UC Berkeley Study: Utility Proposals Could “Throttle Demand for Rooftop Solar”, Make Decision to Go Solar More Difficult for Consumers

Berkeley - November 4, 2015 – A study by Professor Justin McCrary of the University of California, Berkeley, an economist with Berkeley Law and the National Bureau of Economic Research, found that proposals at the California Public Utilities Commission (CPUC) on the future of solar net metering by the state’s monopoly utilities and the CPUC’s Office of Ratepayer Advocates (ORA) would severely impede the adoption of rooftop solar in the state.

McCrary’s report, titled “Impacts of Rooftop Solar Adoption from Proposed Changes to California’s Net Metering Policy,” evaluated proposals from Pacific Gas & Electric, San Diego Gas & Electric, Southern California Edison, as well as the ORA according to principles of the economics of consumer decision-making.

“One of the main characteristics of the current [net metering] program is its simplicity: it is easy to understand that no matter how the energy produced by the solar system is used, it will result in a deduction on a consumer’s total bill,” the report said. “The proposed changes to California’s [net metering] program by the [utilities] and ORA will greatly increase the complexity of the decision that consumers face when considering rooftop solar adoption… In short, consumers will be discouraged from adopting by the sheer complexity of the choice they face.”

According to McCrary, the methodology used by CPUC staff to help evaluate different proposals does not account for consumer behaviors specific to an economic decision like going solar, including:

  • Discount rates and present orientation (consumers may undervalue the long-term benefits of rooftop solar);
  • Risk aversion given uncertainty;
  • Limited attention and bounded rationality (consumers have limited attention and capacities to perform complex calculations and trade-offs).

Given the long-term nature of the rooftop solar investment and the dynamics of consumer demand, McCrary recommends that the CPUC consider how any changes to the net metering tariff will affect the riskiness and complexity of the homeowner’s decision to install solar. In fact, he warns that policy uncertainty can have an outsize impact on such complex consumer decisions, and thus the CPUC must be cautious and measured in its decision. The study says that the CPUC should “move deliberately and incrementally in order to avoid fully and durably throttling consumer adoption of rooftop solar.”

The report compared the California utility proposals to new fees and rate structures for new rooftop solar adopters in Arizona’s second largest electric utility territory, Salt River Project (SRP). The changes adopted by that utility caused rooftop solar applications to collapse in its territory.