Tweaks to rooftop-solar program irk industry execs

Critics say new rates for metering program would deter home solar installations

It's been a banner year for solar energy in Palo Alto, with the city signing new long-term contracts for its supply of solar-powered electricity and newly installed panels gleaming from rooftops at residential and commercial buildings throughout the city.

Despite this progress, the city took some heat this week from the solar industry, with several executives warning that a proposal to change a popular program would abruptly halt the recent progress.

The controversy surrounds Palo Alto's "net energy metering" program, which allows residents with solar panels to save the energy they produce, according to John Abendschein, resource planner at the Utilities Department. Under the current program, customers bank the electricity they generate during hours of low consumption (say, when they are at work or in the middle of the afternoon) and then use it during high-consumption hours (after work). The program also comes with a 12-month "carryover period," the amount of time customers can save excess electricity. This is particularly helpful in banking energy produced in the summer for use in the winter, for instance.

The program was created to meet a state requirement, which calls for all utilities to establish net-energy-metering programs up to a certain limit: 5 percent of peak load. In Palo Alto's case, the cap on this resident-produced energy is 9.5 megawatts, according to the Utilities Department. The city is expected to reach this threshold later this year, Abendschein said.

Once that happens, new customers who wish to participate in the city's net-energy-metering program would be subject to a new set of rules (existing customers would be exempt). That's where there's disagreement.

According to the Utilities Department's new proposal, which the City Council approved Monday night, new customers would not be allowed to bank energy for a year; instead, the energy they don't use daily would be sold to the city for 7.5 cents per kilowatt -- roughly the rate the city pays for its solar energy.

Utilities Department officials said the price is both fair and generous and factors in the many benefits of solar energy that's generated locally. This includes reduced transmission costs, less energy loss during the distribution process and less of a need for the city to purchase credits, called renewable-energy certificates, to make up for its purchases of electricity from non-renewable sources.

"This is a higher rate than is proposed in any other community around the state," Abendschein told the council Monday.

Even so, participation in the net metering program is expected to become less lucrative. A customer who uses 12,184 kilowatts per year (roughly twice the average consumption) and relies on a solar system for half of that currently sees his annual bill drop from $1,825 (without solar) to $820 (with solar). Under the new program, the same customer would see the bill drop to $1,042 with solar.

Measured in terms of how long it would take for a resident to pay off the purchase of the home solar system, the new program would be less beneficial for those who get most of their electricity from a solar installation. For those who generate about 30 percent of their load through solar, the payback period for installing the system is expected to remain at about 11 years, much like it is today. For those who get 100 percent of their load from solar, the payback period is expected to increase from about 14 years under the current program to about 16 years under the new rates, which are known in the industry as "successor rates."

For some solar executives, the lower savings and the longer payback period present a problem. Carter Lavin, membership coordinator at the Solar Energy Industries Association, pointed to these factors as he urged the council to reject the new rates.

"Our stance is that this program, as currently proposed, would decimate solar development in Palo Alto," Lavin said.

Like others, he argued that the 7.5-cent rate that the city proposed falls short of the value that local solar provides.

"I think if we are to all get together, sharpen our pencils and work our way to something more comprehensive, we'd recognize that the wholesale rate of 7.5 cents is a tip of the iceberg -- but solar provides a great deal more value," Lavin said.

Gary Gerber, founder of the Berkeley company Sun Light and Power, noted that Palo Alto's already low electricity rates (which are more than 30 percent below PG&E's) make solar installations a tough sell. Making solar even less attractive through new rates, he argued, "is just going to drive solar out of the city."

These arguments did not sway the council, which voted 8-0 (with Eric Filseth absent) to adopt the successor rates. Vice Mayor Greg Scharff noted that all the speakers who challenged the rates are members of the solar industry who have a vested financial interest in opposing the changes. He also observed that there is absolutely no opposition to the new rates from Palo Alto's customers. More than 800 participate in the net-energy-metering program.

The council also recognized that it is facing some limitations in how much the city can pay for locally generated solar energy. Proposition 26, which was passed in 2010, restricts local electric rates to the cost of providing the service. Because local utilities are funded by its customers, the restriction effectively bars the city from overpaying for locally generated solar.

The council agreed that the staff proposal balances the state requirements with the city's desire to promote solar. Yet in a nod to the solar industry, the council also agreed to resume this discussion after the net-metering cap is reached and to consider possible changes that could be made to spur residents to install solar panels.


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27 people like this
Posted by Worried
a resident of Midtown
on Aug 26, 2016 at 1:06 pm

Worried is a registered user.

We have previously had very bad luck with Chinese-made solar panels ruling a new roof. We had them removed and then had to repair the roof damage they caused. That was the first count against solar for us.

The second count is this: PG&E, whom I believe sells electricity to CPAUD, has instated large monthly fees to make up for the money lost when a customer installs solar panels. They have recently stated that there are no laws in effect that force them to reimburse customers for unused electricity-- as they hinted that they would like to cease this practice.

My question is, will the CPAUD pass all of this on to its customers who install solar panels? And cease to give reimbursements when that meter runs backward?

17 people like this
Posted by Me
a resident of Old Palo Alto
on Aug 27, 2016 at 3:59 pm

Utilities like CPAU are in trouble - just waiting for the cost curve of solutions like Tesla's Powerwall to allow people to leave the electrical grid.

