Introduction and how solar took off
Rini Sampath: Welcome, everyone, to Capital Commonsense. This is our first-ever podcast. I’m Rini Sampath. Earlier this year, I ran for mayor of Washington, DC, with a very simple message: fix the basics. That work continues through my writing and conversations. Greg Jaczko has spent his career working at the intersection of science and public policy, and he also ran for Congress here in DC.
In his recent piece for Capital Commonsense, he argues that DC could keep expanding solar while spending much less on the incentives that electricity customers help fund. I want to understand how those incentives work, who pays for them, and what changing them would mean for the people paying the bills. We’ll also get into the concern on the other side: if we reduce those payments, will fewer people install solar?
Greg, thank you for joining me. Before we get into the numbers, I really want to start from the beginning. Could you tell our listeners how solar went from a relatively unusual technology to something people install on their homes? And, especially for a total newbie like me, what made governments decide to help pay for it?
Greg Jaczko: The advancement of solar is really one of the dramatically underreported revolutions of the last 20 years. I’m dating myself here, but I remember when I was growing up, it was a big deal when President Carter put a few solar panels on the roof of the White House. I think those were quickly taken down in the next administration.
It was a technology that always seemed possible, but for many reasons it was just too expensive to be a viable alternative to the other ways we generate electricity. During the Obama administration, there were a lot of federal subsidies, and that drove down the price of solar very significantly. You had a stimulus for companies, utilities, and homeowners to put these systems on their homes or in fields across the country. That further drove down prices, to the point where solar became the cheapest way we could generate electricity in the country.
A natural extension of that is to put it on your roof and have a little mini power plant, where you generate your own power and offset power you would otherwise get from the electricity grid.
In DC in particular, and in other places across the country, governments decided they wanted minimum amounts of electricity to come from renewable power. In a place like DC, they also added a special caveat: not only should we get more and more of our power from renewables, but a certain percentage of that should come from rooftops all across the District. That’s really what brings us to the solar market we have today and what we’re going to talk about.
How DC’s solar credits work
Rini Sampath: That’s a great setup. I’m especially intrigued by this credit system. When I first read your article, I wanted to understand who developed this idea of paying for solar. You talked about the Obama administration and the history of incentivizing folks. What problem were they initially hoping to solve? And can you tell me more about how DC adopted that approach and customized it for our city?
Greg Jaczko: The credits are often a confusing part of the energy generation process. The idea didn’t really come from the energy space. It comes from what’s referred to as a cap-and-trade process: a regulatory system where you impose some kind of limit on something, or in this case encourage something, and then set up a mechanism to keep track of the thing you’re trying to credit or limit.
In this case, it’s solar power generated from rooftops in the District. Mostly that’s homes, but it could also be businesses or some large warehouses. Any time somebody installs one of these systems and generates electricity, they earn a credit. That credit keeps track of how much electricity they generate from the rooftop system.
It’s a way to track how that electricity was generated. Whether it comes from a natural gas plant, a solar plant, or a wind farm, it all gets thrown into the electricity system, and you can’t really tell it apart. As states and other jurisdictions wanted to keep track of that, they needed to create these credits. That way, somebody in Pennsylvania isn’t taking credit for renewables produced in Ohio at the same time as somebody in New Jersey. That’s what this credit does: it gives you a way to keep track.
Rini Sampath: Interesting. Could you make this concrete for us and walk us through the process in DC for someone who’s totally new to this and hasn’t even entertained the idea of solar panels? Someone installs solar panels on their DC home. What happens to them financially? Who pays for the installation? And what does someone have to generate to earn one of those credits? I read in your article that Pepco doesn’t ultimately pay for these credits, so I want to understand where that cost goes.
Greg Jaczko: Let’s take another step back. These credits don’t just track how much solar is generated from a rooftop. They also feed into a compliance requirement that everyone who sells power in the District has. The District requires that, over time, a minimum amount of electricity has to come from rooftop solar. We established that policy as part of a clean energy and climate change program to make our electricity cleaner and greener.
That obligation falls to the power providers. Pepco is the one most people are familiar with. Pepco doesn’t generate those credits itself, because it isn’t allowed to own power plants, or rooftop systems, in the District. So it has to buy them from someone, and it buys them from a homeowner who owns a solar system.
The homeowner puts the system on their roof, and every time it generates a certain amount of electricity, it generates a credit equivalent to that amount. Pepco has to buy these up at the end of the year and turn in a certain number to show it’s meeting the minimum solar requirement. That’s where we get the marketplace for solar credits. The law works through a mechanism that essentially establishes what the price of those credits will be.
