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Combined with smart meters, pricing could even change as often as every hour. The theory of course is that higher prices will reduce demand, putting less strain on California’s electrical grid and power generation capacity. So maybe people won’t use air conditioning as much on hot days and will do the laundry at night rather than during the day.

Another reason for Time-Of-Use (TOU) pricing is to encourage people to install rooftop solar. Indeed, distributed solar power is almost perfectly designed for such a situation. On a hot day, the sun is out. A south-facing solar array on a roof will be producing the most amount of power during peak times of electricity use. It adds power to the system when most needed and in doing so replaces mostly dirty power with clean renewable energy.

Germany is a world leader in installed solar power (Yes, Germany). They did so by adopting feed-in tariffs where all power generated on rooftop solar goes into the grid and the homeowner then buys power at a greatly reduced rate. The program was a huge success.

In Germany, the sharp growth in solar power output (from 3 gigawatt-hours in 2007 to over 18 gigawatt-hours in 2011) reduced the cost of electricity during their mid-day peak period by 40%, almost completely eliminating the price differential between peak electricity and the base cost.

By comparison, the US only has about 4 gigawatts of solar power. In my view, the US and California need to do what Germany has done. Install so much distributed solar that the peak price falls because the solar power is there when needed the most. Germany did this at the national level by subsidies, rebates, and encouraging people to install solar. While California and other states do have solar plans like that, they are nowhere near as comprehensive as Germany’s. Our federal government offers no similar plan either.

Unfortunately, that too often leaves the installation of solar to those homes and businesses that can afford it. There are some lease plans where an installer puts solar on your roof for free, maintains it, and one can buy power from them at a reduced rate (while they take whatever subsidies are available upfront). But will these companies be around for the 10-15 year expected life of the solar panels and equipment?

Solar panels on average houses cost $20,000 and up, which would be a major expense for some and beyond the financial resources of many. Besides, if you live in a condo or apartment that doesn’t have solar, then you’re stuck paying the higher rates. This seems regressive and a burden on those least able to afford it. Wealthier people can afford home solar and thus get cheaper rates than those with far less money.

California needs solar everywhere. Businesses, municipalities, ranchers and farmers might all consider installing solar. It’ll save them money and help the state at the same time.