So of course CPAU is trying to preserve its existence. But I thought since this is a municipal utility, should it be done for the benefit of Palo Alto residents or its organization?

If we are trying to be green as a city, why is CPAU trying to hinder that? Oh right. Just another example of why government run organizations exist to preserve their existence - and employees - rather than serve the public.

14 people like this
Posted by gutbug
a resident of Community Center
on Aug 29, 2016 at 1:57 pm

gutbug is a registered user.

"Vice Mayor Greg Scharff noted that all the speakers who challenged the rates are members of the solar industry who have a vested financial interest in opposing the changes. He also observed that there is absolutely no opposition to the new rates from Palo Alto's customers. More than 800 participate in the net-energy-metering program."
I am signed up for net metering but I did not receive any notification of the proposed rate change or this meeting. So obviously on the solar execs who have staff and a stake in the outcome showed up. This change applies to new applicants and not to those who are already signed up. So who is going to lobby against it. Who represents the interests of the those who will get solar in the future? Obviously only the solar execs who want to sell their product.
Bottomline: Does the City want its residents to go for solar panels? If yes, then don't set up a system that does not reward them. Does the city want to get green energy during peak hours (afternoon) and want its customers to charge their Teslas at night? Then don't create perverse incentives that result in the opposite.

5 people like this
Posted by DOUG
a resident of another community
on Aug 29, 2016 at 4:42 pm

@Worried, CPAU does not purchase any energy from PG&E. It is an independent utility that purchases all of its electric supplies from its own diverse set of wholesale suppliers.

And regarding your concern that CPAU will "cease to give reimbursements when that meter runs backward," that's not possible -- net metering is required by state law.

3 people like this
Posted by DOUG
a resident of another community
on Aug 29, 2016 at 4:47 pm

@Me, CPAU isn't trying to "hinder" anyone from going solar. It's merely trying to limit the current (exorbitant) level of subsidies provided by its non-solar customers (the vast majority of its customers) to its solar customers (a small, fairly wealthy minority of its customers).

I support renewable energy, too. The issue is how do you support renewable energy in a way that is equitable to all customers -- which, as Gennady correctly points out in the article, is required by state law (Prop 26).

15 people like this
Posted by Bob
a resident of Palo Verde
on Aug 29, 2016 at 6:02 pm

How does the City of Palo Alto subsidize solar?

The current residential electricity rate is $0.11029 per kWh, with net metering they buy back solar power for $0.0721 .

How is this a subsidy?

2 people like this
Posted by DOUG
a resident of another community
on Aug 30, 2016 at 9:53 am


The net metering buy-back rate of $0.0721/kWh applies only to *excess* electricity a customer generates, above and beyond their total annual electricity consumption. Typical solar customers, who size their solar system appropriately, will never see that buy-back rate. The electricity they generate offsets their consumption, so they're effectively compensated for their generation at the full retail rate.

The retail rate is designed to cover two different types of costs: (1) a volumetric commodity cost that CPAU incurs for purchasing electricity supplies, and (2) the fixed costs of operating and maintaining CPAU's distribution system. Solar customers who generate more power than they consume during the day and then draw power from CPAU at night are obviously relying on CPAU's distribution system. But if their solar system generates as much power as they consume over the course of the year, they are not going to pay anything toward the operation and maintenance of the distribution system.

This is the subsidy that net metering customers receive (from non-solar customers). The value of the electricity they generate is approximately $0.0721/kWh, yet for all the electricity they generate up to their total annual consumption they're being compensated at a rate of $0.11029/kWh.

5 people like this
Posted by Albert K Henning
a resident of Duveneck/St. Francis
on Sep 9, 2016 at 1:19 pm

This is the letter I sent to the Council on this issue:

Albert K Henning (
Aug 22 at 10:18 PM

Dear Council Members,

Regarding the proposed NEM rate and related issues, which were to have been continued to be discussed Monday evening:

The proposed rate of less than 8 cents per kilowatt-hour fails to consider the capital costs avoided by CPAU for new energy generation.

The rate also fails to consider that most excess energy generated will occur at times when demand is at a peak. In other words, savings to CPAU (avoided high marginal rates) are also not taken into account.

Residential generators of solar PV energy take the risks, while CPAU (and the City, through the 10% ROI transfer back to the City from CPAU) reap undeserved benefits. CPAU and the City have an intrinsic motivation to keep the net metering rate for residential generators, after the cap is exceeded, at artificially low values.

The long-term result will encourage residents to build solar PV systems which are completely decoupled from the grid. As with garbage services -- where lower trash volumes lead ironically and counter-productively to higher service rates -- discouragements (such as the proposed rate) to residential solar PV investment will lead to fewer residential customers, lower demand for energy from CPAU, and ironically higher electric rates as the fixed overhead costs are distributed over fewer customers.

The City should encourage more, not less, residential investment in solar PV energy generation which is also coupled to the grid. The proposed net metering rate fails to accomplish this goal.


Albert K. Henning, PhD
199 Heather Lane
Palo Alto, CA 94303

1 person likes this
Posted by Anonymous
a resident of Another Palo Alto neighborhood
on Sep 10, 2016 at 8:20 pm

@Mr Henning. Ten years ago solar produced during an expensive time of day. Ironically with all the success of solar, electric spot prices when the sun is out in the afternoon are relatively low. If you can time shift your system to generate more at 7pm on hot days that would be a real help!

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