As Rooftop Solar Grows, What Should the Future of Net Metering Look Like?

Almost every state has been weighing changes to how homes with solar are compensated for electricity they send to the grid. The results will impact solar growth.
Like solar installers across much of America, Mark Hagerty is adapting to drastic changes in the economics of his business. His state, Michigan, is one of many that are cutting the rates rooftop solar owners receive for selling excess power to the grid.
“We’re going to do fewer jobs, and each job is going to be a smaller size,” said Hagerty, president of Michigan Solar Solutions, a solar installer based northwest of Detroit. His comments echo concerns now being voiced by solar installers in many states as new rules take effect.
The changes are part of a flurry of activity across the country as regulators and legislatures in almost every state referee a showdown between powerful utilities and a rooftop solar industry offering options that are more affordable and popular than ever. The results run the gamut, from a solar-friendly bill that became law in Maine to one that will sharply reduce the financial benefits of solar in Kentucky.
Amid the noise of competing proposals, a pattern is emerging: States are moving away from “net metering” policies that require utilities to pay solar owners the full retail rate for excess electricity sent to the grid.
The shift is happening in part because of an aggressive push by utilities to reduce what many of them see as a form of competition that could harm their bottom line. And yet, even solar advocates say these changes are likely inevitable as the electricity system adapts to the rapid rise in rooftop solar.
The question for all sides: What does a successor to net metering look like?
One possibility being explored in several states is to develop rates based on the value of rooftop solar power to the grid, including environmental benefits. Others are siding with the utilities in their push for rates for solar owners that are much lower.
As Solar Makes Inroads, Utilities Push Back
More than 1.8 million U.S. households have their own solar power systems, up from just over 137,600 households in 2010, according to the Energy Information Administration. Onaverage, a rooftop system on a house will pay for itself through utility bill savings in fewer than eight years, according to a recent EnergySage report.
Small-scale solar is still a tiny share of the country’s electricity output, just 0.7 percent last year, but utilities and regulators are looking ahead to when it may be much more.
Rooftop solar has been making inroads outside of the sunny states that were early adopters, helped by state incentive programs, falling costs and the momentum of new businesses that sell and install solar. This growth is part of the country’s transition toward a cleaner and less centralized grid, and it depends on many elements that affect the costs of systems.
“Solar is maturing,” said Sachu Constantine, managing director of regulatory affairs for Vote Solar. “We are having more penetration in more states, and, as a result, a lot of states are reconsidering the net metering structure.”
But increasingly, utilities are seeking reductions so deep that home solar systems will take much longer to pay off, making them less attractive to businesses and homeowners, he said. At the same time, a federal tax credit, currently worth 30 percent of a consumer’s costs of adding solar, is set to phase out by the end of 2021.
The solar industry would be much more anxious about the phase-out if not for countervailing factors, such as the declining costs and rising efficiency of solar panels. But the efforts to lower net-metering payments present a thornier problem.
Utilities have shown they have the political clout to overpower opposition in states such as Kentucky this year and Michigan in 2016, when lawmakers laid the groundwork for the rate changes approved last month for the state’s largest utility, DTE.
Many utilities argue that rooftop solar customers, who typically have very low electricity bills because they generate so much of their own power, are not covering enough of the costs to maintain the wires and other infrastructure of the grid, which they say shifts those costs to other customers.
Solar advocates say that is a stretch, especially in the many states where customer-owned systems remain a miniscule share of electricity generation. But it is a central theme in legislative debates almost everywhere, due in part to Edison Electric Institute, a utility trade group whose messages on net metering help to shape what utilities say on the state level, and the American Legislative Exchange Council (ALEC), a national group that supports corporate interests in statehouses.
Burcin Unel, energy policy director for the Institute for Policy Integrity at New York University’s law school, said it’s more important to look at costs in the context of broader benefits for the grid and the public.
“You need to look at what costs are avoided and what benefits we get and then ask if there is a cost shift from a societal perspective, and then ask if that’s something we’re willing to tolerate,” she said. “Just the existence of cost-shifting is not the Big Bad Wolf.”
Calculating Rates by Value of Solar
The new rules that states are now debating would replace a framework that goes back to the early 1980s, when regulators and utilities used the full retail rate to compensate owners for the excess solar power they sent to the grid largely because the full retail rate was easy to calculate and manage.
The definition of the term “net metering” varies by jurisdiction, but it often means that a customer’s electricity meter runs forward or backward depending on whether the household is importing power from the grid or exporting extra electricity produced by its solar panels at that moment. When using a single analog meter, there is no easy way to charge different rates for imports and exports, so the default was to charge the full retail rate for both.
