Clean Power

Published on April 2nd, 2014 | by Peter Allen


VOSTs Don’t FIT With Our Energy Future

April 2nd, 2014 by  

rooftop solar installerAfter suffering nine stinging defeats over the past year and a half, big utilities seem to have learned that trying to stop the rooftop solar revolution by killing net energy metering is like standing in the way of a runaway freight train. That’s because everyone from legislators to lobbyists to consumers can clearly see the fairness and positive impact of these policies. And since net metering makes too much sense, utilities are looking for new and exciting ways to curtail rooftop solar and maintain their exorbitant profit margins.

It started with feed-in tariffs (or FITs). On the surface they seem like a practical sidecar to net metering, but in reality they impose taxes on consumers and allow utilities to maintain their monopolies. Now a new spectre has crested the horizon, this one with an even more obtuse acronym: VOSTs (or, Value Of Solar Tariffs). At their core, VOSTs operate just like FITs, with the same hidden tax problems for consumers. In short, what’s called a “tariff” is really a “tax,” and when it comes to taxes, a good accountant will tell you there’s always a catch. Here’s the catch…

Under net metering, rooftop solar owners generally get retail credit on their power bills for the excess energy they generate and send back to the grid. That means they get to use the power their panels produce, but if there is a surplus, they send that back to the grid and get fair credit for it. The utility sells it to homes and businesses nearby. With VOSTs and FITs, the utility buys all of the power generated by rooftop solar owners, then sells energy back to the same consumers in a separate transaction. The homeowners don’t actually get to use their solar power directly. According to a memo recently filed by law firm Skadden, Arps, Slate, Meagher & Flom, this creates an additional income tax burden on the consumer. It prevents them from receiving the federal investment tax credit for producing their own energy, plus the payments they receive for energy from the utility are taxable.

Unfortunately, the Minnesota Public Utilities Commission recently approved a VOST as an alternative to net metering. This means Minnesota consumers utililizing the VOST would’t actually get to use their homegrown energy as it’s produced, plus they have the tax burden to worry about, and utilities maintain control.

Although this VOST must be at least the retail rate for the first three years of the program, it will be recalculated every year for new customers after that point. This creates uncertainty in the rooftop solar market. While it may create a boom with solar growth in the first three years, we can expect a bust once the tariff is recalculated — at the discretion of the utilities, of course. These same utilities, by the way, are responsible for providing the data used in VOST recalculations. Talk about vertical integration!

In the final analysis, both FITs and VOSTs represent a dangerous overreach by utilities, allowing them to extend their arms behind the meter and disrupt the ever-expanding distributed energy market. But even if solar taxes eventually go the way of the dodo, you can expect Big Energy to devise a new policy acronym with new hidden costs for consumers. It’s the MO for their monopoly industry, and it won’t stop until we all stand up and say N-O.

Image: Rooftop solar technician via Shutterstock

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About the Author

is an independent media strategist based in San José, CA. You can read his many musings on Twitter @pjallen2.

  • There is nothing inherent in VOST that says it has to account for all the energy produced and used. If the VOST just applies to the energy production and consumption that crosses the point of common connection with the utility then most of these arguments against it go away.

    But, VOST is for a post-incentive world, just like NEM is part of the incentives that make PV a financial success now. The idea that we can keep NEM after PV reaches grid parity and high penetration is not reasonable. What happens when PV reaches close to 100% and no one is left to pay for shared electrical infrastructure? It’s not workable in the long run, but it makes a great incentive today.

  • CsabaU

    “Time of use” net metering is the way to go. Plain net metering is unfair. In the future, surplus midday overproduction may even get negative price, as sometimes wind power in Denmark, while users in the morning and evening demand peaks will have to pay top prices. That way producers of thermal solar units with heat storage will be profitable. In Sweden, electricity is cheaper at night, if you have smart meters.

    • Bob_Wallace

      That makes more sense than straight net metering to me.

