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Is Socialism What’s Stopping A Fair Value For Solar?

Karl Rabago & John FarrellComplete nonsense. The most socialistic thing I’ve ever heard. That’s just two quotes from a value of solar conversation between ILSR’s John Farrell and Karl Rábago of the Pace Energy and Climate Center that took place online on July 8, 2015.

More and more people are installing solar, significantly reducing their purchase of electricity from utility companies. In response, many utilities are proposing changes to fees and compensation to reduce the incentive to go solar. In 2013, Minnesota lawmakers tried to identify a compromise, called the value of solar, to have utilities accurately calculate the value of electricity from customer-owned solar arrays. While the policy has helped add to the mountain of evidence that solar energy has significant value, no utility has adopted it.

The following summary is of a webinar conversation to uncover what solar is worth, and how legislators and energy regulators can implement policies to support that value. The webinar was largely based on this post: We Have Value of Solar, But Should We Use It?. Note: the video below cuts out 10 minutes early but has some useful annotations. Click here for the annotated full video.

Karl Rabago Video Thumbnail

John began with a 10-minute overview of the value of solar policy, and then he began with some “sponsored questions” from solar luminaries for Karl to answer.

Not Buy-All Sell-All

Karl opened by clarifying a further point about the value of solar policy: it’s not a feed-in tariff where customers buy all their power from the utility and sell their solar production to the utility. Rather, it’s a twist on the bill credit concept of net metering, but changes the value of the bill credit from kilowatt-hours to a calculated value of solar energy. The transaction remains behind the meter.

How Can Customers Make an Informed Investment?

Rick Gilliam of Vote Solar asked, how can customers anticipate their investment with value of solar instead of net metering? Karl notes that net metering allows customers to understand how their consumption will be reduced, and to assume that if electric rate rise, so will their savings. As designed in Minnesota, customers would lock in a known price for their solar energy, and if they can count on their solar array to produce as much as they expect, they could accurately know better what their expected revenue would be over time.

In other places, however, the value of solar price isn’t locked in. In that case, it would be more like net metering where the future of electric rates is not known.

Can Utilities Implement New Policies?

electric meter - flickr JoeJigar Shah notes that net metering is a legacy of antiquated utility billing systems, where the mechanical utility meter could only tell the utility how much energy was consumed since the last time it was read. The rotating disk could go forward or backward, and if a customer had solar, show the net use. New technology enables new policies, such as pricing based on time of consumption.

If a utility has only the original mechanical meters, it won’t be able to implement anything more sophisticated. For example, Xcel Energy in Minnesota may not be able to implement the state’s value of solar tariff without upgrading their mechanical meters.

How Will the Value of Solar Change?

In the most sophisticated system, a utility with minute-by-minute knowledge of the cost of power delivery would be able to price the value of solar all the time. It would be the polar opposite of long-term, fixed price power purchase contracting, the more typical practice.

interest rates - flickr Mike MozartThe level of stability is a policy choice, and Karl suggests that customers should be able to choose. Those who want a long-term, fixed price could accept a modestly lower price for solar generation. Those who are willing to accept the risk of fluctuation could get a higher rate (the reverse of home mortgages, where adjustable rate mortgages are cheaper—initially—than 30-year fixed mortgages).

Net metering, based on retail electric rates, is a mix. Rate cases don’t necessarily happen every year, but rates can go up or down, changing the compensation for solar producers (in the past decade, rates have gone up steadily). Karl notes that “I’ve only done a few hundred of them…but in [no rate case] that I’ve seen has the solar industry appeared to say, when you set this retail rate remember that this is going to be the substitute rate for solar.” In other words, utilities don’t consider the retail rate to be a substitute for the value of solar, and a rate case considers many more factors than solar value. They’ve often been the vehicle for utilities to insert unfavorable charges against solar customers.

Demand and Fixed Charges

Charges based on peak energy use or fixed fees are policy tools utilities can (and have) used to reduce the economic value of conservation or solar energy. They are costly and also economically irrational, says Karl.

“How easily a utility could go to a customer…and use some demand response or solar or some storage and find a far less expensive way to reduce their peak [energy use] than just to charge them for it and to build the system for it…This is a rate that says ‘please, make us overbuild the system…starbucks logo w cover - flickr Barbara Piancastelli and JFFmake us find the most expensive solution to customer behavior that’s out there. Make us ignore all the other alternatives.'”

Such charges are also unjust.

No utility should be allowed…to impose charges on customers that customers have no tools to manage against.” It incentivizes overbuilding the electricity system in a way that is profitable for shareholder owned utilities to the detriment of electric customers.

Karl skewers another utility company sacred cow: that fixed fees are necessary to recover fixed costs. It’s “Complete nonsense…just a way of securing monopoly rents.” He illustrates with Starbucks. It’s a “high fixed cost business. But they are very competitive with a variable pricing scheme. They would not survive if they had a $10 cover charge.”

Average Rates are the Bigger Issue

Utilities lump customers into very large classes—e.g. commercial, residential, industrial—that create unreasonable expectations. Karl notes, “Most of the utility argument today about the problem of solar is that customers with solar are using less electricity than the utility hoped they would.” Utilities “calculate an average rate for an entire customer class (whether it’s a low-income household with fridge and box fan or a rich suburbanite with 10-ton air conditioner). They complain that when you go spend some of your hard-earned money…to reduce your electric bills, that they have to be able to charge you back because you’re not using average in your class. It’s the most socialistic thing I’ve ever heard.”

another duck chartThe Impact of Solar on Demand (the Duck Chart)

Some utilities are crying “fowl” with a “duck chart” that illustrates how solar’s impact on mid-day electricity demand could—with no other action—cause a rapid ramp in energy demand as the sun sets. Karl suggests that his duck chart (right) is just as useful for understanding the issue, and notes that Jim Lazar from RAP (and many others) have shown a host of resources we can use.

The Big Picture

Perhaps no comment was as illustrative of the battle over value of solar than Karl’s anecdote from a question he asked of a utility executive. In that conversation, Karl said, “How do you value behind the meter generation?” The utility person replied, “Because we neither own nor control it, we assign it no value at all.”

This article originally posted at ilsr.org. For timely updates, follow John Farrell on Twitter or get the Democratic Energy weekly update.

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Written By

John directs the Democratic Energy program at ILSR and he focuses on energy policy developments that best expand the benefits of local ownership and dispersed generation of renewable energy. His seminal paper, Democratizing the Electricity System, describes how to blast the roadblocks to distributed renewable energy generation, and how such small-scale renewable energy projects are the key to the biggest strides in renewable energy development.   Farrell also authored the landmark report Energy Self-Reliant States, which serves as the definitive energy atlas for the United States, detailing the state-by-state renewable electricity generation potential. Farrell regularly provides discussion and analysis of distributed renewable energy policy on his blog, Energy Self-Reliant States (energyselfreliantstates.org), and articles are regularly syndicated on Grist and Renewable Energy World.   John Farrell can also be found on Twitter @johnffarrell, or at jfarrell@ilsr.org.

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