Texas Electricity, Rooftop Solar, and “Crony Capitalism”

No one wants to hear my stupid opinions; they just want useful information. I therefore try to only write things when I can actually contribute something of value. A few days ago I started worrying that I don’t have anything else worth saying here. Then the New York Times and Noah Smith decided to write about a topic I know fairly well: utility companies trying to “kill” rooftop solar.

In short, Noah thinks rooftop solar might be the future, and that utilities are working to prevent that so that they can profit from their investments in gas and coal fired power plants. Noah acknowledges that the utilities have a point about rooftop solar when it comes to paying for the use of the grid, as net metering means homes with solar panels can effectively use the grid as free storage (selling excess generation to the grid, later buying it back at the same price). However, Noah is worried that the utilities are using that argument to cover the cost of fossil fuel generation as well, which he says is crony capitalism.

But this doesn’t really apply to Texas. We have our own utilities vs. rooftop solar fight going on here, and I think that’s a story worth telling.

Rooftop Solar in Texas

The utility companies in Texas aren’t involved in the power generation business. They are “transmission and distribution” utilities (called TDUs). In other words, they only care about the grid. In addition, Texas doesn’t have net metering.

Putting solar panels on your home is almost certainly a bad investment here in Texas. This is primarily because electricity is cheap here. For every person who has used Awesome Power Texas, I divided the cost of the cheapest 12-month electricity plan by his or her annual electricity usage. This provides an “all included” cost per kWh for every user, as shown in this scatterplot:

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Go ahead and ignore the amorphous blob in the middle, as it would take an entire post to explain why the electricity market looks like this. For present purposes what matter is that most people should be paying at most 7.5 cents per kWh. That’s pretty cheap.

Putting solar panels on your home is expensive. A 6 kW system in Texas reportedly will cost about $13,500 after taking into account various government incentives. With a 6 kW system, you might produce 10,000 kWh per year (and I’m being fairly generous there I believe). Even if you use 100% of that electricity, you’re looking at savings of $750 per year. That’s a payback period of 18 years under very generous assumptions.

So my usual advice to people considering rooftop solar panels is, “If you’re doing it to save money on your electricity bill, you probably shouldn’t.” But that doesn’t mean solar panels are bad. Maybe you really like the environment or the way solar panels look on your house. Or maybe you need friends and want to join a local solar panel group. Whatever your reason for wanting solar panels, feel free. I’m not trying to stop you.

Utilities Against Rooftop Solar

In Texas, or the parts of Texas this post is concerned with at least, the TDUs recover their costs from residential customers through a combination of a fixed monthly charge and a per kWh rate. In the Oncor region, which primarily covers Dallas and the surrounding areas, residential customers pay Oncor $5.25 per month and 3.286 cents per kWh.

Remember that the TDUs aren’t in the power generation business, and that we don’t have net metering in Texas. Nonetheless, the TDUs still don’t like rooftop solar. Oncor, the biggest TDU in Texas and the company responsible for the grid in Dallas and surrounding areas, wants to impose a new monthly charge on all homes with rooftop solar. Why? Probably because they’re making less money off these people than they otherwise would. If a home goes from 2,000 kWh in a month to 1,000 kWh in a month after adding solar panels, Oncor gets $38.11 instead of $70.97. And Oncor doesn’t like that.

Of course, Oncor doesn't really lose money. That’s not possible. Oncor will just adjust the prices to charge a higher monthly charge or rate per kWh so it all works out in the end. But this means that people who don’t have solar panels on their homes end up paying more to cover the full cost of the grid. Oncor apparently doesn’t like that, though, so instead is trying to impose a special minimum charge that applies only to people with solar panels. The charge is calculated using a person’s peak demand.

My problem with what Oncor is trying is that this logic applies to a lot of things, whereas the minimum charge is exclusively targeted at customers with solar panels. If I put solar panels on my home and my usage drops from 2,000 kWh to 1,000 kWh, and I therefore pay Oncor $38.11 instead of $70.97 and shift the burden onto everyone else, that’s apparently very unfair and I need to pay some special minimum charge. But if I just decide that air conditioning is for losers who can’t handle the heat, and therefore my usage drops by the same amount, Oncor is fine with that. Where is the outrage about the fact that we’re cross subsidizing people who think AC is for weenies?

Sure, the scale is different; I can’t imagine there are that many people deciding to go without AC. But there are a lot of people using less electricity than their neighbors for one reason or another. What about the people who don’t live in their home year-round? What about the people who decided to switch to LED lights? You get the idea. In addition, the cost of this supposed cost shifting from solar homes to non-solar homes is pretty lame. According to Oncor, the cost is $1.6 million per year, which comes from about 10,000 homes with solar panels. To put that in perspective, Oncor is paying over $4 million per year for Smart Meter Texas, a website that sucks and that no one really uses.

Why Does Oncor Hate Solar?

So why does Oncor hate rooftop solar? To be honest, I don’t know. But I can tell you what the answer isn’t. It isn’t because Oncor loves fossil fuel power plants, because Oncor isn’t even in that business and rooftop solar doesn’t seem to be all that economical anyways. And it isn’t because Oncor loses money on net metering, because we don’t have net metering in Texas. To give a better answer than that, I’ll have to ask around.

I’m sympathetic to the concern about cost shifting. I don’t like the idea of upper middle class people putting solar panels on their homes, causing poor families to pick up an ever-increasing bill to pay for the grid. But I dislike Oncor even more, and I think this proposed minimum usage charge is under-inclusive and therefore dumb.