California’s rooftop solar is a benefit, not a cost, to the state

For years, California utilities, regulators, and consumer advocates have argued that residents with solar panels on their rooftops are making electricity more expensive for everyone else in the state.

In August, a state agency released the latest report detailing this so-called cost shift caused by the rooftop solar industry. The report claimed that in 2024 alone rooftop solar will impose $8.5 billion in extra costs onto customers of Pacific Gas & Electric, Southern California Edison, and San Diego Gas & Electric, the state’s three major utilities.

But a new analysis commissioned by a residential solar trade group finds just the opposite — that California’s nation-leading 17 gigawatts of rooftop solar have actually saved customers about $2.3 billion on their utility bills this year.

“We started with an $8.5 billion ​‘cost shift,’” said Richard McCann, a founding partner at M.Cubed Consulting, the energy and environmental analysis and consulting firm that conducted the study. ​“We went through the steps to correct this, and came up with a $2.3 billion net benefit in 2024, when you go through and change some key principles and make some key corrections.” 

Utilities across the country have used this same cost-shift argument to fight various state-level policies that benefit rooftop solar. The aim is typically to water down or roll back net-metering programs, which pay customers for the power their rooftop solar systems send back to the grid.

Rooftop solar supporters dispute the cost-shift argument, which originated from the Edison Electric Institute (EEI), a trade group representing U.S. electric utilities. They say it not only fails to account for the various economic and environmental benefits that rooftop solar provides, but has too often been backed by misleading or flat-out false data from utilities and their allies.

The August analysis from the Public Advocates Office (PAO), the branch of the California Public Utilities Commission (CPUC) that is tasked with protecting utility customers, is especially reliant on faulty math, McCann said.

Despite these criticisms, California policymakers have used the cost-shift argument as the justification for their three-year push to erode the economics of rooftop solar, which they blame for the state’s fast-rising utility rates.

In California, regulators have ​“taken EEI’s cost-shift narrative, cooked up so long ago, and taken it all the way home,” said Bernadette Del Chiaro, executive director of the California Solar and Storage Association, the group that paid for the M.Cubed analysis.

She’s referring to the CPUC’s December 2022 decision to significantly reduce compensation of solar power exported to the grid for customers of the state’s three major utilities. Since that change went into effect in April 2023, solar installations have plummeted and many California rooftop solar companies have lost business, laid off workers, or closed shop.

The cost shift argument has also been used by the CPUC to justify slashing compensation for shared solar systems for schools, farms, businesses, and multifamily properties. Utilities and utility worker unions cited it to successfully lobby against bills this legislative session that would have restored some of those lost solar values. California Gov. Gavin Newsom, a Democrat, vetoed the sole bill in that category that did pass, which would have helped public schools afford solar systems. His reason? It would ​“increase the amount that most customers would pay for their own electric service,” per his veto statement.

“The Commission and the Public Advocates Office and the governor’s office have been on this steady path of continuing to disparage rooftop solar, and then hurt it through policy,” Del Chiaro said. ​“This August fact sheet” from the PAO ​“is the latest craziness on this point.”

PAO declined to comment on the M.Cubed findings or to respond to detailed questions from Canary Media regarding M.Cubed’s critiques of the August cost-shift analysis. PAO ​“can’t offer comment on a report we haven’t seen,” Matthew Marcus, PAO’s legislative director, told Canary Media in an email.

Breaking down the math on California rooftop solar costs and benefits

Much of the debate over rooftop solar has hinged on fair rates of compensation for the energy that solar customers export back to the grid in exchange for bill credits. This system is generally known as net metering.

Utilities must cover their capital and operating costs through the money they collect from customers. If some customers pay less because they offset their bills by selling solar back to the grid, utilities will ask regulators for permission to raise rates on customers at large to come up with the funds to make necessary grid investments.

The cost-shift argument says that California is overpaying for rooftop solar. The result, utilities say, is that rooftop solar owners are not paying their fair share to help maintain and expand the grid — and are in fact driving costs up for those who don’t want or can’t afford their own solar.

But PAO’s accounting assumes that the electricity customers use from their own solar panels should be counted as a cost to all other utility customers, rather than a fair use of the panels those customers paid to install on their roofs. That assumption adds up to nearly $4 billion of PAO’s cost-shift estimate.

In other words, PAO is ​“assuming the customer is obligated to pay the corporate utility the retail rate” for the power customers generate and use themselves — ​“and anything they do otherwise is stealing,” McCann said.

