California will soon carry out its version of a solar feed-in-tariff. Up until now, the law of the land has been NET metering. That simply means when a homeowner invests in solar they can only zero, or net out their utility bill. Good deal for the utility company since up until now they have had access to free energy which they then sold to the solar homeowners neighbors. That is all about to change.
In 2011, California utilities will have to start paying homeowners for this extra generation solar electrical capacity at a rate to be determined by the California Public Utilities Commission as early as January 2011 reported by Emeter. The extra solar power production is recorded via net metering, one of the capabilities of smart meters. The “net surplus compensation” is required as part of the California Solar Surplus Bill, which was signed into law by Gov. Arnold Schwarzenegger and which took effect at the start of 2010.
Less than 10% of the state’s solar photovoltaic system owners are likely to be affected by this law. And in most cases, their solar compensation will be small. However, the response of homeowners may be vocal. This is because most will follow their intuition, believing that they are entitled to be paid for excess solar electrical generation at a rate equal to the retail price that they pay for the utility to give electricity to them not the wholesale price that utilities pay to conventional suppliers. Solar companies around California are sure to join in the conversation.
The wholesale rate for power runs about 5 cents per kWh, while the retail rate is more like 25 cents. This difference results from all the other things included in electricity rates including transmission, distribution, customer service, energy efficiency, and other programs.
Under the draft decision before the CPUC, the compensation for net surplus solar generation would be calculated by a formula that reflects short-term wholesale electricity prices. Because these prices vary hourly, the plan calls for averaging out 12 months of fluctuations. In 2009, the average price for was 5 cents per kWh for energy purchased between 7am and 5pm (typical hours for solar energy production in California).
The draft decision also calls for adding a payment to the wholesale electricity products price that reflects the cleaner-energy attributes of solar or other renewable generation. This amount is to be based on the average market price of renewable energy credits. These are not yet traded on a public market in California, but could be about 1-3 cents per kWh.
The CPUC’s hands are somewhat tied as it addresses this solar pricing issue. California law requires that net solar generators receive “just and reasonable” compensation; but also that this cannot affect other ratepayers. But here, other ratepayers are benefitting only through avoided purchases from the wholesale market hence the use of wholesale prices to set these rates.
A further wrinkle is the Federal Energy Regulatory Commission policy which equates excess residential solar generation with wholesale power. (FERC regulates the wholesale power market.) Such power can be compensated only at the avoided wholesale cost, with reasonable adjustments. Thus, the CPUC may factor in the cleaner-energy attributes of renewable generated solar electricity.
Of course, the higher the rate paid to homeowners who generate excess solar power, the more it will promote residential solar panel installations. Solar installers and homeowners throughout California will be glad to see this come on-line.