As utilities install advanced meters, more options are opening up.
“I think we’ve always known that there had to be some sort of reckoning,” said Constantine of Vote Solar.
Solar advocates in several states have responded to utility proposals by saying a better approach would be to replace net metering with rates that are based on a calculation of the value of solar to the grid, including environmental benefits.
But this approach comes with plenty of its own challenges.
A ‘Value of Solar’ Test Case: Minnesota
Minnesota has been a leader in developing a system to determine the value of solar for setting rates. Five years ago, the state came up with a method based on estimates of the costs utilities are avoiding because they don’t need to generate
and deliver the electricity being produced by solar, and of savings due to emissions reductions and other environmental benefits.
So far, Minnesota uses its “value of solar” rate to pay for electricity generated by solar gardens, which are subscription-based solar developments, while retaining full-retail net metering for solar power systems owned by individual residents and businesses.
Utility companies make annual estimates of the value of solar, subject to review and approval by regulators. The rates submitted by Xcel Energy, Minnesota’s largest utility, have been lower than full retail and have had some big fluctuations from year to year.
The results raise questions about whether this is really capturing the value of solar, said Timothy DenHerder-Thomas, general manager of Cooperative Energy Futures in Minneapolis, an organization that manages and develops clean energy projects.
“There is so much statistical noise and uncertainty in how you calculate these things that I don’t know how to do it in a way that’s quote-unquote accurate,” he said. Developers are in the position of waiting until a year with a good rate, hoping to lock in the best terms.
The upshot is that regulators are still figuring out how to calculate the value of solar in way that leads to rates that are conducive to solar development.
‘A Pretty Big Transition Underway’
Already this year, officials in at least 43 states, the District of Columbia and Puerto Rico have considered measures related to customer-owned solar, according to a report by the NC Clean Energy Technology Center at North Carolina State University.
“It indicates that there’s a pretty big transition underway,” said Autumn Proudlove, the lead author and senior manager of policy research for the center. “Part of it is increasing adoption of solar and reduction of prices.”
The Kentucky law is notable as the clearest example this year of utilities successfully using an aggressive anti-solar strategy. Other attempts, such as a push for a solar fee in Iowa, were defeated. The Kentucky measure reduces the
rates paid for rooftop solar, with regulators left to decide the specifics of the new rates.
There’s a possibility that some utilities’ gains may be short-lived, based on one- sided proposals passed in recent years that led to customer backlash and reversals in some states. Nevada passed a measure cutting rates for rooftop solar in 2015 only to largely restore the old rates after an uproar from residents. Maine regulators cut solar rates in 2017, and then the old rules were restored by a law signed in April by the new governor, Janet Mills.
Policy changes are more likely to endure when they arise from compromise, said Constantine. So far this year, new laws in Arkansas and South Carolina look like they have resolved many of the concerns of the solar industry in a way that is amenable to utilities.
Arkansas legalized solar leasing, which opens up the solar market to residents and businesses that can’t afford to buy systems, while also leaving some restrictions that utilities wanted. South Carolina lifted a cap on new rooftop systems eligible for full retail net metering. It was part of a larger plan that begins a process that likely will reduce rates, but not as low as they would have been if the cap had continued.
In Michigan, Installers Feel the Impact
Solar installers and consumers, meanwhile, are trying to deal with the changes in the rules. In Michigan, this affects the territory of the utility DTE, which serves the southeast part of the state, including the Detroit area.
Under DTE’s old rates, a typical household solar system would pay for itself in 9.4 years, according to afact sheet from the Michigan Public Service Commission.
Now, under the rates approved last month, it’s 13.3 years. If DTE had gotten the rates that it wanted, that would have been 17.7 years.
So far, people shopping for systems are responding to the changes by buying smaller systems, which means they will have lower upfront costs and less excess electricity, said Hagerty, the solar installer. That’s bad for his business.
“We were working seven days a week before, and now we have to work even harder,” he said. “And the amount of work we’re putting in is leading to even less money now.”
But he also has seen an uptick in customers who want to buy solar along with battery storage because there is now a financial incentive to reduce their excess energy that would otherwise go to the utility.
The rules are so new that he doesn’t yet know how they will affect his business and the growth of solar in Michigan. But at a time when the country needs to lower its carbon footprint, he thinks the state is sending the wrong message and failing to see the larger picture.
Indeed, the debate about net metering is just part of a much larger one about how the energy system and economy will adapt to rapid changes, said Unel of New York University.
“This is not just about solar panels,” she said. “It’s about how we want to transform the grid. The grid is going to transform whether we want to or not, so we should put in the policy framework to guide the investments in the most societally beneficial way.”