Why the program costs too much
Rini Sampath: Interesting. So now that listeners understand roughly how the system works, I can get into what you argue in your article: that local solar is a benefit to DC, but the current program costs way too much. What led you to look at whether DC pays more than necessary? And can you walk us through the homeowner example, so we can see what that looks like in reality?
Greg Jaczko: These renewable credits, or solar credits, are fairly common in the renewable industry. Part of my career I spent developing utility-scale solar projects, so these credits were always part of the process, and I was familiar with them.
Then, while you were running for mayor, I was running for the DC delegate position.
Rini Sampath: That’s right.
Greg Jaczko: And one of the things my wife kept complaining to me about was that our electricity bills just kept getting more and more expensive. “You’ve got to do something about that.” So I said, I’m going to make it part of my campaign. I started looking into the system and the process behind our electricity to figure out whether there were ways we could save money.
That’s when I delved into the program a bit more. Having worked on utility-scale solar, I was generally familiar with what these credits typically cost. I was somewhat surprised to learn that in DC they’re much higher than in other jurisdictions. So I started to pull the thread to understand exactly how high they were, and why.
In principle, the why is to give people an incentive to put a solar system on their roof, because doing that is good for the District. There’s a variety of reasons why that’s the case. Some of it has to do with the fact that we have to buy.
Rini Sampath: And this is me really trying to translate for folks what these savings mean: you estimate that cutting the credit payments in half could save DC electricity customers more than $75 million annually. That’s a huge number. It could pay for a lot of things.
Greg Jaczko: Yes. The power companies have to report every year to the Public Service Commission and the District government how much they’re paying to buy these credits. And this is an important part of the story that often gets forgotten.
In the last year, we spent about $155 million buying these renewable credits. What often gets lost is that although Pepco has to buy them, Pepco then turns around and charges all the customers in the District whatever it paid for those credits.
So whatever Pepco pays goes right back onto everyone’s electricity bill, and it gets buried there. It doesn’t show up as a line item. On your Pepco bill, there’s what’s called the supply charge: the cost Pepco has to pay to get you electricity supply. That’s where the cost of these credits sits. For an individual household, it’s certainly not the largest part of the bill, but it’s a measurable part. When everything else is going up, this is one way to start saving money: anywhere from $10 a month, maybe more, depending on your electricity usage.
So I kept pulling the thread. My general assumption has always been that solar is a cheap way to generate electricity. That raises the question: why do we even need to pay this credit to incentivize it? My analysis looks at exactly that.
When you buy a solar system, it’s not free. But what you pay for it is essentially the cost of your electricity. If a typical solar system lasts you 25 good years, the cost of electricity from that system is whatever you paid, spread out over those 25 years. That gives you an equivalent cost of electricity. What my analysis shows is that the cost of electricity from your solar system is, in almost all cases, cheaper than what you’d pay if you bought power from the grid through Pepco.
Rini Sampath: Interesting. Okay.
Greg Jaczko: So you’re already saving money, breaking even, or coming in right around the same cost with a solar system. You don’t need a large incentive.
If you’re not familiar with these numbers, it can be hard to follow, but here’s the way to think about it. When Pepco buys a credit and charges us back for it, we’re paying about two times the cost of grid electricity. That means we’re giving people who have solar systems a huge subsidy. We’re paying them twice what they’d pay for electricity, just to build the systems. That doesn’t make a lot of sense. It’s unnecessary, certainly at that price. Maybe at a much lower price.
In terms of numbers, we’re talking about 40 cents a kilowatt-hour. A homeowner’s retail electricity rate is about 20-some cents a kilowatt-hour. So to offset that Pepco expense, we’re paying a homeowner 40 cents a kilowatt-hour, which, as I said, is completely unnecessary.
Right now that amounts to about $155 million a year. And it’s going to go up, because the required amount of rooftop solar in the District rises over time, eventually reaching 15%. So what we pay for these credits will grow every year.
The concern from solar supporters
Rini Sampath: Fascinating. You’ve already taught me so much about this subject, so thank you. I do want to give the opposing argument a fair hearing. I’m on board; I think this is a spectacular idea. But I was also looking at some of the reactions to the article on X, which of course has a field day with anything that’s published. So here’s a concern from solar supporters: these credits help families recover their investments sooner. Your analysis shows solar can save money over 25 years, but homeowners still have to make the payments now. What gives you confidence that cutting the incentive won’t put people off installing panels? I’d love to hear that, and I’m sure our listeners would too.
Greg Jaczko: My starting idea is that you have to make sure a solar system, on average, is cheaper than what you’d pay for grid electricity, because that’s the incentive. Solar has all kinds of other benefits for people, and for our electricity system in the District overall, but I don’t even monetize those benefits. I’m just looking directly at a system.
