Ever since electric utilities began operations about 130 years ago, they have had a pretty sweet deal. Come up with a little cash, mine some coal, build a power plant or two, and the government provides a stream of money to help you out, along with a few rules to follow. After all, a reliable supply of electricity is essential to modern civilization, so why not assist those best able to create it?
More recently, smaller renewable electric generators have started to produce much more of their own electricity. They are homeowners and landowners just like you who are using solar and wind power to reap financial rewards.
Solar installation and panel costs have plummeted over the past decade, while government rewards for producing your own power have remained constant or even gradually decreased. Tax credits and rebates from the federal government and individual states, have helped create investment opportunities for homeowners that outpace the historical performance of the S&P 500 in more states than not, with much less risk. After all, the only thing needed to make the investment pencil after installation is the sun continuing to rise in the East.
Coupled with advances in manufacturing and technology we’re now at the point where buying solar panels and fixing them to your roof is nearly as economical as buying electricity from the big utility company—more economical if you can make use of some of those government incentives.
This development scares the shit out of your utility company.
Moreover, the federal government has passed laws and made rules to make it easier for people to get their solar systems connected to the grid. A majority of states now have policies in place to ensure homeowners are able to get credit for the energy they export back into the grid in the middle of the day when they are not able to use all of it on-site. This arrangement is called “net metering.” The meter on your home records how much energy you use, so if you have a solar power system that produces more electricity than you can use at any given time, you’re only charged for the net consumption minus production.
When more and more homeowners create their own electricity for all the other ratepayers to use during peak hours, you may think everyone would benefit. However, utility companies are becoming very wary of home solar, because it means people are buying less of their energy, and they can’t simply increase rates on people who aren’t buying as much. We’ve used this cartoon before, but it bears repeating:
Utilities have been fighting the tide of residential solar for a long time. Trouble for them now is, solar is more economically feasible than ever before, so they have to take more control of the fight.
Duke Energy Progress, which sells electricity in several southeastern states, is fighting an all-out war on residential solar. The company is actively lobbying against North Carolina’s Energy Freedom Act, which would allow homeowners to more easily go solar by allowing them to lease the systems from third party sources, for zero upfront cost. According to the Solar Energy Industries Association (SEIA), about 70% of new solar installations are now completed with a leasing arrangement. Duke also wants to start paying its solar-generating customers less for their power.
All this is taking place while Duke buys or builds out thousands of acres of their own solar installations. The company understands that its customers want solar power, but it’s doing everything it can to keep all the financial benefits of solar for itself.
The cost of a solar installation is what it is, without risk of fluctuations in fuel costs or supply shortages. So Duke is expanding its own hold on solar even as two of the states it serves, Florida and North Carolina, ban solar leasing, effectively preventing all but the wealthiest homeowners from tapping into those same benefits.
Let that sink in: Florida—the sunshine state—bans power from sunshine for homeowners.
Also, North Carolina has a great solar tax credit for homeowners who have tens of thousands of dollars to spend up front, but the state won’t let installers offer leased systems. Such is the power of Duke Energy to influence lawmakers.
But this isn’t the most insidious tactic the utility companies are using to fight home solar. That would be net metering fees, and it’s no surprise that Duke Energy is trying to use these fees to hurt homeowners, too.
Net Metering Fights around the Country
In 2012, the leaders of the electric utility industry gathered in Colorado to discuss the future of electric distribution. Worried about declining retail sales because more and more utility customers were generating their own energy (the majority of whom were getting solar from a lease or PPA), the executives asked, in presentation after presentation “how do we continue to increase revenue in this environment?”
Releasing the hounds isn’t as cost effective as it used to be.
The answer to that question appears to be “fight against home solar in whatever way you can!”
The utility companies have paid attention to those powerpoint presentations, first by blocking third-party ownership of solar systems, as in Florida, North Carolina, and three other states, but also by attempting to pass laws that impose high fees on customers with solar panels on their homes.