New Solar Permit Software to Reduce Costs and Expand Residential Markets

Monday, Jul 01 2019

NREL receives funding to develop automated permit software with industry and  nonprofit partners

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WASHINGTON, D.C. – The Solar Energy Industries Association (SEIA) and The Solar Foundation are joining the National Renewable Energy Laboratory (NREL), several national residential solar companies, and other nonprofit organizations to develop new automated permit software for distributed solar and storage, reducing the cost of solar installations and saving resources for local governments and taxpayers. \

REL was awarded $695,000 in new funding from the U.S. Department of Energy’s Office of Technology Transitions, Technology Commercialization Fund to develop and deploy the Solar Automated Permit Processing (SolarAPP) software platform. The intent is to dramatically reduce the time and cost of the permitting application review and approval process, which in turn will decrease customer cancellation rates and expand solar energy development and solar job growth nationwide.

The partners working with NREL on the SolarAPP software include installation companies as well as key nonprofit organizations and trade associations. Partners include the California Solar + Storage Association, Institute for Building Technology and Safety (IBTS), Solar Energy Industries Association (SEIA), The Solar Foundation, SunPower, Sunrun, Tesla, and Vivint Solar.

These groups are active participants in the SolarAPP Campaign, a national initiative of The Solar Foundation and SEIA which seeks a fundamental reshaping of solar permitting at the federal, state, and local levels. The goal is to allow most routine rooftop solar projects to receive instantaneous approval and efficient inspections, while enhancing safety and reliability. “Over the past decade, NREL research has shown that while the cost of PV modules and other hardware has declined, nonhardware ‘soft’ costs remain relatively constant. The SolarAPP software will help address key soft cost challenges by providing both AHJs and installers a standardized online portal to complete and manage permitting and inspection processes,” said Kristen Ardani, Solar Analysis Sub-program Lead at NREL. “We look forward to serving the critical role of an independent, third-party developer of the SolarAPP portal.” “The SolarAPP platform will help local governments reduce administrative burdens and make it faster and easier for customers to go solar,” said Andrea Luecke, President and Executive Director at The Solar Foundation. “At a time when accelerating the deployment of solar and storage has never been ore urgent, this platform fills a critical market need.” “Inefficient permitting can cause frustration and added costs for Americans who just want to go solar,” said Abigail Ross Hopper, President and CEO of the Solar Energy Industries Association. “A streamlined, easy-to-use solution such as SolarAPP can cut down on burdensome applications and connect solar projects to the grid faster. A more reliable permitting experience will help both inspectors and solar customers save time and money without sacrificing safety or quality. We’re thrilled to see SolarAPP get financial backing from the Department of Energy and will continue to actively support this important initiative.”

While the cost of residential solar installations has decreased more than 70% over the last ten years, costs are still much higher in the United States than in other mature markets, largely due to non-hardware “soft costs.” The direct and indirect costs of permitting, inspection, and interconnection, including efforts spent acquiring customers who cancel before a permit is issued, can add about $1 per Watt, or $7,000, to the cost of a typical residential system.

Nationwide, there are over 20,000 authorities having jurisdiction (AHJs) with distinct permitting and inspection requirements, application costs, and approval times. The SolarAPP platform will provide a streamlined process that will increase efficiency and reduce the time and cost of a solar permit, leading in turn to lower cancellation rates. “Sunrun is proud to partner with NREL, The Solar Foundation, the Solar Energy Industries Association (SEIA) and other industry partners to support the development of the Solar Automated Permit Software for Distributed PV and Battery Storage,” said Alex McDonough, Vice President of Public Policy at Sunrun. “This resource will help companies like Sunrun cut red tape and reduce their costs to deliver significantly more affordable, reliable, local clean energy solutions to communities around the country.”

“The SolarAPP will make it faster and easier for homeowners to get clean, affordable solar energy, and Vivint Solar is pleased to partner with NREL, The Solar Foundation, SEIA and other industry advocates to develop this technology,” said David Bywater, CEO of Vivint Solar, a leading national solar provider. “Vivint Solar is committed to making high quality solar more accessible to Americans by joining with the industry to cut the cost and streamline the process of solar permitting.” This platform will also benefit local governments, which face budget constraints and growing workloads to keep up with the accelerated pace of solar energy development. Automated permitting will reduce time spent and increase permit revenues, allowing AHJs to focus their resources on post-installation and inspections.

