Clouds darken over solar subsidies

At issue is “net metering,” a subsidy in 44 states that pays solar-using customers for excess power they sell back to the utility. Opponents say those customers — who are still attached to the grid so they get power when the sun isn’t shining — don’t pull their weight for paying for grid maintenance, but its boosters say the program incentivizes solar adoption that brings benefits utilities aren’t fully counting.

The push comes as solar generation has more than doubled each of the past six years — it is scheduled to double again this year — proving a disruptive force to older utility models even though it still provides just 0.02 percent of the nation’s electricity.

While the report from ClearView Energy Partners LLC contends net metering is “here to stay,” the various actions taken to adjust how the incentive is implemented point to how the expansion of solar power threatens to upend the century-old electricity business model.

“Several state regulatory bodies have acknowledged that net metering programs have potential to create undesirable cost shifts among utility customers and negatively impact a utility’s cost recovery,” Kevin Book, the consulting firm’s managing director, said in a memo.

The policy works like this: Electric utilities pay solar customers the retail rate, which is more expensive than the wholesale rate, for the excess power they produce. But third parties, not the utility, often install and receive payment for the panels and power they provide, which effectively eliminates solar customers as revenue sources for electric utilities. Replacing those customers is difficult since most utilities operate as regulated monopolies with a defined customer base.

Solar customers argue they’re helping utilities by reducing congestion, providing power supply during daytime periods when demand is highest and forestalling new utility spending to meet growing demand. But utilities say those customers still need to stay linked to the grid for when the sun isn’t shining, and that the utility service territory’s “peaks” for power demand aren’t always aligned with when it’s sunniest.

“While we do not anticipate an immediate upending of net metering policies — or the demise of the utility — we do regard the growing debate as an indication that policy changes lie ahead in the near and medium term for both utilities and renewable energy companies,” Book said.

A flurry of activity has come this year. Of the 20 states where the policies are under review, 12 began their examinations in 2014.

Part of the reason for the uptick in interest is that solar systems are getting cheaper by the day, Dan Bakal, director of the electric power program with business sustainability group Ceres, told the Washington Examiner. So while solar power supplies a minuscule portion of the nation’s electricity now, utilities are looking at potential losses in the future.

“Net metering may not be sustainable from a utility standpoint over the long-term. So I think that there is some legitimacy being raised over the concern that the customers that are using the grid are not paying for that use,” Bakal said.

The watershed moment was in Arizona, where in late 2013 electric utility Arizona Public Service proposed charging rooftop solar customers $50 per month to link up with the grid. Regulators rejected it, instead green-lighting a $5 monthly fee.

That debate put net metering on the national radar.

“Arizona was the first. But this issue is going to become more relevant because what we’re seeing in our power markets is considerable change,” Todd Foley, senior vice president of policy and government relations with the American Council on Renewable Energy, told the Examiner.

The conservative American Legislative Exchange Council drafted a model resolution against net metering for its members — some of whom are state lawmakers — to use, saying it pushed costs for maintaining infrastructure onto non-solar customers. Even the Natural Resources Defense Council, in conjunction with electric utility industry group the Edison Electric Institute, said some of net metering’s costs aren’t factored into ratemaking.

Now, the solar industry has focused on providing a better cost figure.

One way to do that is the “fair value of solar.” The calculation tries to hash out whether the solar customer’s use of carbon-free energy and ability to supply power to the grid during the day when demand is high outweighs the grid maintenance costs for that customer.

“There are a lot of conversations occurring across the country regarding net energy metering, but often when you actually ask the question: ‘Is there a problem we need to fix?’, the answer is no,” Ken Johnson, vice president of communications with industry group the Solar Energy Industries Association, said in an email.

But there are many variables to determining the fair value of solar, Foley said, maintaining that he believed the benefits of solar would outweigh the costs.

“There’s disagreement on this, but I think the solar sector would suggest that actually those homeowners are not only helping themselves but also helping the system,” Foley said.

Minnesota is the first state to delve into the fair cost of solar, a move that could actually incentivize solar in the state.

The state’s public utility commission in April called on electric utilities to issue a “value of solar tariff” as an alternative to the existing net metering program. But doing so is optional, and it’s not clear whether utilities will implement it.

Under the arrangement, the customer would sell excess power back to the utility at a “fair value” rate of 14.5 cents per kilowatt-hour, rather than at the average retail rate of 12.8 cents per kilowatt-hour that the utilities pay now. The state’s utility commission in May denied a petition from Xcel Energy, a utility that operates in Minnesota, to reconsider the policy.

It’s an experiment that will be closely watched by the electric utility and solar industries.

“The question is here — and this is where we need more analysis — is what is the value here?” Foley said.