Shift Key Classic: California’s Rooftop Solar Question
Podcast: Shift Key with Robinson Meyer and Jesse Jenkins
Episode Date: December 31, 2025 (originally June 5, 2024)
Guest: Severin Borenstein – Energy Economist, UC Berkeley
Episode Overview
This classic episode delves into California’s rooftop solar policy and its unintended consequences—primarily, how the state’s electricity rate structure, while promoting solar adoption and climate action, has led to skyrocketing residential electricity rates. Robinson Meyer and Jesse Jenkins are joined by Severin Borenstein to unpack the mechanics, equity implications, and potential reforms for both California and the broader US context.
Main Theme
How did California’s push for rooftop solar help drive up electricity bills, and what does this reveal about broader electricity rate design and the challenge of decarbonization?
Key Discussion Points & Insights
1. Why Are California’s Electricity Prices So High?
- Disproportionate Rate Increases: California residents pay over 40 cents/kWh, while the actual cost to deliver an extra kWh is about 10 cents or less (05:42).
- Fixed Costs in Bills: Extra charges go to wildfire expenses, grid hardening, climate change mitigation, low-income subsidies, and legacy investments—not just the real-time cost of energy (05:42).
- “That extra 30 cents in your bill is going towards all sorts of fixed costs that the system has... All of that stuff has been loaded into electricity prices.” — Severin Borenstein (05:42)
2. Rooftop Solar and the Cost Shift
- Net Metering Issues: Solar customers reduce their payments to the utility but the system’s fixed costs remain. These costs are picked up by non-solar customers, driving up their bills (05:42).
- Magnitude of Cost Shift: In 2024, the rooftop solar cost shift will be about $4 billion out of $15–20 billion in total residential utility revenue (08:52).
- “About a third of [the recent rate increase] is being driven by an increase in the rooftop solar cost shift.” — Severin Borenstein (08:54)
- Personal Impact: The average non-solar household now pays over $300/year to subsidize others’ solar panels (11:23).
- “Why am I paying $300 a year for your solar panels?” — Severin Borenstein (11:23)
3. The Structure of Electricity Bills
- Two Key Bill Components (13:11):
- Variable/Marginal Cost (what it costs to produce and deliver one more kWh): ~5–10 cents/kWh.
- Fixed/System Cost (infrastructure, state programs, wildfire, subsidies): Adds substantial, non-consumption-based charges.
- Policy Implication: Most of what people pay does not reflect actual consumption; it’s a muddled mix, unlike how Medicaid or food stamps are funded (13:11).
4. Misaligned Incentives & Decarbonization
- Discouraging Electrification: High rates discourage people from switching to electric vehicles or heat pumps, undermining decarbonization goals even as we still underprice fossil fuels (22:13).
- Equity Problem: High bill charges hit low-income customers hardest; richer people exit the system with solar, leaving remaining costs shouldered by those left behind (22:13).
5. Fixes: Income-Graduated Fixed Charges
- California’s Recent Reform: Introduction of income-based fixed charges to make rates fairer (30:29):
- Limitations and Legislative Tangles: Bureaucratic resistance and legislative limitations led to a less progressive outcome than economists recommended (35:10).
6. Progressivity and Fairness
- Does High Usage = High Income? Not really, especially in California, where low-income residents may use more electricity due to air conditioning, while richer people install more solar (37:44).
- “Electricity consumption is almost flat now across income categories, which people find very surprising.” — Severin Borenstein (37:44)
- Rethinking How We Charge: Other public goods are funded via progressive taxes, not consumption surcharges (39:51).
7. International & Business Parallels
- Germany vs. US: In Germany, residential customers absorb more system costs to keep industrial bills low. The US loads much of the burden onto households but less so than Germany (47:59).
- C&I (Commercial and Industrial) Customers: Traditionally paid less in fixed charges due to economic pressure (they can relocate), while households have had little recourse—until now, with distributed generation (49:45).
8. The Structural Squeeze on Rate Design
- Why is Rate Making Outdated? Originally, high per-kWh charges were meant to promote conservation, but now they create distortions:
- “The rooftop solar industry business model...is built on higher electricity rates. They do better when rates are very high.” — Severin Borenstein (44:22)
9. The Big Picture: Institutional Challenges
- Investor-Owned Utilities (IOUs) vs. Public Utilities: Growing costs, climate adaptation, and distributed energy are straining the traditional investor-owned model. In time, we may need to fundamentally rethink ownership and rate structures (54:38).
- “We are going to have an ongoing discussion of what is the role of an investor owned utility and all of the distorted incentives.” — Severin Borenstein (60:00)
Notable Quotes & Memorable Moments
- The Cost Shift Problem:
- “The average increase in the bill of a non solar home due to the presence of rooftop solar, that cost shift is now over $300 per year.” — Severin Borenstein (11:23)
- California’s Unique Position:
- “The penalty we are still putting on electrifying your transportation or your house is still really substantial.” — Severin Borenstein (35:22)
- On Consumer Incentives:
- “You should be saving three quarters of the cost of fueling by switching to electricity. Likewise, when we start talking about heat pumps…” — Severin Borenstein (22:13)
- On Electric Bill Progressivity:
- “If you look at California, actually, it's almost flat now across income. Electricity consumption is almost flat now across income categories, which people find very surprising.” — Severin Borenstein (37:44)
- Frustrations with Status Quo:
- “These new concepts like an income graduated, fixed charge that people say, well, nobody's ever done that before. We're going to have to start thinking about things that aren't the way we've done them for the last 30 or 40 years.” — Severin Borenstein (63:34)
Key Timestamps
| Timestamp | Segment Highlights | |-----------|---------------------------------------------------------------| | 02:32 | Framing rooftop solar’s cost and the “who pays for it?” issue | | 05:42 | Borenstein on California’s unique rate and cost dynamics | | 08:54 | Quantifying the rooftop solar cost shift ($4B) | | 11:23 | Personal impact: $300/yr for non-solar customers | | 17:22 | Deconstructing the components of an electricity bill | | 19:03 | Discussion of the broader, national context | | 22:13 | Effects of high rates on electrification and equity | | 30:29 | California’s new income-based fixed charge | | 33:20 | Analysis of the reform’s weaknesses and controversy | | 37:44 | Who really uses the most electricity—income and geography | | 44:22 | Historical roots of current rate structures | | 47:59 | Industrial/residential allocation—Germany vs. US | | 54:38 | The future: Should utilities stay investor-owned? | | 60:00 | Potential directions for utility structure and rate reform | | 63:34 | The call for bold new thinking in rate design |
Conclusions & Takeaways
- California is a case study in well-intended energy policy creating major cost shifts and equity problems.
- Current electricity rate structures, largely legacy systems, send poor economic signals that undercut electrification and disproportionately burden low-income households.
- Policy reform, such as income-based fixed charges and/or shifting certain costs to state budgets, are necessary next steps—though difficult to implement and politically contested.
- As the grid modernizes and decarbonization accelerates, getting electricity pricing right—so signals are both efficient and fair—is more important (and challenging) than ever.
Final thoughts:
This episode is an accessible, richly detailed primer on the hidden consequences of energy policy, the ways in which pricing design shapes who benefits and who pays, and why the energy transition is about much more than just carbon—it’s about justice, efficiency, and the messy business of reforming systems as old as the grid itself.