The SolarAPP platform will build on existing software capabilities at NREL to do the following:

  • Provide a flexible, web-based solar permitting tool for residential systems.
  • Encourage the standardization of permitting processes, while allowing for some flexibility to produce applications that meet the specific requirements of AHJs.
  • Evaluate applications and design plans for safety certification and code compliance.
  • Offer opportunities to incorporate energy storage and expand to other market segments, such as solar thermal and commercial systems.

The SolarAPP initiative builds on previous and existing programs to reduce soft costs, including the SolSmart program that provides designation and no-cost technical assistance for local governments to open up solar markets. For more information about the SolarAPP campaign, visit https://www.thesolarfoundation.org/solarapp/.

About SEIA®: Celebrating its 45th anniversary in 2019, the Solar Energy Industries Association® is the national trade association of the U.S. solar energy industry, which now employs more than 242,000 Americans. Through advocacy and education, SEIA® isbuilding a strong solar industry to power America. SEIA works with its 1,000 member companies to build jobs and diversity, champion the use of cost-competitive solar in America, remove market barriers and educate the public on the benefits of solar energy. Visit SEIA online at www.seia.org.

 

About The Solar Foundation®

The Solar Foundation® is an independent 501(c)(3) nonprofit

organization whose mission is to accelerate adoption of the

world’s most abundant energy source. Through its leadership,

research, and capacity building, The Solar Foundation creates

transformative solutions to achieve a prosperous future in

which solar and solar-compatible technologies are integrated

into all aspects of our lives. Learn more

at TheSolarFoundation.org.

House and Senate Introduce Legislation for 5-Year Extension of the Solar Investment Tax Credit

Thursday, Jul 25 2019

WASHINGTON, D.C. – Senator Catherine Cortez Masto (D-NV) and Representatives Mike Thompson (D-CA), Paul Cook (R-CA), and Brian Fitzpatrick (R-PA) today introduced companion bills with a five-year 30% extension of Section 48 and Section 25D Solar Investment Tax Credits (ITC). The Renewable Energy Extension Act will call for the extension of the tax credits.

Following is a statement from Abigail Ross Hopper, president and CEO of the Solar Energy Industries Association, urging lawmakers to pass this critical legislation: 

“These bills are clear, easy wins members of Congress can deliver to their constituents that create jobs, bolster the economy and address climate change. Polling shows that Americans across the political spectrum are concerned about our changing climate and they strongly support solar.

“Since 2005, when the ITC was first passed by the Republican-led Congress and signed into law by President George W. Bush, the ITC has created hundreds of thousands of jobs, sparked more than $140 billion in private investment and helped grow solar deployment by more than 10,000%.

“Now is not the time to turn our backs on this American success story. The ITC is the strongest policy there is to support clean energy development, grow the economy, create jobs, and meaningfully cut emissions.

“We are grateful to Sen. Cortez Masto, Rep.Thompson, Rep. Cook and Rep. Fitzpatrick for their leadership and are eager to build on the bipartisan support this legislation already enjoys. In the next several months, we look forward to working with all members of Congress to move this legislation over the finish line.”

###

About SEIA®: 

Celebrating its 45th anniversary in 2019, the Solar Energy Industries Association® is the national trade association of the U.S. solar energy industry, which now employs more than 242,000 Americans. Through advocacy and education, SEIA® is building a strong solar industry to power America. SEIA works with its 1,000 member companies to build jobs and diversity, champion the use of cost-competitive solar in America, remove market barriers and educate the public on the benefits of solar energy. Visit SEIA online at www.seia.org.

Media Contact: 

Morgan Lyons, SEIA’s Senior Communications Manager, mlyons@seia.org (202) 556-2872

Berkeley becomes first US city to ban natural gas in new buildings

By Sarah Ravani
San Francisco Chronicle

Berkeley became the first city nationwide to ban the use of natural gas in new low-rise residential buildings in a unanimous vote Tuesday by the City Council.

The ordinance, introduced by Councilwoman Kate Harrison, goes into effect Jan. 1, 2020, and phases out the use of natural gas by requiring all new single-family homes, town homes and small apartment buildings to have electric infrastructure. After its passage, Harrison thanked the community and her colleagues “for making Berkeley the first city in California and the United States to prohibit natural gas infrastructure in new buildings.”

The city will include commercial buildings and larger residential structures as the state moves to develop regulations for those, officials said. The ordinance allocates $273,341 per year for a two-year staff position in the Building and Safety Division within the city’s Department of Planning and Development. The employee will be responsible for implementing the ban.