If you have the resources, say $25,000 available to just buy a solar system, you’re in a really good position. From day one, you’re assuming the system covers your total electricity use, so you’re not paying an electricity bill anymore. You pay a little bit, and I account for that in the analysis. If you’ve got the cash up front, that saves you money instantly. And as electricity prices go up, the savings get better and better. On average, electricity prices are likely to rise every year for the next 20 to 25 years. In fact, they’ll probably rise a lot more than a few percent, but I made a very conservative assumption in the analysis.
It gets more complicated if you don’t have $25,000 sitting around and need to borrow to pay for the system. Then, instead of paying Pepco your electricity bill every month, you’re paying off the loan you took out to buy the system. So the question becomes: how does that loan payment compare to what you’d pay for electricity?
With today’s power prices and system costs, in the first couple of years your monthly loan payment might be a little more than what you’d pay Pepco for electricity. Over time, you pay off the loan, and then you’re like the person who had the $25,000: you’re essentially getting your electricity without any monthly charge, because you already paid for it when you bought the system.
So you can make an argument that if you really want people to buy these systems, you can’t just tell them their monthly electricity costs will go down in 15 years. You want to be able to say, from day one, you won’t pay more than you would buying electricity from Pepco. That’s where you might need a bit of a credit.
I looked at those scenarios and made some very conservative assumptions. With those assumptions, you might need a credit of around 10 cents a kilowatt-hour for the first couple of years. But that very quickly drops to only a few cents a kilowatt-hour, compared with the close to 40 cents a kilowatt-hour subsidy we’re paying today. So you can still argue that you need something, but it’s nowhere close to what we’re currently paying for these credits.
Community solar
Rini Sampath: Interesting. That’s exactly where my head was at in terms of lifetime savings, and that explains it. One more follow-up. Your example looks at a homeowner buying panels. Would the same cuts work for community solar projects that help renters and lower-income households? Can you tell us a bit about the history there and how your proposal applies? Is there a world in which community solar is affected by a proposal like this?
Greg Jaczko: In the District, we don’t have a lot of space to build power plants, so solar is the thing we can do. We can do it on rooftops, or we can do small community solar projects, many of which are actually on rooftops or in large industrial areas.
These credits also apply to that locally generated solar, so this would affect those projects as well. But keep in mind that a community solar project is even more cost-efficient than a rooftop system. You’re in an even better position to save on electricity with a community solar project than with a rooftop system. So there’s even less need for a large credit, because those systems are cheaper to build overall. They have bigger economies of scale and are just more efficient.
So again, it’s an over-incentive that’s costing all of us money. The thing that’s so important in this whole analysis is that it’s not Pepco or any of the power companies paying for this credit. It’s all of us as DC electricity customers.
If you’re a low-income or middle-income person, you’re paying more on your bill to over-subsidize these other projects. That’s not to say we shouldn’t build them. We absolutely should. But the goal isn’t for that power to be free. It should be cost-competitive with what we’d pay for electricity overall, because right now we’re overpaying for these solar systems to be built. That cost gets spread out to everybody in the District. If you’re a business owner paying higher utility bills, you’re paying for those overly expensive solar systems. That’s where we need to right-size the program.
Making the change work
Rini Sampath: That’s really helpful. Along the same lines, I’d love to know how we make this change work. How would you reduce these payments while keeping solar attractive to people considering installation? And I’m also curious how the change would affect people who’ve already financed their panels. That’s getting into the weeds, but I’m sure there are listeners who financed their panels and are wondering how this reform affects them. So, a two-pronged question.
Greg Jaczko: The first thing you’d do is set up a new system going forward for new installations, with a different credit rate structure than current systems have. That’s an easy thing to do. There will be a period when solar installers and others say, “We can’t sell these systems.” But you certainly can, because these systems are still going to be cheaper. You just need a much, much smaller credit, anywhere from four to ten times smaller. That dramatically reduces our obligation to pay for these credits.
For existing system owners, it’s harder, no doubt about it. It would be politically unpopular. But keep in mind that we’re only talking about a small percentage of the electricity in the city. It’s not as if 60% of our electricity comes from these systems. And although this is being phased out, some of these payments actually go to people who live in Maryland. Not all of them go to people in the District. In some cases, we’re paying rooftops in Maryland this really high credit, so that money is leaving the District to begin with.
What you’d have to do is create a new credit for the future, as I said. Then, for existing credit holders, you phase out the high credit payment after five, six, or seven years. If you’ve had a system for five to seven years, you’ve more than paid it off already, and you really don’t need the credit at all.
