California Utilities Say Solar Raises Costs for Non-Users

Booming rooftop solar installations in California are bringing an unwelcome surprise to the homes and businesses that don’t have the devices: an extra $1.3 billion added to their annual bills.

Power companies in the biggest U.S. solar state are required to buy electricity from home solar generators at the same price they resell it to other customers, meaning utilities earn nothing to cover their fixed costs. The rules are short- sighted because eventually rates must be raised to make up the difference, according to Southern California Edison, which has joined with competitors to estimate potential losses.

As more homes and warehouses get covered in solar panels, higher rates imposed on traditional consumers risk a growing conflict between renewable-energy advocates and power companies that foresee a backlash in California and 42 other states with similar policies. The tension has also emerged in countries including Spain and Germany, where solar investments are curbing investment in the power grid.

“You get into a situation where you have a transmission and distribution system with nobody paying for it,” said Akbar Jazayeri, vice president of regulatory operations at Edison, a unit of Edison International (EIX) and California’s second-largest electric utility.

To deter losses as solar abounds, states typically set a cap on the amount of photovoltaic power utilities must buy under so-called net-metering policies. Those allow a meter to run backward during the hours a day when a home or business is selling the power to the utility. California’s limit is 5 percent of a utility’s aggregate peak load.

New Customers

About 20,000 customers of San Diego Gas & Electric had connected 146 megawatts of solar panels to its grid as of Nov. 1, accounting for 1.2 percent of its peak load. The company is adding 409 new net-metering customers a month, said Stephanie Donovan, a spokeswoman for the state’s third-largest utility.

SDG&E currently can’t collect about $18 million to $20 million a year in grid costs from customers with rooftop solar panels, according to Dan Skopec, vice president of regulatory affairs for San Diego-based Sempra Energy (SRE), the utility’s owner.

The utility will be shifting about $200 million in annual costs to customers without panels when the state reaches its cap, Skopec said in an interview. Solar customers “avoid charges, not just for energy, but also the costs of the transmission and distribution system,” he said. “That’s why we say it is not sustainable.”

Passing Costs

Southern California Edison will transfer about $400 million in annual costs to people without solar systems when the state hits the cap, David Song, a spokesman, said in an interview. PG&E Corp. (PCG)’s Pacific Gas & Electric, the state’s biggest utility, will pass on about $700 million a year, according to Denny Boyles, a spokesman, for a total of $1.3 billion from the three utilities.

That’s about 3.9 percent of the $33.5 billion spent on electricity in 2010 in California, based on the latest figures available from the U.S. Energy Department.

“The problem exacerbates with each new system that goes on a roof,” Mark Bachman, an analyst at Boston-based Avian Securities Inc., said in an interview. “Utilities will need to get reimbursed for their grid costs by a shrinking number of consumers.”

California utility customers installed 245 megawatts of solar panels in 2011 and have already added more than 315 megawatts this year, according to the California Solar Initiative, a state program to encourage rooftop energy systems.

Solar Growth

Installations of U.S. residential and commercial solar systems totaled about 1,050 megawatts in the first three quarters of the year, according to the Solar Energy Industries Association, compared with about 1,100 for all of 2011.

SolarCity Corp. (SCTY), which installs and owns rooftop solar systems, has gained 49 percent since its Dec. 12 initial public offering. The San Mateo, California-based company has built solar power systems on more than 45,000 U.S. building, and its home state is its largest market, according to its website.

Growing demand for rooftop solar has been driven, in part, by net metering, said Eran Mahrer, vice president of utility strategy at the Washington-based Solar Electric Power Association.

The policy “has been the most important tool,” he said in an interview. “There’s a lot of debate about what is fair. The caps provide a checkpoint where regulators and utilities can stop and revisit the effects.”

Raising Caps

The growth is also driving efforts to raise net-metering caps. California revised the way it calculates its limit in May, effectively doubling to about 5 gigawatts the amount of solar energy that state utilities will eventually be required purchase.

California utilities oppose efforts to expand net-metering programs. Solar customers, who typically sell power to the grid when the sun is shining and use the income to offset charges for using electricity at night or on cloudy days, “are just using our system as a storage device,” said Jazayeri. “They should pay something for that service.”

So far, regulators haven’t been sympathetic to utilities’ complaints about rooftop solar power. The California Public Utilities Commission rejected in January San Diego Gas’s request to impose a “network use charge” that would have added a fee to customers with rooftop solar panels.

Easing Stress

And solar developers say rooftop systems actually benefit the power grid by providing power during the hottest parts of the day. That eases stress on wires and transformers and helps utilities defer maintenance and upgrades, said Todd Pedersen, chief executive officer of Blackstone Group LP’s Vivint Inc., which installs residential solar.

“We need an honest cost-benefit analysis of adding distributed solar to the grid,” Pedersen said in an interview in New York. “It’s in everyone’s interest to resolve this now because I see no signs of slowing as solar becomes cheaper than the utilities in most states.”

In New Jersey, the second-largest solar state, utilities had connected 689 megawatts of net-metered solar power to the grid as of Aug. 31, about 3.6 percent of the state’s 19,000 megawatts of peak demand.

That exceeds the state’s 2.5 percent limit, so regulators may now authorize utilities to stop accepting requests for grid connections. They haven’t yet, partly because New Jersey power companies are required to get 4.1 percent of their electricity from sunlight in 2027 and promoting rooftop solar through net- metering programs will help them reach that goal even if it reduces revenue, the agency said in an e-mail.

German Backlash

People in other countries are protesting higher rates stemming from net-metering programs. In Germany, the world’s largest market, Chancellor Angela Merkel is facing a backlash against higher power bills related to renewable energy. Grid fees will boost household bills an average of 10 percent next year, according to industry analyst Verivox.

Permitting net-metering programs to grow indefinitely is “not sustainable,” said California State Assemblyman Steven Bradford, who represents Los Angeles. He wrote legislation that was approved in August requiring the state to conduct a detailed study on the economic impact of rooftop panels before making any additional changes to the cap. He expects the study to show net metering has a negative impact on utilities and customers who don’t have solar systems.

“You can’t purchase wholesale power at retail prices and not affect your bottom line,” Bradford said in an interview. “Utilities are seeing it already.”

He said rooftop solar is becoming a significant burden to both utilities and consumers, especially the poor who can’t install panels. “Additional costs -- and we’re talking about $1 billion in the aggregate -- will disproportionately hit people on fixed incomes.”

To contact the reporters on this story: Christopher Martin in New York at cmartin11@bloomberg.net; Mark Chediak in San Francisco at mchediak@bloomberg.net

To contact the editor responsible for this story: Reed Landberg at landberg@bloomberg.net

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