Where Does Solar Go From Here

I recently read an excellent article by Christopher Freitas and Carol Weis for Homepower’s January and February 2017 magazine. It was concisely writing, laying out the future of net metering. Net metering is a way for homeowners, who have purchased residential solar systems, to sell power back to the utilities for a credit. Both the Federal and state governments, have put together various incentives to purchase and/or connect photovoltaic (PV) systems. However, the incentives are beginning to be phased out occurring to their original plans. But in some states, and growing in number, the utilities are altering the original plans. Why?

What is net metering? Under net metering, residential solar PV systems generate electricity, during daylight hours - maxing power generation when the sun is highest in the sky relative to the PV panels. Coincidentally, this is peak power consumption by commercial building and industry as air conditioners kick-in. With the resident presumably not at home, demand within the household is at minimum. Excess electricity generated at the house flows through a kilowatt hour (kWh) meter and into the utility grid. The kWh generated is counted and summed monthly in the form of credit for the resident. These credits are applied against evening electricity use or cloudy weather use. Excess credits are carried over from month to month, which allows the resident to “bank” them during the summer, when solar power generation is at its greatest and apply them to the winter, when solar generation is at its lowest.

Solar incentives. The interesting thing about US incentives, is that we were slow to create incentive programs relative to Europe. During the last energy crisis of $120 plus per barrel oil price, Europe moved fast to create incentives for commercial and residential consumers to participate in solar power generating systems. Both sectors took advantage of the incentives and installed these systems. This created an evolving national energy strategy. National energy strategies and policies need to be planned methodically and in the context of what each country has at its energy source at its disposal. As the energy source dynamics rapidly evolved for each country, solar incentives also evolved. Costs blew out as grid parity had not yet been achieved. While all this was happening, the US began to implement their policies. So, obviously when grid parity arrived, utilities would have to rethink their incentives to avoid power generation shifting from the utility to the consumer. While this may be the ultimate result over time (determined by the appropriate real estate needed for solar power generation - for apartment buildings of high energy consumption, small PV panel real estate versus the houses of low energy consumption, large PV panel real estate), it is disruptive to the utility sector and to the energy security of the US. After seeing the pull back of incentives in Europe, and seeing the large than anticipated impact of net metering in the US, the states and the utilities are pulling back on their incentives.

Altering net metering. With grid parity present now, the only remaining bottleneck is electricity storage. However, Elon Musk, CEO of Tesla, is constructing one of the world’s largest solar battery manufacturing plant, with several others locations being talked about. With current residential systems adding this technology to the system, reliance on the utility grid model rapidly decreases. This will accelerate the evolution of energy strategies and policies at the utility, state and federal levels. That day has arrived. There are 41 states, including the District of Columbia, US Virgin Islands, Puerto Rico, and AS who have mandatory net metering rules. Texas and Idaho have no net metering rules, but allow utilities net metering. Nevada, Georgia, Mississippi and Hawaii have statewide distributed generation compensation rules other than net metering. South Dakota, Tennessee and Alabama have no net metering programs. Hawaii, Nevada, Colorado, Arizona and California, yes California, are challenging net meter rules.

Hawaii ended its net-metering program in October 2015. In October of the following year, the Hawaii Solar Energy Association stated that the cap was already met on all island and that no new systems would be permitted. Since the ending of net-metering, solar related jobs have decreased by 42%, according to Christopher Freitas and Carol Weis.

Nevada changed its net-metering program in December 2015, by compensating consumers at the utility’s whole sale rate, instead of the retail rate and it increased the monthly fixed charges for grid-tied systems. The ruling was for both new and existing residential solar systems. The ruling was reversed by the same PUC grandfathering-in existing PV systems to receive full compensation, but the increased monthly fix fees remained in place. New grid-connected PV systems would be paid $0.092/kWh exported down from $0.113 and would continue to decrease every three years until it would be $0.026/kWh by 2028, according to Christopher Freitas and Carol Weis.

Colorado proposed a new structure in 2016 of increasing fixed monthly charges and decreasing the per-kWh credit. It was challenged by the Colorado Solar Energy Association. Under a new agreement, Xcel Energy will continue the net-metering, drop the proposed new rate structure, in exchange for a trial program based on the time-of-use table (paying PV residential systems more during peak power consumption than at other times of the day. This means that both peak power production (solar) and peak power consumption occur at the same times, thus benefiting those who are grid-tied.

In May 2015, a small utility in Arizona proposed decreasing the exported PV energy rates, increasing their fixed monthly PV system fee from $10 to $15 and adding a peak power demand charge for all customers. Two larger Arizona regional utilities were considering similar rate changes. In August 2016, Arizona Corporation Commission decided to accept the fixed fee increase but postponed the the kWh rate change until a study on the value of solar electricity was completed, according to Christopher Freitas and Carol Weis.

Lastly, in California, Southern California Edison, Pacific Gas and Electric and San Diego Gas and Electric proposed to the California PUC a new rate structure that reduced the net-metering compensation for all grid-connected PC customers. In January 2016, the California PUC denied the proposal. The utilities appealed, but the California PUC upheld their decision, citing that the utilities did not provide adequate evidence of cost shifting being caused by net-metering, and that the other benefits provided by PV systems, such as reductions in power plant emissions and pollution, as well as jobs and economic development, needed to be included in their calculations, according to Christopher Freitas and Carol Weis.

What can be concluded here is that rate structures are under attack by the utilities. Grid parity will certainly complicate rate structures. Elon Musk’s Gigafactory for batteries will very much play into his zero net energy vision and into the utilities vision. While rate structure changes could result in lower solar investment and solar industry job losses, a disruptive battery technology could result in a wholesale change to the utility sector. Should the battery technology be cheap enough and successful, households could move off-the-grid, forcing the grid costs to be paid for by non-solar households. The future of net-metering has huge impacts at the local, regional and national levels. Each state will really need to undertake an energy strategic review that includes grid-tied households and non grid-tied households, existing energy mix, future anticipated disruptive technologies and grid security.