“I’m proud to vote on groundbreaking legislation to prohibit natural gas in new buildings,” Mayor Jesse Arreguín said on Twitter. “We are committed to the #ParisAgreement and must take immediate action in order to reach our climate action goals. It’s not radical, it’s necessary.” The ordinance applies to buildings that have been reviewed by the California Energy Commission and determined to meet state requirements and regulations if they are electric only, said Ben Gould, the chairman of Berkeley’s Community Environmental Advisory Commission.

Gould said he spoke as a private citizen and not as a representative of the commission.

Those buildings are low-rise residential buildings, which include single-family homes, town homes and small apartment buildings. Therefore, Berkeley’s ordinance only applies to those buildings, but as the state approves more building types, the city will follow, Gould said. The way the ordinance is written, the city’s regulations will update as the state commission approves more building models without having to return to the City Council for a vote.

“We need to find ways to move forward innovative groundbreaking climate policy,” he said. “This policy is really important and critical. It helps address one of the largest sources of emissions in Berkeley.” In 2009, the city adopted a Climate Action Plan that aimed to reduce emissions by 33% by 2020 and 80% by 2050. The plan also commits
the city to using 100% renewable electricity by 2035.

In June 2018, the council declared a climate emergency and called for a review of Berkeley’s greenhouse emission reduction strategies. The city determined in a report last year that gas-related emissions have increased due to an 18% population growth since 2000. The report also concluded that the burning of natural gas within city buildings
accounted for 27% of Berkeley’s total greenhouse gas emissions in 2016.

As the city’s population soars, the need for more housing has also increased. From 2014 to 2017, the Planning Department approved building permits for 525 residential units and 925 built units were approved for occupancy. More housing is expected, particularly with the Adeline Corridor Plan, which calls for the construction of 1,400 units along Adeline Street and a portion of South Shattuck Avenue. Electric-only buildings prevent the installation of natural gas pipes and instead install heat pumps and induction cooking, Gould said. “Think about a refrigerator and how it makes inside your refrigerator cold and blows hot air out of somewhere else,” Gould said. “A heat pump works like that, but in reverse. It takes outside air and emits cold air outside and provides hot air inside. They can also be flipped in reverse and work as an air conditioner.”

Induction cooking transfers heat directly to any magnetic cookware, including cast-iron and steel, without using radiation. “It transfers heat right to the pot,” Gould said. “It boils water faster than anything else that exists. It’s very even, very quick to respond.” At Tuesday’s meeting, Harrison’s staff demonstrated the use of an induction cooktop by making chocolate fondue. The staff placed a piece of paper between the stove and the pot to show its safety features. The pot turned hot, but the paper didn’t burn, Gould said. The ordinance restricts developers applying for land-use permits from building anything that includes gas infrastructure, including gas piping to heat water, space and food.

Accessory dwelling units — built-in basements or attics of existing homes — are exempt from the ordinance. A public interest exemption may also be allowed if the council or the Zoning Adjustments Board determines that the use of natural gas is necessary.

Sarah Ravani is a San Francisco Chronicle staff writer. Email:
sravani@sfchronicle.com Twitter: @SarRavani

