Pricing Solar Power Fairly

Too many to put on one roof, probably.

Photographer: Boris Horvat/AFP/Getty Images

Advocates of residential solar power see a technology that reduces carbon emissions and saves people money. Opponents see something that benefits only those homeowners with high credit scores and the right kind of rooftops, at the expense of everyone else.

Both sides are right. But it's possible to ensure that solar-power use keeps growing without any unwanted economic side effects. It just means assessing the costs solar is adding to the shared electrical grid.

QuickTake Solar Energy

Rooftop solar panels have grown ever more popular as their price has fallen. For each of the past three years, sales have increased at least 50 percent. Now, in the sunny states of Arizona and California, home solar-energy users make up about 4 percent of single-family detached homes, according to Bloomberg New Energy Finance.

That's not to say the panels are cheap, however. They cost about $20,000 on average to install -- down from $35,000 in 2011, but still an investment that most homeowners aren't willing to make on their own. So companies make the panels more affordable by financing and installing homeowners' solar panels for them.

Some companies, such as SolarCity, then lease them and sell the power back to the homeowner under a long-term contract. Homeowners can use the power to offset their electricity needs, and even sell the electricity they don't need back to the grid.

The trouble with this game is that it doesn't account for use of the electrical grid. As power companies are happy to remind customers, the grid isn't free. Only about two-thirds of the average electricity bill accounts for the power a customer uses. The rest reflects the cost of building and maintaining the wires and substations that deliver that power.

When solar customers buy less power from the grid, they also pay less toward grid costs -- even though they still use the grid like everyone else. Even during daylight hours, when they're not drawing power from it, they're sending their surplus power back to it. Because they pay less, some of their cost is shifted onto customers without solar panels -- typically, people with less money. So the revolution in residential solar becomes a regressive tax on energy, and one that increases as the market expands beyond niche status.

The goal should be to prevent solar freeloading but encourage the use of solar power. Many states have oversteered: Florida, for example, allows only utilities to sell power to retail consumers, which bars the leasing arrangements that have made residential solar systems affordable elsewhere. Four other states have similar blanket restrictions, including North Carolina and Georgia. Seven more have partial limits.

Other states simply overcharge solar households for selling power back to the grid. The Arizona Public Service Co. sought a $50 monthly surcharge; public pressure brought it down to $5. The Hawaii Electric Co., as detailed in a forthcoming issue of Bloomberg Markets magazine, wants to triple its minimum monthly bill to $55, plus an additional $16 for solar customers. The real cost is probably significantly less, depending on the state.

Monthly fees on solar customers can be a fair and simple solution, as long as they accurately reflect the true grid costs. Users can pay their fair share to make the rooftop-to-grid system run smoothly -- and still save money using solar power.

To contact the senior editor responsible for Bloomberg View’s editorials: David Shipley at davidshipley@bloomberg.net.