The contention utility companies make is that customers who reduce their electricity costs through net metering by generating some of their own electricity from solar don’t pay their fair share of the other fees that help keep the grid running, and that those costs are therefore borne by the customers who don’t have solar.
First, the companies tried to impose fees through legislative means, but bills in state houses across the country failed, and failed, and failed again. So the utilities changed their strategy slightly, and bypassed lawmakers altogether, instead going to Public Utilities Commissions (PUCs) and asking for similar fees to be imposed on net metering customers. And they’ve had some success.
Arizona Public Services (APS), a utility that covers much of the Phoenix area, led the charge to get the Arizona Corporation Commission (ACC) to impose a fee on net metering customers, and they succeeded… mildly.
Their request was for fees of $50-$100 per month, which would completely eliminate the energy bill savings of a leased solar system, essentially making it impossible for third-party solar companies to do business in the state. Instead, the ACC added a fee of $.70/kilowatt (kW) of energy capacity, which means fees of only a few dollars per month for most systems.
That doesn’t mean the utility companies will stop pushing for ever-higher fees and changes to net metering. And a battle over net metering is brewing in Arizona’s neighbor, New Mexico, too.
The story is much the same in Wisconsin. Three utility companies there, We Energies, Wisconsin Public Service Corporation (WPS) and Madison Gas & Electric, successfully argued for fixed-fee increases for all new solar projects. The fees essentially make solar much less appealing for Wisconsin customers, in a state that, at the beginning of 2015, was really close to being great for solar.
Electricity companies have done pretty well convincing PUCs of the pain net metering causes them and their non-solar customers. And there have been a couple of studies that have given weight to those arguments. A recent study in Louisiana concluded that home solar was a net cost to everyone else, to the tune of $2 million per year. But people from all corners of the country have panned the study for inaccuracies and bad assumptions, and that its findings are largely based on the continuation of Louisiana’s highest-in-the-nation solar tax credit.
More convincing are the studies from Missouri, New York, Nevada, and Vermont, which show that net metering and home solar is a net benefit to all utility customers, and even the utility companies themselves.
The Value of Solar
Small-scale solar and wind have become popular because people want the benefits they can provide—not just spending less money on electricity, but long-term societal and environmental benefits as well. Those benefits can be calculated in financial terms, and there are benefits for the utility companies, too, because small-scale wind and solar provide a needed service known as “distributed generation.”
Distributed generation is exactly what it sounds like: multiple sources of electricity (like wind turbines and solar panel systems) spread across a wide geographical area. Having resources distributed like this benefits utility companies in a number of ways:
- It reduces the strain on the grid when demand becomes high, because multiple small sources of electricity (e.g., homes with solar) provide power when grid usage is highest
- It reduces the need for energy companies to spend money on fuel (coal, natural gas, etc.)
- It lowers costs of holding energy reserves, and building high-capacity power plants and oversized transmission systems
- It reduces maintenance costs associated with operating the grid
The New York study mentioned above actually contains a comprehensive analysis of multiple previous state-level studies of the valuation of solar. The authors analyze costs and benefits in 16 states, and then compute an average valuation based on the findings. Here’s a chart comparing the valuations of solar from those state studies:
That’s kind of hard to read on a small screen, so we’ll cut right to the main takeaway. The dashed line across the chart represents the retail cost of energy in each state. Each bar represents the value of solar found in a study, and the final bar way over to the right is a weighted average of all valuations. Just by looking at that right-most bar, you can see that, on average, solar power is a net benefit worth about 120% of retail rates based on the value of 13 factors that affect the utility company, ratepayers, and society at large.
So are any states working to adopt a value of solar proposition instead of net metering? Yes. Minnesota, neighbor of fee-loving Wisconsin, has proposed a voluntary program that would move away from net metering to a fixed payment based on a yearly valuation of solar power.
