TODAY’S STUDY: The Fight For U.S. Solar
The 50 States of Solar; 2015 Policy Review/Q4 Quarterly Report
Benjamin Inskeep, Autumn Proudlove, et. al., February 2016 (North Carolina Clean Energy Technology Center)
2015 Policy Overview
U.S. Distributed Solar Market
Distributed solar PV is booming in America. Today there are more than 867,000 solar PV installations in the U.S., with new systems being installed at a rate of roughly one every two minutes.
Rapid cost declines have been key in propelling recent growth in distributed solar PV. The average cost of a residential system in the U.S. was down from over $12 per watt in 19982 to roughly $3.50 per watt in Q3 2015.3 While the majority of the cost declines from 2008 to 2012 were due to falling hardware costs, nearly all of the reductions in residential system price since then have been attributable to falling non-module costs. 4 However, nearly 60% of the cost of a residential system is still attributable to non-hardware costs, including on-site labor, engineering, permitting, and other soft costs.5
Congress enacted a long-term extension and eventual phase-out of the federal solar investment tax credit in December as part of a Congressional budget deal, providing an additional boost to the solar industry. GTM Research forecasts that the extension of the federal investment tax credit will increase residential solar PV installations by 35% and non-residential installations by 51% between 2016 and 2020 compared to a scenario without the extension.
Key State Solar Policies Undergoing Scrutiny
Despite strong growth trends, falling costs, and federal tax credit certainty, state policies and regulations that substantially affect the financial viability of distributed solar PV are experiencing considerable uncertainty and volatility. Against the backdrop of accelerating adoption of distributed solar PV by their customers, a growing chorus of electric utilities have expressed concern about the impact of existing net metering policies, rate design, and proliferating customer-sited distributed energy resources (DER) like solar PV.
Utilities have argued that the proliferation of DERs can disrupt the traditional utility business model by reducing sales of electricity. Reduced revenue from declining sales could result in utilities failing to fully recover the costs of generating and other grid assets. As more customers implement DER options, the utility serving them could be left with increasing costs to be assigned to a shrinking number of rate-payers and energy sales. Those costs increases in turn could motivate additional customer adoption of DERs. This phenomenon, dubbed the “utility death spiral,”7 is perceived by some as a significant industry challenge under existing regulatory frameworks and policies like net metering.
A growing number of utilities have been calling for new ways of treating rooftop solar, proposing changes that impose limits on net metering policies, reduce compensation for solar-generated electricity exported to the grid, increase fixed customer charges, add new charges on solar customers, and restrict third-party solar financing models. Some utilities have also proposed entering the solar market themselves by offering their own rooftop solar program to customers.
The solar industry and others have opposed many of these changes, countering that distributed solar PV offers a broad range of services that benefit all ratepayers. Such benefits include, but are not limited to, avoided energy and capacity costs; decreased or deferred generation, distribution, and transmission investments; avoided line losses; and reduced price and supply risks. From this viewpoint, net metering represents a simple and administratively efficient method of accounting for electrons exchanged between the utility and distributed generators during a billing period that reasonably approximates the value of rooftop solar.
In the report Designing Distributed Generation Tariffs Well: Fair Compensation in a Time of Transition, published by the Regulatory Assistance Project, the authors point out that because of the number of services distributed generation can provide to the grid, cross-subsidies can flow both ways—either from DER customers to non-participating customers or vice versa—and recommends regulators implement a methodology that fairly considers these benefits and “build policies, regulations and tariffs that recognize the characteristics of their state and utility in question.”
The utility and solar industry perspectives are illustrated in Figure 1. These representations demonstrate that while utilities see lost revenue and cost shifts when they think of rooftop solar, the solar industry sees customer savings and value added to the grid.
Policies supportive of distributed solar PV are in an important era of transition. How key state policies and rates are adapted will play a significant role in determining the extent to which the industry will continue to grow and in what markets.
2015 Solar Policy Action
In 2015, regulators, lawmakers, or utilities in at least 46 states studied, proposed, or enacted policy changes pertaining to net metering, valuation of distributed solar, fixed or solar charges, third-party or utility-led rooftop solar ownership, or community solar…
Top Five State Distributed Solar Policy Developments in 2015
1-Net Metering and DG Compensation Policies in the Spotlight, from Hawaii to Maine In the final quarter of 2015, regulators in both Hawaii and Nevada became the first two states to end net metering as it is commonly defined. Instead, customers will be compensated for grid exports at the avoided cost rate, a type of policy known as “net billing.” In contrast, California regulators upheld retail rate net metering until at least 2019, and after lengthy investigations, regulators in both Colorado and Iowa decided to keep existing net metering policies without changes. South Carolina implemented net metering rules for the first time, whereas Mississippi regulators enacted a net billing policy after years of deliberation. Maine, Louisiana, and a number of other states are considering alternative policies to replace net metering.
2-Utilities Request Substantial Increases in Fixed Charges, New Solar Charges Sixty-one utilities in 30 states proposed increasing fixed charges levied on all residential customers, making it the most frequent policy proposal impacting distributed solar in 2015. Since fixed charges generally cannot be offset with net metering credits, higher fixed charge components in a utility’s rate design can significantly reducing the financial value of going solar. There were 21 examples in 13 states of utilities proposing extra charges or fees on solar, distributed generation, or net metering customers, but few were approved.
3-New York, Arizona, and Utah Among States Studying Costs and Benefits of Solar The Arizona Corporation Commission and the Utah Public Service Commission are reviewing the costs and benefits of net metering for utility customers in those states. The value of distributed generation is also being studied as part of grid modernization efforts such as the Reforming the Energy Vision proceeding in New York. The results of these studies will influence future net metering policy development and any successor tariffs.
4-Minnesota Unlocks Solar Boom with Community Solar Program Xcel Energy’s community solar gardens program has catalyzed development activity in Minnesota. The program remains one of the most ambitious community solar solicitations in the country. As of January 2016, only one project had been developed with over 1,500 additional applications in the queue, totaling more than 1,400 MW.
5-Georgia Clears Path for Third-Party PPAs, as Florida Ballot Initiative Sputters Third-party ownership (TPO), in the form of solar leases or power purchase agreements (PPAs), is a financing mechanism that has fostered the growth of solar markets throughout the U.S. In 2015, the Georgia legislature passed House Bill 57, which enabled third-party ownership. A Florida ballot initiative to legalize third-party PPAs was postponed until the 2018 election…