      The next question would be whether the price should be full retail or something closer to what wholesale suppliers are receiving.

  • JamesWimberley

    Peter Allen’s article is overreach. Net metering is a fantastically good deal for solar home-owners, and it’s too good to last. I’m not on the side of the utilities trying to kill rooftop solar, but they are making one good argument. The grid and its connected suite of centralised power generators and stores, both renewable and fossil, is and will remain essential to almost all consumers, including solar households and firms. Some equitable way has to be found for consumers to pay for it. It’ s not fair to put all the burden on non-solar consumers: many are renters or flat-dwellers who have no choice.

    If homeowners were running 24/7 on biomass generators, they could reasonably say that this is not their problem. But solar households are generating at midday, and using grid power at night, with bigger swings than before. There really are issues of grid integration, entirely soluble, but with real costs.

    Minnesota’s VOST, like Austin’s, is a good-faith attempt to resolve these issues and deserves praise not brickbats.

    It’s disingenuous to say that “the homeowners don’t actually get to use their solar power directly”. They do. The difference is entirely in how it’s charged. The VOST/FIT system, under which self-consumption is deemed to be sold and bought back, means that a grid maintenance fee is paid on self-consumed electricity. You may or may not think this fair. But it’s not inherent to these sort of tariffs. You could apply a VOST only to fed-in electricity, but it would not be so attractive.

    The tax issues are specific to the US, perhaps to Minnesota. They are also not inherent to the VOST/FIT principle. In Britain say, solar FIT income is not taxed, unless the intention is to produce more than your self-consumption over the year:

    • Bob_Wallace

      This graph should make it very clear why net metering won’t work. It shows the wholesale price of electricity on sunny days before and after Germany had a few percent of solar on its grid.

      Early on, before there is much solar, a utility can accept end-user solar, use it rather than purchasing expensive peak supply, and pay back partly with expensive but mostly with less expensive night time power.

      But once there is ample solar the midday wholesale price of electricity collapses. The end-user fed electricity has little value. But the utility has to pay back, kWh per kWh with power which is at some times quite expensive.

      We need to devise ‘fair to all’ economic models.

      • Omega Centauri

        I agree. Net metering can’t scale to high penetration. I would think it would make sense to offer it only until some specified grid solar capcity is reached. Then new customers have to negotiate a different accounting scheme. Having older customers grandfathered shouldn’t be a big deal for something that is growing exponentially.

        Fpr now the anti- net metering looks to be anti-solar, and is too draconian given current penetration. But something will have to be worked out. And the way solar is growing we don’t have a lot of time.

        • Bob_Wallace

          I wouldn’t be surprised at all if it turned out that the anti-net metering was really about slowing solar growth.

          Many utilities are in deep trouble. The ones that own large thermal plants. Wind has already been eating into their profits, Exelon has six reactors in Illinois that have lost money for each of the last five years. It takes a surprisingly small amount of solar on the grid to destroy the high midday profits that traditional generation depending on for their profits.

          A bunch of money is in the process of being lost. Expect push back.

          • Kyle Field

            To be fair – push back is warranted. They have been in the business of producing power based on what we knew at the time – which they did and have been doing. Just because they banked on the future in terms of capital investments and expected paybacks doesnt mean they are the bad guys all of the sudden.
            Having said that, the market is shifting and it is in these turbulent times that new market leaders can rise – those who can adapt and integrate the changes at hand instead of just fighting them will survive and even thrive. In california, utilities realize that peak power is their bread and butter and are installing TONS of solar to capitalize on that and at the same time meet their sustainability targets. Lots of markets being upturned…we are truly living in a very exciting time in the history of the world energy (and automotive) markets.

          • Bob_Wallace

            If anyone should be aware of the need to change the way we generate electricity and the development of cleaner ways to do the job it’s the utilities. They should have been adjusting their business plans a decade ago in order to be ready for the transition underway.

