Electricity Hikes to Promote Solar Power?

A common argument for solar power and sustainable building is that they protect utility customers from the inevitability of rising fossil fuel electricity costs. Renewable energy by nature does not become scarce and, once installation is complete and paid for, is free and abundant for the life of the system. So the volatility of grid electricity costs and the relative stability of home solar power has been a big plus for the fledgling solar energy movement. But a recent decision by the Los Angeles Department of Water and Power (DWP) to raise electricity costs as an incentive for solar power and energy efficiency is to my knowledge the first of its kind.

The rate hike is intended to help pay for Mayor Villaraigosa’s aggressive solar plan for the city, as well as more intensive conservation programs. At the same time, the hope is that higher rates will make solar power a more appealing option for local homeowners. Those prices will rise between 8.8 and 28.4 percent.

The smallest users of DWP electricity, Tier 1 customers, can expect an average increase of $3.41 per month, or 8.8 percent on their electric bills. 58 percent of DWP’s residential customers are Tier 1. 36 percent are Tier 2 customers and can expect about an 18 percent increase equaling about $15 per month. LA’s heaviest power users will take the largest hit; between 24.4 and 28.4 percent.

Los Angeles plans to get 20 percent of its electricity from wind and solar power by the end of 2010, and Mayor Villaraigosa believes the rate hikes will ensure that the city meets those goals. The Mayor and DWP admit that the rate increase is big but also overdue and necessary to adequately promote renewable energy in the short term.

The Los Angeles Times gives one example of an LA area homeowner that has used solar power to shield his household from these and other rate hikes. Ray Wyman Jr. of Orange County installed a 4.2-kW system, leased zero-down from SolarCity, and his electric bill decreased from a high of $180 to a new high of 92 cents. Of course, those numbers do not include Wyman’s $95 monthly lease payment to SolarCity, but he is still saving considerably overall and has from day one. Furthermore, that monthly payment is locked in for 15 years and Wyman expects a check after one year from DWP for excess solar energy produced during the summer.

The new rate increases combined with local, state and federal tax incentives and rebates for home solar power may help Mayor Villaraigosa and DWP achieve their renewable energy goals and really kick-start solar power in Los Angeles. If it does, it may also spread the notion, at least among municipal utilities, that raising rates can be done strategically to promote renewable energy.