In terms of assessing who owes whom, that’s little different from saying that a customer who uses less electricity by insulating their home or switching to more efficient appliances owes the utility money for the electricity they’re no longer consuming, he said.

“If you’re growing vegetables in your garden, you don’t pay the grocery store the retail rate for those vegetables,” he said. ​“You own those vegetables — and you own the solar you generate.”

PAO’s calculations also ignore the reality that solar-equipped customers still pay utility bills, McCann said. His review of PAO’s work indicates that its cost-shift calculations fail to include the average of $80 to $160 per month that solar-equipped customers pay to the state’s three big utilities. Including that amount shaves another $1.4 billion off the PAO’s total.

Nor does PAO calculate the value of rooftop solar for low-income customers using special-assistance rates, he said. The lower rates for these California Alternate Rates for Energy (CARE) customers, whose annual earnings are at or below the federal poverty level, are subsidized by additional surcharges on all other utility customers’ bills. Not having to collect that money for the solar power those CARE customers generated themselves will save about $720 million in 2024, he said.

PAO’s analysis also contains some fundamental errors in calculating the true average costs of electricity paid by customers of the state’s three major utilities, McCann said.

For example, about $2.46 billion of the PAO’s $8.5 billion total is derived from assuming that solar-equipped customers are being charged significantly more than the true average rates they pay, and that their solar panels are generating more power on average than what official state-distributed generation data shows. That inflates PAO’s valuation of how much money those customers are saving from not using utility power.

How distributed solar can make the grid cheaper for everyone 

One of the most glaring errors in PAO’s analysis is that it fails to account for how the state’s enormous rooftop solar resource has reduced the amount that utilities would have needed to spend on purchasing energy and building out their grids, McCann said.

That’s an important point, because utility cost-shift arguments are inextricably tied to the idea that solar-equipped customers aren’t paying their fair share for the power grids, power plants, and purchased energy that are bundled into utility costs.

McCann’s analysis finds that since California launched its Million Solar Roofs initiative in 2006, distributed solar has displaced about 15,000 megawatts of peak load compared with state forecasts from that time. Peak load — the maximum amount of power needed to serve every customer on the grid — is a key determinant of how much utilities have to spend on their power grids and on purchasing expensive peak energy resources.

Utilities in California earn back the cost of the energy they purchase — and earn a guaranteed rate of profit on the capital investments they make — through the rates they charge their customers. Many of those costs are spread out for years or even decades after they’re incurred, which means that money saved in not buying energy or building grid infrastructure years ago translates into lower rates today.

McCann’s analysis found that this rooftop solar cost reduction adds up to $2.17 billion in 2024. That final benefit pushes the calculation for rooftop solar firmly out of the realm of extra costs for utility customers at large, and into the realm of net benefits for all customers.

To be clear, these benefits are backward-looking, he said. Since 2006, the peak loads on California’s grid, which are largely driven by air-conditioning use during heatwaves, have shifted from the midafternoon into later in the evening, which is when California has faced its most significant grid emergencies in the past few years.

In the years to come, California needs more batteries to soak up its ample solar resource to meet the state’s new evening peaks. That’s why the state’s new rooftop solar policy rewards customers who add batteries — although rooftop solar groups fear that those rewards aren’t rich enough to balance out the cuts made to the old net-metering rules.

But rooftop solar should still be credited for having helped reduce the grid costs from 2006 to today, McCann said. And state agencies shouldn’t use faulty estimates of past costs to undermine Californians’ ability to buy solar panels and batteries to save money and help combat climate change in future years.

A growing body of research indicates that distributed solar and batteries play a vital cost-cutting role in achieving a clean grid, compared with relying solely on large-scale solar and wind farms alone. Rooftop solar can also help people afford the electric vehicles and electric heating needed to cut carbon emissions from transportation and buildings — especially in California, where utility rates make electrification a tougher proposition.

Del Chiaro said M.Cubed’s new findings are yet more evidence that California policymakers and regulators need to push back harder against the utility-led cost-shift argument.

“They’ve gotten themselves into this weird mindset that all of the electrons” that solar-equipped customers are ​“generating and sharing with their neighbors are the property of the utility,” she said.

But the past two decades of rooftop solar growth show that ​“if we give customers a little bit of a boost, they’re going to meet us more than halfway with their investments,” she said.