            The ones that are working to defend their fossil fuel investments are not only going to lose, they’re going to lose larger. Utilities should be scrambling to own clean generation and storage. If they spend their time fighting to earn a few more dollars from their outdated coal plants they will give the future away to others.

  • bfr12

    Are the utilites buying ALL energy produced by a consumer’s panels or just excess energy? I would think the former would require panels to be tied in upstream of the consumer’s meter with a separate meter to measure production. The article makes it sound like that’s the case though by saying “the utility buys all of the power generated by rooftop solar owners, then sells energy back to the same consumers in a separate transaction.”

    Thanks for anyone who can clear this up for me.

    • Omega Centauri

      Unless they have access to the customers inverters, -or simply guestimate the customers PV production, I don’t see how they can account for production, as opposed to excess production. MY PG&E bill, although it is net metered, shows net power flows botn directions.

      • Offgridmanpolktn

        If it is one of the new digital, or smart meters, it is also monitoring all electrical production and usage in 1/100th of a second increments. These numbers don’t show up on the accounting provided to you by the utility company, but are stored in their computers and can be requested with a freedom of information request. This is how the utilities get their figures on what appliances and devices are being used when and for how long. There was a little stir in Congress about the companies not collecting or storing this information a while back, but it was decided to let them do so with the appropriate security (like Targets credit card info) and the release to customers with the right paperwork. Some of these have ended up needing the involvement of lawyers according to the media though.

        • Bob_Wallace

          Are you sure detailed information is being uploaded to the utility computers?

          Got a link?

          • Kyle Field
          • Bob_Wallace

            On that page –

            “The solid-state digital SmartMeter™ electric meter records hourly meter reads and periodically transmits the reads via a dedicated radio frequency (RF) network back to PG&E.”

            That’s quite as fine-grained as –

            ” it is also monitoring all electrical production and usage in 1/100th of a second increments. These numbers don’t show up on the accounting provided to you by the utility company, but are stored in their computers and can be requested with a freedom of information request.”

            Production and usage (2)

            100 times a second

            2 x 100 x 60s x 60m x 24hr = 17,280,000 pieces of information.

            Per customer. Per day. Must have some honkin’ big hard drives….

          • Kyle Field

            Only really says that they take hourly usage readings. Wikipedia says that they can also monitor supply quality, voltage fluctuations and that they enable time of use metering to incentivize off-peak usage (and make more for utilities @peak).

          • Bob_Wallace

            I suspect different systems work differently, but one idea is to sample meters and do some processing at more of a neighborhood level for monitoring line voltage, frequency, etc. That’s different than recording for billing purposes.

      • sault

        It’s probably just an accounting gimmick. Your inverter turns the electricity from your panels into the same voltage / frequency that you would get from the utility. Under net metering, if you need extra power, you get current from the grid and your electric meter spins forward. If you generate excess, you put out current to the grid and your meter spins backward. If the utility wants you to sell ALL of your array’s output to them first and then pay for ALL your consumption, they usually need 2 meters to do it. Regardless, your panels output to the “pool” of electrical energy out there and your house / business / etc. is probably first in line to use whatever it needs from that pool.
        They would want to do this for a variety of reasons which are outlined in this article. The utilities probably also want to play the game of buying up a bunch of solar energy around noon and then jack up the rates they charge during a later period like peak afternoon from 4 – 6pm or something. Buy low, sell high. Under net metering, people who have solar can run their meter backwards at noon and compensate for their usage later in the day when prices might be even higher, keeping the utility from maximizing their profits on the arrangement.
        In addition, VOSTs look like they’re more of a headache and require more up-front investment on the part of folks looking to install solar, so the utilities are betting that this will put a damper on solar installations somewhat.

        • Omega Centauri

          I think they are just monitoring the flow to/from the house. I can’t see how they could separate out the PV production.
          I wouldn’t be surprised if they are gathering other finer data for research purposes. I think it would be problematic to identify individual appliances from the waveform however.

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