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Utilities’ newest solar battleground: California

California, the very heart of the rooftop solar panel industry, could be facing a major roadblock in the coming months, and its status as one of the most solar-friendly states in the country could change as a result.

SolarCraft workers Craig Powell (left) and Edwin Neal install solar panels on the roof of a home on Feb. 26, 2015, in San Rafael, California.
Getty Images
SolarCraft workers Craig Powell (left) and Edwin Neal install solar panels on the roof of a home on Feb. 26, 2015, in San Rafael, California.

The California Public Utilities Commission on Monday holds hearings that could result in changes to the way that solar panel users are reimbursed for the power they generate, improbably making the Golden State the newest front in a battle between power companies and rooftop solar firms. On one side are proponents of solar energy and the companies that make the panels, while arrayed against them are utilities that want policy changes that would result in solar power being less cost-effective for homeowners and businesses that want to use it.

The rooftop solar industry relies on a policy known as net metering. Homeowners with solar panels can take the excess power they generate and send it back into the electricity grid for compensation from the utility. If customers do not receive enough compensation to make the system pay for itself, solar becomes largely useless to those looking to save money.

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A bill passed in California two years ago called for reform of the rate structure in the state. Now, the California Public Utilities Commission is reconsidering the policy of net metering and accepting proposals on how it may be changed going forward. The solar industry claims that utilities are proposing changes that would ultimately do away with net metering altogether.

"What net metering looks like determines the economics of solar power," said Bernadette Del Chiaro, executive director of the California Solar Energy Industries Association, the leading solar industry organization in the state. "And we need to make the economics of solar more affordable."

Del Chiaro said that the national spotlight will be on her state over the next few months as the commission reviews and then votes on a final proposal. Although California has led the nation in terms of solar-friendly policies, the relatively young sun power industry cannot compete with the money and influence of the utilities, she said.

"They are going for the heart, which is California," she said. "If California's rooftop solar industry goes down, then the rest of the country will follow."

What's being proposed

The utilities — in California and elsewhere — argue that all utility customers who use the power grid should pay equally for its maintenance, because solar customers still rely on the infrastructure even though they are generating power themselves.

Rooftop solar advocates are wary of added charges and fees that would hit solar customers if these proposals are voted into law. And if customers are not being compensated for the power they send back to the grid, that makes the entire endeavor less economical and therefore less attractive, they argue.

"California is such a leader in solar that we take any proposal to eliminate it seriously," said Robert Harris, director of public policy at Sunrun, a California-based solar energy company, who added that the proposal "would be catastrophic if passed."

Harris pointed to a proposal from the Office of Ratepayer Advocates (ORA) that he claims could result in an additional $70 in fees for solar customers each month. The ORA is a state agency with a mandate to advocate on behalf of electric power customers.

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Its proposal seeks to keep net metering as is but does suggest fixed monthly charges based on how big a customer's solar system is. The bigger the system, the higher the monthly rate.

Mike Campbell is program manager at the ORA. He explained that whatever the monthly cost would be — it could be as low as $2 a month — that would be grandfathered in for the next 10 years.

"We are trying to balance the interest of California to continue to promote solar while taking into account the people without solar who are also bearing costs," he said.

Nearly 6,000 solar panels cover the rooftop of Metro's Central Maintenance Facility, which generates roughly one megawatt, or enough to power 1,000 homes.
Al Seib | L.A. Times | Getty Images
Nearly 6,000 solar panels cover the rooftop of Metro's Central Maintenance Facility, which generates roughly one megawatt, or enough to power 1,000 homes.

It's not only the utilities who have been submitting proposals — there are about 20 groups, including many pro-solar entities who have proposed plans to the commission.

The Alliance for Solar Choice proposes removing the cap on net metering altogether. Although there is a cap in California on the number of homes that can receive net metering credits, the Legislature has consistently raised it as the industry has grown. The plan also suggests increased payments to the state's public-purpose programs.

The public utilities commission, which will vote to adopt any one of these proposals, did not respond to CNBC's request for comment.

Pacific Gas & Electric, one of three utilities that have put proposals before the commission, wants an additional fee known as a demand charge for solar customers. That charge is related to how much power a home uses per month, and it can change based on how much "demand" a solar home places on the grid.

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PG&E's proposal also calls for "new compensation for the amount solar customers are credited when they deliver power back to the grid."

"PG&E's is proposing smart energy reform that will support the long term growth of rooftop solar as a vital resource for California. Solar is too important not to get right. We want to work together with everyone to keep solar growing in California. PG&E has been supporting solar's growth in California since 1993 and since then, we have connected over 185,000 solar customers to the electric grid," PG&E spokesperson Ellen Hayes told CNBC in an email.

Other utilities in California take a similar position. Southern California Edison's vice president of energy and environmental policy, Caroline Choi, told CNBC that its proposed changes would not hinder the growth of the rooftop solar industry.

"Today's rules shift costs to non-solar customers," said Choi, who added that Southern California Edison estimates that nonsolar utility customers will pay more than $16 billion of higher costs without changes to the existing rules. "Our proposal would reduce those costs to nonsolar customers to $2 billion — still a major cost but more fair," she said in an email.

Reaching a compromise

Andrew Campbell, executive director at the Energy Institute at Berkeley's Haas School of Business, said the most likely result of the final vote, expected sometime around the new year, will be some kind of compromise between the most extreme proposals.

"I couldn't have imagined these types of proposals getting any attention five years ago, but the solar industry has been so successful that there are real concerns about being fair to all customers," he said.

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Campbell said that it is important to note that even though solar customers use their own power, they still use and rely on the utilities' infrastructure. Therefore there should be a way to balance infrastructure costs for all customers, including those without solar.

"If the utilities proposals are adopted as is, it could have a very significant impact on residential rooftop solar," he added.