The Minnesota legislature passed a law in 2013 that required the value of solar to be studied. The study judged the costs and benefits associated with solar and assigned an actual dollar amount based on the findings. For 2014, the value of solar price was determined to be 12.5 cents/kWh average in the state. More specific estimates for the state’s largest utility, Xcel Energy, showed a value of solar rate of 14.5 cents/kWh, 3 cents higher than the retail electric rate at the time.
The value of solar program in Minnesota is voluntary, and so far, none of the state’s utilities has opted for it. But careful study of the proposal shows how it would benefit both customers and utility companies. Value-of-solar rates would be locked in for 25-year contracts, which means homeowners can be certain of the returns they can expect, and utilities get an unchanging, reliable source of energy and the ancillary benefits that come with it.
But Minnesota isn’t alone, and it isn’t the first place to try value of solar instead of net metering…
There… is… another…… value of solar test case.
Yes, just like Yoda says, there is another place in the country that uses value of solar to determine how system owners are paid: Austin, Texas. There, the municipal electric utility has long used a calculation based on similar factors to the Minnesota study.
In effect since 2012, Austin Energy’s value-of-solar program has paid an average of 11.9 cents/kWh for solar energy over the past 4 years. That 11.9 cents/kWh is about 8% higher than the average cost of electricity for customers who use 1,000 kWh per month (almost everybody), and because Austin Energy has tiered rates that get smaller if you use less electricity, the value of solar can be much higher than your average cost per kWh.
The value of solar is adjusted each year in January, and is paid to all solar generators served by the utility. The yearly adjustments are mainly influenced by the cost of natural gas, which is the main fuel used to make electricity for the city.
Although some argue value of solar is even higher than Austin Energy currently pays, the system works to maintain a stable, market-based price for solar energy that recognizes at least the majority of its benefits to the customer, the utility, and society at large.
How to beat Goliath
So what can we tiny Davids do in the face of a big ol’ group of Goliaths and their public-appointee pals? The number one thing we can do is advocate for state-by-state laws regarding net metering standards. Freeing the Grid is a tremendous resource of information about net metering policy and best practices in the states. You can go there now to get a good look at their 2015 report and arm yourself with information to use when writing your local representative for policy change.
Net metering policy has been left up to the states to figure out up until this point, but the most beneficial thing for society would be a strong national standard that governs how every utility company must pay producers for electricity, whether they are energy giants or your diminutive elderly neighbor with a newly minted 5kW solar system on her roof. It’s been tried before in congress, namely in a 2010 House bill, by Washington Representative (now Governor) Jay Inslee.
The bill was known as the Americans Making Power Act, or AMP for short, and it called for a nationwide net metering standard for all small energy producers, like schools, businesses, farmers, and homeowners. Unfortunately, it never left the House Committee on Energy and Commerce.
There is another way a nationwide standard could be accomplished. The Federal Energy Regulatory Commission (FERC), is a U.S. Federal agency that oversees financial operations of the wholesale electric grid. In the early 2000s, FERC decided that it did not have the power to set rules for prices paid for electric generation that comes from “behind the meter” (e.g., customer-sited small-scale solar and wind). Instead, the decision of how to pay for generation that exceeds the customer use at any given site is left up to the states in which the generation takes place.
FERC may someday decide to weigh in on net metering and the price paid for distributed generation that exceeds a customer’s usage. And be careful if it does. Some people are calling on FERC to step in and treat small generation more like wholesale, essentially regulating the prices paid by utilities to small generators and bringing them more in line with what is paid to power plants and large-scale renewable facilities. That could spell trouble for solar’s financial feasibility.
The good news is that right now, most of the country has good net metering policies that ensure a 1-to-1 relationship between kilowatt-hours of electricity generated by solar and reductions in energy bills. Coupled with currently-available national and state incentives, buying solar is cheaper over 25 years than retail energy in 26 states.
Until we have a nationwide net metering or value-of-solar law, watch out for backroom deals between nefarious electric companies and state public utilities commissions, and keep your solar panels close and your slingshot closer.
Last modified: March 4, 2019