Solar, utility companies clash over changes to net metering

In the sunny Southwest, a fight between utilities and solar companies is heating up, casting a shadow over future renewable energy growth.

At stake are revisions to net metering, a key incentive for rooftop solar installations in the United States. Under these policies, the utility gives the homeowner a credit for the energy his rooftop photovoltaic panels put onto the grid that is subtracted from the electricity his home uses when the sun isn't shining.

Currently, 43 states, the District of Columbia and four U.S. territories have net metering policies in place, with differing capacity limits. Under the Energy Policy Act of 2005, all public utilities are required to offer net metering to customers upon request.

According to the Energy Information Administration, the number of residential net-metered utility customers exploded from almost zero in 2003 to more than 300,000 in 2012. Falling panel prices, coupled with attractive incentives, expanded the market for rooftop solar. Last month, even the White House installed a rooftop solar array.

This rapid growth is leading some utilities to rethink rules favoring solar energy, citing unexpected consequences and issues of fairness. But rooftop solar developers are aggressively pushing back, accusing utilities of attempting to quash an emerging competitor and entrenching their energy monopoly.


A proposed surcharge

Arizona's main electric utility, Arizona Public Service Co., proposed a surcharge in July for new residential solar installations based on how much energy they draw from the grid. The other option is for customers to receive a bill crediting them for the energy they put on the grid at the same market rate the utility gives to other generators. Existing residential installations would be grandfathered in, and commercial installations would be exempt. The policy still needs approval from regulators.

"Everybody that's connected to the grid is utilizing the grid at some time, and solar customers are no exception," said Greg Bernosky, manager of renewable energy programs for APS. "There are costs that solar customers avoid on their bills that are ultimately shifted to non-solar customers."

He explained that most homes don't have a way to store excess energy, so even if they produce more than they use over the course of a day, they still draw on the grid once the sun sets or when clouds form above. For conventional homeowners, the costs of transmission, distribution, maintenance and upkeep are built into their rates.

A home with a rooftop photovoltaic array foists the cost of keeping electricity on tap onto everyone without a solar installation, to the tune of an extra $1,000 annually per home, according to Bernosky.

This recent push for new rules in large part stems from efficiency improvements and cost reductions for photovoltaic panels in recent years, making the economic case for a home installation much more viable. "The technology wasn't as vibrant as it is today. It wasn't anticipated at that time it would evolve to where it was evolving today," said David Owens, executive vice president of the Edison Electric Institute, a utility industry group.

Net metering policies are a distinctly American incentive for renewable energy and spread gradually at a time when rooftop solar was a novelty. Countries like Germany, Italy and Spain used feed-in tariffs to encourage residential solar. Such tariffs give electricity from solar panels an above-market price so consumers stand to make more money from their investment.

Owens explained that this led to a large and rapid build-out for rooftop arrays but ended up costing these countries a great deal. In wake of the financial crisis, policymakers are scaling back tariffs and even adding more taxes for home solar systems, leading some homeowners to remove their installations.

A 'disruptive challenge' to utilities?

Though not as dramatic, net metering is also facing some growing pains in the United States as distributed solar takes up a greater share of the generation mix. Grid operators now have to account for power flowing in the opposite direction, away from homes and onto the grid. This requires new investments in hardware, monitoring and safety, Owen said.

Solar energy advocates, however, say that the industry has had distributed generation in its cross hairs since its inception. "Utilities have opposed net metering from day one," said Bryan Miller, president of the Alliance for Solar Choice. "What's different now is utilities have woken up and realized solar is a threat to their business model."

He cited a report from the Edison Electric Institute published in January that described distributed solar as a "disruptive challenge" and a "[threat] to the centralized utility business model." Though some utilities have their own incentives in place for residential solar, they are making these offers to comply with state renewable portfolio standards. "They certainly aren't doing it voluntarily," Miller said.

The notion that rooftop solar systems put an undue burden on the grid is spurious, Miller added. "When there are legitimate circuit issues, the solar developers pay for those upgrades," he said. "The idea that the grid cannot handle two-way flow has been proven wrong by every high renewable penetration state."

Solar panels also generate the most power in the afternoon, which is often when electricity demand rises, thereby relieving congestion and strain on the grid, Miller observed. This peak shaving more than offsets any grid interconnection costs, he said.

Dan Sullivan, president and founder of San Diego-based Sullivan Solar Power, concurred. "It's really disingenuous for [utilities] to say [rooftop solar installations] are not paying their fair share," he said. "That energy generates revenue for the utility. Their talking points are weak at best."

California is also facing a net metering fight in the guise of A.B. 327, currently under debate. The bill would change how electricity prices are tiered, moving toward flatter and more equal rates. Solar advocates argue that flat billing removes incentives to improve energy efficiency or to generate energy on-site with solar. A fixed charge would lengthen the payback period for a solar installation.

Can Calif. find common ground?

"California is the largest solar market in the country," Sullivan said. "If it's not done properly in California, it will not be done right anywhere."

The fundamental rift is determining whether rooftop solar installations provide more value than they use. Utilities say they don't; solar companies say they do.

"We would agree that you would be able to avoid some losses in transmission and distribution, about 6 percent," said David Rubin, director of service analysis at Pacific Gas and Electric Co., the utility with the most rooftop solar in its network in the nation.

The emerging concern, according to Rubin, is how the utility will prepare for electricity needs in the future. By 2020, solar energy will make up 15 percent of the power supply for PG&E, but the demand profile is likely to shift, as well. An incentive structure that focuses on upfront assistance for solar, like grants and tax breaks, would give the utility more flexibility to meet its obligations than ongoing rate-based incentives like net metering.

Rubin said the utility is nonetheless strongly supportive of renewable energy projects, though he acknowledged that it opposed net metering in the past. On 1995, PG&E sent a letter to California state Sen. Al Alquist (D) describing net metering as a "bold scam by the solar power industry to force our electric customers to subsidize the sale of expensive residential photovoltaic systems."

"That was the only time we opposed it," Rubin said. "Every time the net metering cap was raised [since], we supported it."

Still, utilities and solar developers have yet to find common ground. "It's challenging getting some consensus on what those numbers should be," said Lori Bird, a senior analyst at the National Renewable Energy Laboratory. "I think if there could be a consensus on those issues, it might be feasible to come to an agreement on a rate that makes sense."

The California Public Utilities Commission, the regulatory agency behind the state's electric grid, is aiming to do just that, producing a cost-benefit analysis for rooftop solar in October this year that could finally settle the fight. A draft copy is expected later this month.

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