It’s certainly a nice payment if you’re able to get it. But ultimately I think we have to bite the bullet and stop making it, because for many people in the District it’s truly just a revenue-generating source. When power prices are pressuring everyone, I think that’s a change we have to make. I’m not saying it’s going to be easy or politically popular, but it’s the most straightforward way to do it.
If you’ve had those credits for more than five years, you simply phase them out and quickly drop the price down to the new credit rate, which would probably be somewhere closer to 4 cents a kilowatt-hour, or maybe up to 10 cents, but not 40 cents. Nobody needs a 40-cent-per-kilowatt-hour solar credit to make their system financially viable.
A pitch to the incoming mayor
Rini Sampath: That’s helpful. And obviously we’re at a time of change. Our presumptive mayor, Janeese Lewis George, is coming in very soon. In your article you make the case for this particular issue, but if you had the chance to make a direct pitch, are there one or two other things you’d want her incoming administration to focus on when it comes to solar and sustainability?
Greg Jaczko: I think we really have to look at electricity prices in the District. Prices here have grown faster than almost anywhere else in the country, and that’s exacerbating what’s already a cost-of-living crisis for people here. There are many things that could be done, and reforming this solar credit program is one that could bring prices down, or at least stabilize them, and make electricity more affordable for everyone in the District.
I do believe climate change is a real issue. We can’t ignore it, and we need to do our part here in the District. But I think we can achieve the same goals in a much, much cheaper way that will have a material impact on people’s electricity bills. The solar credits are an easy place to start. There’s growing recognition that this program is just too expensive, and that we can achieve the same goals at a much lower cost. I think that momentum is starting to build, and hopefully it’ll show up in the policies of the new mayor and the new council as they look for ways to make the District a more affordable and livable place.
There are other things we can do, too. We need to look at Pepco and our utility structure and see whether there are reforms that could rein in some of the costs. We also need to be more aggressive about our regional power pool. We’re part of a big power pool with a lot of data centers, and that’s driving up our costs. We have to make sure we’re not subsidizing electricity for projects that don’t have a direct benefit to the District.
But I think the solar credit is an easy one to start with. We can make a meaningful difference in people’s electricity bills without giving up on our climate and sustainability goals. We do want more local solar because, as I said, it insulates us a bit from the broader power pool, where prices are going up really fast. The more we can generate here in DC, the better our future will be. I just think we can do it at a much lower price than we’re paying right now.
Rini Sampath: That’s huge. Thank you, Greg. Before we wrap up, since we have about one more minute, I want our listeners to get to know the person behind this piece. At Capital Commonsense, we’re very lucky to have several talented full-time professionals in various fields who moonlight as contributors to our Substack, which is run by Ashley Schapitl. Greg has so generously offered his time, both writing this piece and joining us today. So, Greg, back to you: tell us a little about yourself.
Greg Jaczko: As a kid, I was always inspired by the night sky. One of the things I lament today is that my kids don’t get to see the night sky the way I did growing up. I grew up outside of Albany, in upstate New York. I became enamored with science and wanted to pursue it as my profession, so I went to graduate school and got a doctorate in physics.
As I was doing that, I became more aware of the significant public policy challenges the US faced, and I wanted to devote more of my expertise to them. I was very fortunate to get a fellowship from the American Association for the Advancement of Science. It took people like me, with advanced degrees in science, and plopped them down in Washington to help make the policy process a little more “scientified,” if I can coin a new term.
I worked for a congressman from Massachusetts as a fellow, then was fortunate to work for Nevada Senator Harry Reid on a number of science policy and energy issues, and then went to the Nuclear Regulatory Commission. I can say without a doubt that I’m a big believer in public service. Today I run a fellowship program at Princeton University that helps get students into government, because I believe so much in public policy.
As I tell people, when I was chairman of the Nuclear Regulatory Commission, it was a very challenging and exciting job. I never woke up without knowing why I was going to work: to help the American people and keep people safe. That’s a feeling I simply haven’t been able to replace in anything I’ve done since leaving government.
It was a tremendous honor and privilege to work in government on behalf of the American people. I don’t think there’s anything better you can do with your life than to be, at least in some part, involved in government, engaging in public policy and helping improve the nation we all share. So I applaud you, too, for running, because running for office is one of the ways you can do that. It’s not easy, and it’s very challenging, but it’s so important to have people doing it. It was a great experience for me when I did it as well.
Rini Sampath: Absolutely. Same to you, Greg. I have so much respect for you and your public service. Thank you again for joining us and walking us through all of this. To our listeners, you can read Greg’s full piece at Capital Commonsense; we’ll include the link with this episode. Thanks, everyone.
Greg Jaczko: Thank you.
