How California Broke Its Electricity Bills

Rooftop solar is four times more expensive in America than it is in other countries. It’s also good for the climate. Should we even care about its high cost?

Yes, says Severin Borenstein, an economist and the director of the Energy Policy Institute at the University of California, Berkeley’s Haas School of Business. In a recent blog post, he argued that the high cost of rooftop solar will shift nearly $4 billion onto the bills of low- and middle-income Californians who don’t have rooftop solar. Similar forces could soon spread the cost-shift problem across the country.

On this week’s episode of Shift Key, Rob and Jesse talk with Borenstein about who pays for rooftop solar, why power bills are going up everywhere, and about whether the government should take over electric utilities. Shift Key is hosted by Robinson Meyer, the founding executive editor of Heatmap, and Jesse Jenkins, a professor of energy systems engineering at Princeton University.

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Here is an excerpt from our conversation:

Severin Borenstein: Let me start by saying, there are two big problems with the way we do this. One is the equity issue, which I’m sure we’ll get back to, which is that it turns out this extra money, when you get it by charging people for kilowatt-hours, takes a disproportionate share of the income from low-income people.

The other is, when you set a price for electricity that is way above the actual cost of providing that electricity, it’s going to discourage people from electrifying things. Now, it’s also going to discourage people from just using more electricity, and people who love conservation say, well, we should have higher rates to encourage conservation. I think that’s misguided beyond some point, and we are way beyond that point in many areas.

But setting that aside for a moment, we need people to electrify. If we’re going to reduce greenhouse gases, the way we’re going to electrify [...] is by people switching to electric transportation instead of burning gasoline, and people switching to electrification for heating, hot-water heating, cooking, clothes drying, all the things where you have a choice of using natural gas. In both of those cases, if you overcharge for electricity, you are discouraging people from doing that sort of electrification.

I will give you the extreme example — again, in California. Right now, even with California’s well known very high gasoline prices, gasoline and electricity are about at parity. That is, you don’t save money fueling your car with electricity. If you compare a Prius to a Tesla Model 3, which are about the same interior size, you don’t save money when you switch to a Tesla Model 3, for fueling. That’s nuts. You should be saving three-quarters of the cost of fueling by switching to electricity.

Likewise, when we start talking about heat pumps, now, there’s one other aspect of this which is often not appreciated. Not only are we overcharging for electricity, we are undercharging for gasoline. So even with all the taxes — and I’ve done a bunch of work on this — if you look at the price of gasoline almost everywhere in the country ... Actually, if you believe the social cost of carbon is over $100 a ton, everywhere in the country, gasoline is underpriced. We’re not charging enough to reflect the full cost.

So it’s even worse than just the overpricing of electricity. We’re really putting our thumb on the scale in the wrong direction when it comes to getting people to electrify transportation. And it’s also true with natural gas, though to a lesser extent. If we’re going to consider the social cost of carbon over $100 a ton, natural gas is also underpriced pretty much everywhere in the country.

So we want people to adopt heat pumps. We want people to put in heat pump water heaters. But we’re really sending economic signals to tell them not to.

This episode of Shift Key is sponsored by…

Watershed’s climate data engine helps companies measure and reduce their emissions, turning the data they already have into an audit-ready carbon footprint backed by the latest climate science. Get the sustainability data you need in weeks, not months. Learn more at watershed.com.

As a global leader in PV and ESS solutions, Sungrow invests heavily in research and development, constantly pushing the boundaries of solar and battery inverter technology. Discover why Sungrow is the essential component of the clean energy transition by visiting sungrowpower.com.

Music for Shift Key is by Adam Kromelow.