Complete Society

Ideas and strategies for a sustainable world

CA Energy Bills Part 1: AB920

Two particular bills, AB920 & SB32, signed by Governor Schwarzenegger on Oct 11, 2009 have received a lot of attention recently for how they change the incentives in California to produce energy from renewable sources. Being steeped in this topic for the last 6 months as co-founder of the FIT Coalition, I am seeing that unfortunately, much of the reporting on these bills has been confused and inaccurate.

People have been throwing around the term “feed-in-tariff” with respect to both bills. If you think very broadly as a FIT being any system for selling energy back to the utility company, then sure, the term applies. But, there are many different ways to implement such systems and just as many meanings for a FIT.

This means that you can’t really liken the world’s most successful FIT, the German one, to AB920, but you can make a more direct compare/contrast to SB32. I’ll try to provide the important details of each bill and likely effects below but note that I’ve been focusing on FITs, not net metering, so while I’ve read and analyzed AB920, I’m not an expert on its likely impacts. (This post is about AB920. Part 2 will be about SB32)

AB920 – Net Metering excess
In simplest terms, basic Net Metering allows a property owner to “zero out” their electricity bill over a 12-month period. Any energy your solar system produces beyond what you use in a particular month gets credited to your bills in other months. So, for example, in the summer, your solar system produces more energy than you use. Then in the winter, you use more than you system produces. The excess production from the summer offsets the energy you took from the grid in the winter.

This program complements the California Solar Initiative. The CSI gives rebates to people who install solar systems based on the size of the system. Basically, Net Metering alone wasn’t enough to get people to install solar because it was still too expensive. So, the CSI brought the cost down and has been pretty successful in getting a lot of people to install.

Two of the problems that have remained with Net Metering:

  1. Larger solar systems have better economies of scale but even if you have space for a big system, there’s no incentive to do this when you can’t get any money for the energy you produce beyond zero-ing out your bill.
  2. Once you have a system, there’s no incentive to become more energy efficient, again because you can’t get compensated for the extra energy your solar system produces.

AB920 was targeted at solving these issues. In the simplest terms, now the utility has to pay you for all the energy that you produce after zero-ing your bill. It’s important to know that the rate the utility pays you will not be your typical electricity rate that you pay for energy. On your bill, you pay the *retail rate*, whereas for the excess energy, you will earn something close to the *wholesale rate*.

Will this be a big boost to Net Metering and incent a lot more people to deploy solar energy production? It will help some but probably not as much as people think because:

  • You now have a reason to put in a bigger system, *but* you may risk not getting the CSI subsidy. The CSI requires you to install a system no bigger than your peak demand estimate. So, if building a bigger system and getting the excess payments is worth more than losing the CSI subsidy, you might do this. I think this will probably only apply to businesses rather than residential homes, and/or will be more effective in a few years when the CSI subsidies have come down.
  • The price the utilities pay is going to be pretty low. The price is set by the PUC but it is required to reflect the “value” of the energy and make sure that it doesn’t raise prices for people without solar systems. That means the price will be at a low wholesale rate for energy. And btw, this energy is not “dispatchable” so it’s worth even less to the utilities.
  • Net metering and this program ends when enough customers have signed up to make up 2.5% of the utilities delivered energy. Many of the utilities are not far from that limit which is why there was a bill to try to up that cap this year. The bill failed, so the overall program may come to a halt mid-2010 anyway.

Here are two reasons that people typically don’t use the term feed-in-tariff to describe net-metering or even net-metering excess:

  • FIT usually applies to independent power producers selling energy at the wholesale level to utilities. It doesn’t include offsetting a retail bill.
  • FITs usually don’t require the power producer to be a customer of the utility. You should be able to sell power with a FIT on a bare piece of land that doesn’t take any energy from the grid.

To sum up, AB920 is not a feed-in-tariff in the way FITs are talked about in the industry and is unlikely to incent a lot of new, larger development of solar in the short term. In a few years, this bill may have more of an impact due to two trends: CSI subsidies will be coming down so developers won’t face as much of a subsidy loss, and solar panel costs may come down enough so that the AB920 payments make a real difference in the investment decision.


October 18, 2009 - Posted by | Policy, Uncategorized |


  1. Ted,

    thanks for taking on this oft-misunderstood topic. The popular press will likely never recognize the associated subtleties (they don’t have the time or motivation), so it is helpful to have people with some deeper insight help round out the discussion.

    In the same spirit, I wanted to refine your definition of net-metering, because your explanation is somewhat oblique. The function of net-metering is not to zero-out an electricity bill (though this is one possible result); rather, net-metering is a policy/technology construct that enables a utility customer to net any production from on-site generation against usage–whether or not the former exceeds the latter.

    Net-metering is first and foremost a public policy instrument meant to spur residential DG, in the service of a number of policy goals. you rightly point out the two main problems with the policy as it has been implemented, and the potential benefits of rectifying them. You also point out that the market realities of the current tariffs limit the true potential of residential DG.

    It will be interesting to see how this issue evolves. For example, the emergence of an affordable, high-capacity battery technology might easily allow the residential user to store micro-gen (solar, wind) from off-peak, and sell back to the utility on-peak. this would enable residential users to command higher prices for their power, creating a positive feed-back loop for larger systems with more capacity; if such systems become ubiquitous enough in certain service areas, the resulting aggregation of power actually will benefit the utilities by reducing the need for building additional peak capacity.

    Thanks again for taking on this issue; your work is well done.


    Comment by Andy H | October 26, 2009 | Reply

  2. […] is certainly a developing story…  Read more here at Ted Ko of the FIT Coalition’s blog, here in the San Jose Mercury News, and here in the LA […]

    Pingback by AB920: Incentivizing Efficiency « Solar World by RPS | November 20, 2009 | Reply

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