REIA & the 2019 NM State Legislative Session

Following is a recap of the NM bills that REIA had involvement in and the status of those bills after the March 15, 2019 legislative session.:
HB210, Community Solar Act: This bill was promoted as a way to make solar more accessible to New Mexicans. However, REIA had concerns about the lack of a cap for these types of installations, prioritization that these projects would have in the utility interconnection queues, potential for projects (up to 10 MW) to clog up feeder lines and lack of any local preference. REIA did engage with the bill sponsors and supporters to have these concerns addressed to no avail. The bill stalled at the end of the session and did not pass. This bill will probably be back and we have engaged with some of the people behind the bill in the hope of changing it to one that REIA can support.
HB291, Efficient Use of Energy Act Amendments: This bill directs Investor Owned Utilities (IOU) to implement energy efficiency programs for customers. The bill also directs the Public Regulation Commission (PRC) to adopt a rate adjustment mechanism that “decouples” utility revenues and sales. Decoupling is an initiative that REIA has invested significant resources (mainly legal fees) in recent years and therefore found this component of the bill very appealing. It is the belief of REIA that decoupling will make Distributed Generation (DG) solar less threatening to utilities and therefore make our industry more stable.
SB518, Solar Market Development Tax Credit: REIA supported this bill in its original form which allocated $10 million per year with-out a sunset clause. During the session, the bill was amended to a $5 million per year allocation with a 10 year sunset. It was felt by the REIA Board that the reduction in allocation would not be sufficient to adequately fund the market and could be disruptive to business. Subsequently, REIA withdrew is support for this bill. Ultimately, although the bill passed through all of the necessary committees, it did not get a vote on the house floor on the last day of the session.  
SB51, Renewable Energy Services for State Facilities: Currently only 2 of the State of NM buildings have solar. This bill would have directed the state to analyze all buildings and put renewable energy systems (think solar) on those buildings that could realize cost savings. Seemed like a no-brainer. This bill did not make it out of the Senate Conservation Committee.
SB489, Energy Transition Act: this high profile bill increases the Renewable Portfolio Standard (RPS) to 50% by 2030 and 80% by 2040 and 100% carbon free energy by 2045 for IOUs. There are slightly lower thresholds for electrical co-ops. The bill also provides economic development funding in the area of the San Juan generating station that is planned to be fully shutdown by 2023. Additionally, it enables PNM to sell low-interest bonds, to re-coup the remaining principle of its investment in the San Juan generating station. While this bill may not directly benefit residential and commercial solar, the thought was to be good solar citizens and support the bill. This bill passed and was signed by the governor.  

HB210, Community Solar Act: This bill was promoted as a way to make solar more accessible to New Mexicans. However, REIA had concerns about the lack of a cap for these types of installations, prioritization that these projects would have in the utility interconnection queues, potential for projects (up to 10 MW) to clog up feeder lines and lack of any local preference. REIA did engage with the bill sponsors and supporters to have these concerns addressed to no avail. The bill stalled at the end of the session and did not pass. This bill will probably be back and we have engaged with some of the people behind the bill in the hope of changing it to one that REIA can support.
HB291, Efficient Use of Energy Act Amendments: This bill directs Investor Owned Utilities (IOU) to implement energy efficiency programs for customers. The bill also directs the Public Regulation Commission (PRC) to adopt a rate adjustment mechanism that “decouples” utility revenues and sales. Decoupling is an initiative that REIA has invested significant resources (mainly legal fees) in recent years and therefore found this component of the bill very appealing. It is the belief of REIA that decoupling will make Distributed Generation (DG) solar less threatening to utilities and therefore make our industry more stable.
SB518, Solar Market Development Tax Credit: REIA supported this bill in its original form which allocated $10 million per year with-out a sunset clause. During the session, the bill was amended to a $5 million per year allocation with a 10 year sunset. It was felt by the REIA Board that the reduction in allocation would not be sufficient to adequately fund the market and could be disruptive to business. Subsequently, REIA withdrew is support for this bill. Ultimately, although the bill passed through all of the necessary committees, it did not get a vote on the house floor on the last day of the session.  
SB51, Renewable Energy Services for State Facilities: Currently only 2 of the State of NM buildings have solar. This bill would have directed the state to analyze all buildings and put renewable energy systems (think solar) on those buildings that could realize cost savings. Seemed like a no-brainer. This bill did not make it out of the Senate Conservation Committee.
SB489, Energy Transition Act: this high profile bill increases the Renewable Portfolio Standard (RPS) to 50% by 2030 and 80% by 2040 and 100% carbon free energy by 2045 for IOUs. There are slightly lower thresholds for electrical co-ops. The bill also provides economic development funding in the area of the San Juan generating station that is planned to be fully shutdown by 2023. Additionally, it enables PNM to sell low-interest bonds, to re-coup the remaining principle of its investment in the San Juan generating station. While this bill may not directly benefit residential and commercial solar, the thought was to be good solar citizens and support the bill. This bill passed and was signed by the governor.  

Decoupling limitations & Solutions: Decoupling Part 3

When would decoupling be “anti-consumer?”

If the future means selling less power, then less rate revenue means recovering past investments in coal power plants (now stranded assets) becomes impossible.  Investors will not earn their allowed returns.  Time to remove utility returns from the MONOPOLY board!  Decoupling solves this problem, and that’s exactly why some consumer advocate groups don’t like it.  Some claim the utilities made bad long term investments, so their investors should suffer the consequences of continuing to buy coal!  Maybe, but keep in mind, customers always bear the burden of the bad decisions made by the regulated monopoly.  Others rightly claim that decoupling alone only guarantees returns for the utilities and does nothing to lower rates for consumers.

