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A Few Things We Know About Solar

“Where you stand depends on where you sit.” That adage is generally attributed to Rufus Miles, a Department of Labor official in the late 1940s. It has become known as Miles’ Law.

The maxim has many applications, few more appropriate than understanding the positions of disputants engaged in debates over America’s policies toward solar energy development.

I say this with reference to Karl Rábago’s article, “The Net Metering Riddle,” just published on our website, and another one we published last month by Ahmad Faruqui, “An Economist’s Dilemma: To PV or Not to PV, That Is the Question.” Both articles address our nation’s policies toward solar energy development—particularly policies affecting development of rooftop solar photovoltaic systems—but the views they express toward that issue are quite different.

Mr. Rábago has long experience in the electricity industry as an attorney, a municipal utility official, a state utility regulator, a policy expert, and a solar energy advocate. Mr. Faruqui, an economist, advises investor-owned utilities, as well as state regulators and other government agencies on a variety of matters, including solar energy development. He has been critical of some policies that support solar.

One thing is clear, given the continuing decline in solar energy costs, particularly with generous extension of the Solar Investment Tax Credit (ITC) in the December 2015 omnibus spending bill; everybody loves solar. Utility customers, large and small, love it. Climate change warriors love it. Most policy wonks love it. The public generally loves it. Utilities love it too—don’t think they don’t—as they commit to projects of various size, basking in solar’s low cost, tax advantages, and the public approval that comes with it.

Solar is cool. But what kind of solar?

Utilities are keen to develop large-scale solar projects because they are attractive investments on which they can earn a profit. In 2015, Mr. Faruqui’s firm, The Brattle Group, produced a report demonstrating that large-scale solar can produce energy for about one-half the cost of small-scale rooftop solar. Though large-scale solar is usually remotely located and requires delivery to load centers, with those costs and environmental consequences, it would still likely have a cost advantage over rooftop solar.

Utility customers install rooftop solar systems because they can lower their utility bills, especially during the summer air conditioning season. With the federal ITC, state incentives and renewable energy credits (RECs), the investment offers a quite reasonable payback period. Solar also tends to increase the value of a residence. Finally, under most state net energy metering (NEM) policies, any excess solar energy the customer produces is credited at the utility’s retail rate—a rate utilities increasingly object to paying, saying that they can acquire energy for much less in the marketplace. All considered, even without NEM, rooftop solar can be a pretty attractive package.

But utilities are less than eager to support customer-owned rooftop solar installations for several reasons. First, they lose revenue to the customer’s self-supply. As more customers turn to rooftop solar, particularly in sunny states, the revenue shortfall can be significant, prompting the need for rate increases at a time when utilities need to modernize and strengthen the grid. Some utilities are responding by proposing higher customer charges or demand charges to make up for the shortfall.

Such charges, if regulators permit them, may be effective so long as customers opt to keep the 24/7/365 backup the utility connection affords. But as batteries like Tesla and others are developing for utility customers’ home or business use become cheaper, they could lead to more complete grid defection for some: cutting the umbilical cord to the utility.

Net energy metering may also figure in the trend toward development of rooftop solar through leasing, with little or no upfront costs for customers. It’s very popular.

There is a solution.

Are we headed for a stalemate then? Customers vs. utilities? That’s not a good result for either side. Utilities surely don’t want to be pitted against their own customers and reap the whirlwind of negative attention that NV Energy and the Nevada Public Utilities Commission attracted with the PUC’s decision not to grandfather NEM at retail rates for existing solar customers. The commission later moderated its order significantly, extending to 12 years a transition period for NEM payments, from the utility’s retail rate to a wholesale rate. But the damage was done. There’s now a ballot measure in Nevada to extend retail choice to all NV Energy customers.

To quote the regrettably departed philosopher Rodney King, “Can we all get along?”  We think we can and the answer lies in two words: community solar. We’ve taken too much space to get to this point, so we’ll put off discussing the many benefits of community solar to another day.

For now, suffice it to say that community solar (a/k/a shared solar, or solar gardens) can bridge the benefits of large-scale and rooftop solar, being of sufficient size to be cost-effective, while being sited throughout utility distribution systems to great benefit. We see no reason that utility customers, solar developers, and utilities cannot all share in the benefits of this solution to what seems an intractable problem.

Community solar is not a compromise; it’s the best of both worlds—and one that can be shared with all customers.

This story has been republished with permission from ElectricityPolicy.com.

Robert Marritz
Robert Marritz is editor and publisher of ElectricityPolicy.com
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2 thoughts on “A Few Things We Know About Solar

  1. I know Ahmad Faruqui and he is a highly qualified energy economist. But, as he will readily admit, he is also an advocate of energy demand management and conservation – even if supported by subsidies. I depart from Ahmad on that last point. I am especially opposed to solar subsidies.

    Mr. Marritz says, “One thing is clear, given the continuing decline in solar energy costs, particularly with generous extension of the Solar Investment Tax Credit (ITC) in the December 2015 omnibus spending bill; everybody loves solar.” I would argue that, to the extent they understand the shell game, the people who pay the subsidies do not “love solar.” The “decline in solar energy costs” attributable to the credits is not a true cost decline. Economists measure costs in terms of opportunity costs – subsidies nearly always fail versus the market in allocating resources efficiently. The solar subsidies to homeowners are no more defensible than the $7500 per vehicle subsidy to buyers (mostly rich) of Tesla automobiles.

    Much of the decline in true solar costs is attributable to the over production by Chinese firms. Much solar production is economically inefficient.

    If energy consumption results in negative externalities then it would be far better to impose a revenue neutral tax on it. That would promote more efficient use of available technologies and stimulate the search of economically efficient new technologies.

  2. @ Bob Wayland: Any mention of energy subsidies should at least reference the $ billions spent annually to subsidize fossil fuel companies. In recent years, coal, oil and gas producers have received ~$20.5 billion annually from the US Government. (http://www.ibtimes.com/us-fossil-fuel-subsidies-increase-dramatically-despite-climate-change-pledge-2180918) This is an incredible waste of taxpayer dollars, and must be addressed BEFORE any renewable energy subsidies are decreased. Fossil fuels have a century’s head-start on renewables. There is absolutely no need to provide subsidies to the likes of BP, Exxon-Mobil and Halliburton, companies that are making billions in profits each year.

    However, providing a tax incentive (Investment Tax Credit) for individuals and businesses encourages investment in renewable energy, and makes it affordable for many. I, for one, could never afford an oil well, but with the ITC was able to install significant efficiency improvements, solar hot water, solar photovoltaics, and a ground-source heat pump on my home over the last few years, bringing my annual energy consumption down to net-zero.

    At the state and local level, we need to increase efficiency requirements (such as a pre-requisite for an energy audit or HERS score prior to installing solar). There are far too many homeowners who are being duped into installing over-sized solar arrays because they haven’t addressed basic efficiency problems like air leakage, incandescent lightbulbs, or lack of insulation.

    Transitioning to electric vehicles can both make utilities billions in new revenue, and reduce consumer expenses. For many states, residents pay far more per unit of energy for gasoline than for electricity. Without an internal combustion engine, electric vehicles achieve 2-3x the distance per unit of energy than gasoline or diesel cars (~120 MPG equivalency for Leaf or Tesla). That means that spending $0.20/kWh to power an electric car is a better deal for the consumer than spending $2.00/gallon for gasoline. This provides a huge opportunity for utilities to increase their revenue, spread out infrastructure costs, AND transition to 100% renewable energy. Win-Win-Win.

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