Electricity prices for people without solar panels are likely to increase in Nevada following Gov. Brian Sandoval’s decision to sign a bill that guarantees owners of rooftop solar systems will receive 95 percent of the retail rate for the electricity they sell back to the grid. The legislation reverses a measure enacted in 2015 that reduced the amount paid for this electricity to more closely reflect the wholesale cost.
While it is understandable that many people may perceive this as a positive development — because solar is often marketed as cleaner and more affordable than other energy sources — this legislation will negatively affect the average family and business owners.
While sunlight may be “free,” generating electricity from the sun is not. Solar is far more expensive than virtually all other sources of electricity. According to a study by the Brookings Institution, the cost of utility-scale solar power is three times more expensive than natural gas or coal-fired electricity, and rooftop solar is twice as expensive as utility-scale solar. This means it costs six times more to generate electricity from rooftop solar compared to traditional fuels such as coal or natural gas.
Why does this matter? Despite the reduction in the price of solar panels over the past several years, rooftop solar systems are still incapable of generating a positive return on investment without a 30 percent federal tax credit and state net-metering policies that force utility companies to pay these rooftop solar owners for their electricity at the retail rate instead of the wholesale rate.
This is why solar companies such as Vivint Solar, Tesla, and Sunrun stopped operating in the Silver State after the 2015 legislation was passed.
Compensating solar owners at the much-higher retail rate instead of the lower wholesale rate is problematic, because it means solar owners are not paying to maintain the power lines, transformers and other aspects of the grid that they rely on more than other electricity customers.
To make up for the tremendous benefits solar customers unfairly receive, utility companies must increase the cost of providing electricity to people who do not have solar systems installed on their property. This legislation allows solar customers to use the grid for free while everyone else must pay more than their fair share. That means this policy effectively serves as a subsidy to affluent homeowners, because they are the only ones who can afford the solar panels to begin with. Middle- and lower-income families end up getting stuck with the bill.
Solar advocates have countered that there is no discernable increase in rates for non-solar customers as a result of net-metering policies. They argue that when the number of homes with solar panels is small, the cost is easily spread across a large number of ratepayers. But this, according to solar advocates’ own stated goals, is an unsustainable situation. As renewable-energy becomes more popular over time, the costs it imposes on electricity ratepayers inevitably increases.
The recent electricity problems in Germany serve as an important cautionary tale. The German people were told the aggressive subsidies given to the wind and solar industries would cost the same as a scoop of ice cream, but since 2000, German households have seen their electricity bills double. In fact, Germans now pay residential electricity prices that are three times higher than those paid in the United States.
Sandoval erred in signing this bill. Solar customers should not get a free ride on the grid. Policies designed to reimburse solar customers for the electricity they feed into the grid should reflect wholesale prices to ensure that solar customers are paying their fair share. In this regard, Nevada’s new law is a step backward, not forward.
Isaac Orr (IOrr@heartland.org) is a research fellow specializing in energy and environmental policy at The Heartland Institute, a free-market think tank founded in 1984.