Decoupling alone does not encourage utilities to value demand management over production.  It only makes them indifferent to energy efficiency or alternative energy sources like DG.  Decoupling alone merely protects the utility investors from loss.  In fact, decoupling alone might lead executives to care less about efficient operations, because the mechanism does nothing to encourage energy conservation.

According to the study on decoupling by the Institute for Energy Research, Maine’s failed decoupling policy resulted in small customers’ bill increase, while their consumption fell. New York tried a decoupling experiment in the 1980’s for eight utilities.  “Four [decoupled utilities] saw conservation related expenses rise 370 percent, but the four that did not [have decoupling] saw even higher increases.”

The fact is, in utilities without decoupling, rate payers bear the weight of all utility investment decisions, and raising rates to recover lost income from decreasing kWh use  will eventually backfire.  Because customers can not choose between competitors, the status quo utility world will continue to increase electricity rates even as consumption decreases.  At that point, residential storage plus solar becomes a very competitive alternative.

Even though decoupling allows utilities to recover revenue at the authorized rate, regardless to whether or not consumption increases or decreases, it also creates a “true-up” amount in future rates to account for actual kWh consumption.  Decoupling opens the doors to new opportunities for cooperation between power supplier and power user.  The utility could provide power users with services and equipment, like smart meters, that could allow for real-time tracking of costs that help utilities manage peak hours and consumers save money.  Cooperation with solar/storage customers can lead to grid stabilization and security.  Incentives like energy efficiency rebates will continue to reduce consumption and save all customers money.

When California added incentives to decoupling in 2007, “allowing them to split the savings with customers whenever energy use falls below state targets,”  the utility was motivated to sell less power.  The Atlantic quoted Peter A. Darbee, the chairman, CEO, and President of Pacific Gas & Electric who said, “all of a sudden you’ve unleashed the power of these huge organizations to work with you rather than against you.” By using less energy, rate payers win in the long run.  The “California Energy Commission calculated that the state’s efficiency efforts had preempted the need for 24 large-scale power plants and saved state consumers $56 billion.”  (The Atlantic, Oct. 2009) That’s billions in capital investment that does not need to be passed onto rate payers.

State policies must ensure utility financial incentives help rate payers become more cost effective, create opportunities for energy savings, and encourage distributed generation.  For example, California’s decoupling policy sets up revenue adjustment mechanisms for programs like efficiency, low income assistance, research and development, and renewable energy programs.

Should New Mexico pass an increase in the RPS to 50% by 2030, it should also include a healthy DG carve out.  Consider decoupling as the first step to leading the nation in renewable energy production, job creation, and energy exporting.  Since California’s RPS cannot be met within its borders, importing renewable energy from New Mexico, a state rich in land and sunshine, is definitely an opportunity on the table.

The grid landscape will change drastically in the next ten years.  Decoupling shifts the direction from obvious pitfalls to cooperation and solutions.  The question is, do we prefer a functioning electric service provider and a healthy growth of the renewable energy economy over the status quo?

Say yes to the decoupling mechanism.

If you want to support our efforts to introduce decoupling to New Mexico, please support us here.

 

Why decoupling? Smarter renewable tech ahead!

Why Decoupling?

The near future grid will be unrecognizable.  According to a recent report by GTM research, 9 out of 10 solar systems will be paired with storage by 2023.  Smarter tech ahead has a mean result of lower electric rates, decreased revenue, and the ability of customers to go “off line,” means utilities could soon be in a desperate state.  Without decoupling, we’ll see a world of mergers, hostile take overs, grid defection, and business crisis.

At least in New Mexico, PNM recognizes that investing in the lowest-cost of power supply (solar + storage) is their best option.  However, real competition will continue to come from distributed generation (DG), including residential, commercial, and community solar systems.  Soon renewable energy technology will enable large power users to rely on microgrids through the addition of solar plus storage systems.  Once the utility starts losing the large industrial users, they will inevitably raise rates for the remaining rate payers.

As the rate payer base decreases, the cost of utility generated electricity goes up, and alternative sources of energy become even more attractive.  “If utilities are going to live or die solely by how low they can drive the short-term commodity price of electricity, they will have every reason to resist investments to reduce pollution or to help customers save energy,” said Ralph Cavanaugh, director of the energy program of the Natural Resources Defense Council, an environmental group.  He said he feared that utilities, instead of stressing conservation, would just try to sell as much power as they could to increase their revenues and profits. (New York Times, Aug. 8, 1994) And so, the cycle begins, known as the utility death spiral, which ultimately results in difficulty for poorest rate payers, as those who can afford to disconnect from the grid will do so.

