar industry provides many benefits to California but that it has been subsidized by residents who do not have solar panels. “We need to be very careful how we design subsidies for this industry when we are using ratepayer funds,” she said.
The California Solar and Storage Association said the decision would limit the growth of rooftop solar even as the state was trying to increase the use of clean energy and reduce the burning of fossil fuels, the primary cause of climate change.
Consumer and environmental groups that criticized the proposal have noted that California has experienced some of the most destructive impacts of climate change, including deadly wildfires, extreme heat and severe drought.
“This decision flies in the face of everything California stands for: clean energy leadership, climate solutions and equity,” said Bernadette Del Chiaro, executive director of the California Solar and Storage Association. “It runs counter to the Biden administration’s clean energy goals for America. This decision will result in job losses and business closures, especially small businesses, which make up the majority of the installers here in California.”
California began to greatly encourage the use of solar under Gov. Arnold Schwarzenegger, a Republican, starting in the early 2000s. It quickly became the nation’s leader in the use of rooftop solar. About 1.5 million home and business rooftop solar systems are installed in the state. Those small systems supplied about 10 percent of the electricity generated in California last year, more than nuclear power plants or hydroelectric dams, according to the Energy Information Administration, a federal agency.
By reducing the subsidy to rooftop solar owners, the commission aimed to establish what it said would be a more equitable system, agreeing with arguments by utility companies and some consumer and environmental groups like the Utility Reform Network and the Natural Resources Defense Council. Those groups had claimed that affluent homeowners were more likely to install rooftop solar systems, leaving lower-income residents to bear more of the cost of supporting the electric grid.
Under the new net metering program, average residential customers of Pacific Gas and Electric, Southern California Edison and San Diego Gas & Electric who install solar panels would save $100 a month on their electricity bill, and average residential customers installing solar paired with battery storage would save at least $136 a month, according to the commission.
As a result of those savings, it said, the average household that installs a new solar or solar and battery system would be able to fully pay off the system in nine years or less. Compensation would not change for homeowners who already had rooftop solar panels, for at least 20 years from when their system was installed.
The commission took a less drastic approach than it had proposed a year ago. In addition to reducing payments for excess power sent to the electric grid, the earlier proposal would have also imposed new monthly fees on the utility bills of rooftop solar homes.
