California-It was only two years ago that Elroy Holtmann spent about $20,000 on a home solar array to help cover the costs of charging his new electric car. With the savings on his monthly electric bills, he figured the investment would pay for itself in about a dozen years.

But then the utilities regulators changed the equation.

As a result, Pacific Gas & Electric recently did away with the rate schedule chosen by Holtmann, a retired electrical engineer, and many other solar customers in this part of California. The new schedule will make them pay much more for the electricity they draw from the grid in the evening, while paying those customers less for the excess power their solar panels send back to the grid on sunny summer days.

As a result, Holtmann’s solar setup may never pay for itself.

“They’ve taken any possibility for payback away,” he said with resignation, looking up at the roof of his 1970s ranch-style house in this suburb a short drive east of Berkeley.

The paradox is playing out around the country. Even as policy makers at the federal and state levels promote clean energy to fight global warming, the economics of electricity can often be at odds with those goals.

Thrust in the middle are utility regulators. Even if they support greening the grid through technology adopters like Holtmann, the regulators are also responsible for ensuring that the utilities can afford to supply power to the largest number of customers at the most equitable rates. That includes people without the money or inclination to install solar collectors.

“The grid is no longer just a cheap way to get electrical commodities to people,” said
Michael Picker, president of the California Public Utilities Commission. “People want choices, they want customized services,” he said. “And how do you make that fair to everybody, because not everybody is moving as adopters at the same pace?”

Similar dynamics are playing out in some parts of Europe, including Spain and Britain, as public officials push for green energy to justify its costs.

For more than a century in the United States, the public utility rate system assumed a one-way flow of electricity from central power plants to their customers. The role of utility regulators was to adjudicate reasonable rates for the consumer, while allowing an adequate rate of return on the money power companies spent generating and distributing the electricity.

But now, even though rooftop solar energy still accounts for less than half of a percent of the energy generated across the country, its growing popularity is challenging regulators and utilities to rethink their old ways.

Last year, Nevada and Hawaii moved to end retail-rate credits awarded to solar owners for energy sent back into the grid.

In Arizona, a utility won the right to make solar customers pay mandatory monthly fees called demand charges, which have been common among large commercial and industrial customers but unusual for residential consumers. Utilities in several states are now seeking to follow that path.

During the first quarter of this year alone, at least 10 states were weighing or approving rate design measures that could undermine the economic appeal of home solar systems, according to data compiled by the North Carolina Clean Energy Technology Center.

The challenge is to design a new kind of rate system – one that accurately values electricity that can now flow in different directions and at different volumes at different times of day. It can also, depending on the location and level of demand, either increase or relieve strain on the grid.

“This is really about a revolution in the relationship between utilities and customers,” said
Adam Browning, executive director of Vote Solar, a policy and advocacy group based in California. “It’s not just going to be about solar, but solar is forcing the regulatory construct to accommodate this.”

Energy experts predict a bumpy transition.

“Rate design done without a bigger-picture context in mind can absolutely have a chilling effect on the growth of clean energy and consumer-driven clean-energy resources,” said
Sara Baldwin Auck, regulatory program director at the Interstate Renewable Energy Council, a nonprofit policy group that supports clean energy.

Nowhere has the rate wrangling been more urgent than in California, the nation’s leading solar market and home to more than half of its residential rooftop solar customers.

In 2001, in response to soaring prices, electricity shortages and financial instability among the utilities, California lawmakers approved a multi-tier residential rate structure meant to encourage customers to use less power, with the largest consumers paying the highest rates.

But regulators also froze rates in the two lowest-priced tiers, covering a majority of residential users, to shield those customers from rapidly rising energy costs. That meant the brunt of utility costs were borne by the higher-use groups.

Many high-use residential customers who could afford to install solar did so. That resulted in an even smaller customer base shouldering the heaviest burden. By 2014, customers in the top tier in PG&E’s territory were being charged as much as 36.4 cents a kilowatt-hour – nearly triple the amount paid by those in the lowest tier.

Holtmann was occasionally among the highest users during the summer, so he was happy to save money, while doing something to reduce harm to the environment.

Not long after moving into his house in 1973, he installed a solar water heater. The first set of solar panels went on the roof around 2008. That slashed his annual electric bill to $78 from about $1,300. But the bill shot up again after he bought the new car, a Chevy Volt electric hybrid, so he bought a second set of panels in 2014.

The rate schedule Holtmann chose was based on PG&E’s longstanding assumption that the highest demand for the utility’s electricity was occurring between noon and 6 p.m. But now, because there is so much solar energy pouring into the grid from morning through late afternoon, the utility’s peak demand comes closer to the evening, when the solar supply drops sharply as the sun sets.

Thus the new rate schedules. The idea, said
Donald C. Cutler, a PG&E spokesman, is to spur the use of electricity “when it’s more efficient and more economical to deliver it.”

So in May, as part of a multiyear rate redesign, regulators retired the schedule that had appealed to Holtmann and many other solar customers.

The new rate plan shifted the peak times to later in the day – either 3 to 8 p.m., or 4 to 9 p.m. – when solar arrays are much less productive.

That change provoked so many customer complaints that the California Public Utilities Commission directed PG&E to delay it. As a result, customers like Holtmann can move to a schedule whose peak is nominally more solar-compatible – 1 to 7 p.m. – but only until 2022. After that, they will be required to shift again.

 

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