It’s time to recast the utility’s business mission and change it from power provider to electric services provider.  Besides, we all appreciate reliable electricity, right?  The mechanism to accomplish this is called decoupling.  Its an ok-ok-ok solution that is a case  currently before the PRC.  The current rate case would create a pilot program for a single rate class to try decoupling.

This isn’t a new mechanism.  New Mexico can look to other states for direction.  California initiated it in the 1980’s, then revised and reinstated it in the 2000’s.  Regions from around the country have found ways to make decoupling work for consumers, the utilities, and the environment.  It is a no risk initiative, because the alternative is bleak.

If you want to support our efforts to introduce decoupling in New Mexico, please support us here.

Go to part 3:  When would decoupling be “anti-consumer?”

Decoupling Series: What is a regulated territorial monopoly?

This is part one of a three part series on the past, present and future of utility regulation alongside the growing renewable energy industry.  REIA supports introducing a decoupling mechanism to PNM because it will change the way utilities do business in New Mexico.  If you’re interested specifics about the rate case, that information is here.

Status Quo Blues:  Regulated Territorial Monopolies

Utilities set up as regulated territorial monopolies for a couple of reasons.  As utilities began, they needed enormous initial investment, a barrier to entry requiring government intervention.  With high fixed costs, utilities also needed large numbers of customers to obtain a meaningful return on investment.  Because competition created crisscrossed electric wire madness, the government allowed monopolies to form.  Competition usually discovers the optimal way to produce services to maximize profit and efficiency, so a monopoly does not naturally work to a customer’s advantage.  As a result, monopolies have potential for abusive behavior.  This made government oversight and regulation necessary.

In New Mexico, the Public Regulatory Commission weighs the requests of the utility against the public interest for consistent and affordable access to electricity.  Currently, regulated monopoly utilities provide a given utility service on a “cost-plus” approach.  The regulators determine the price of electricity as the “cost” and guarantees a rate of return(profit) of to the utility capital investors (shareholders).  In the past, this has been a good investment that brings consistent returns.

Utility Business Model:

While fixed costs can be pre-determined for service, markets fluctuate and can only be estimated.  Unfortunately, this regulation method has historically rewarded higher capital spending by utilities because regulators allow almost all of the company’s durable assets into the “rate base,” where it can earn the allowed return (profit).  This has resulted in a large pool of profits that can afford big executive salaries.  Fortune Magazine summed it up nicely in the quote from Erroll Davis, the former CEO of Wisconsin Electric Power, “your new desk goes into the rate base.  This is the only industry I’ve ever seen where you can increase your profits by redecorating your office.” (Fortune, Nov. 13, 1995) As a result, utilities have a natural disincentive to cut costs, increase productivity, or eliminate waste.  Coal and gas systems require centralized generating stations with high operation costs, fluctuating fuel costs (usually on an upward trend), and long-term amortization that relies on a large base of rate payers to reimburse.  Up, up, and up!

But times have changed.  Given more efficient ways of generating electricity, even static estimates no longer make sense.  Because the utility is a regulated monopoly, is has no incentive to find better ways to provide utility service on its own.

This has given rise to legislation like the Renewable Portfolio Standard (RPS) that legislates the percentage of generation that must come from renewable energy.  In addition, independent producers, according to the New York Times, “have been responsible for 53 percent of the new generating capacity in the last four years.”  (New York Times, Aug. 8, 1994) The traditional utility business model is under attack from all sides, and has been for a while.

Today, renewable energy technologies and energy efficiency products trend down in price (rather than up) and involve smaller upfront capital investments followed by minimal operational expenses. This throws a wrench into the traditional economic model of a utility.  For example, renewable energy built by individuals (distributed generation—or DG) creates logistical complications and competition for utilities.  These renewable energy mini-power generation stations add uncertainty to the traditional grid, while also reducing rate revenue for the utility.

In New Mexico, for example, the anticipated growth in the customer base of 1% is negatively offset by a 1.5% increase in distributed generation (DG).  With this direct hit to the bottom line, utilities request cost recovery mechanisms from the regulators, like solar tariffs or changes to net metering to make up for this shortfall. (See the report: “Nevada gets it wrong, big time”)

Utilities see the writing on the wall.  Some create rate structures or fees that disincentivizes renewable energy.  Others create long term contracts with high energy users in order to keep them as customers.  All of these measures work in the short term, providing temporary solutions to a growing problem.  As renewable energy technology becomes ever more accessible to the mainstream market, however, the inevitability of increased adoption means these sorts of rate recovery protection attempts will fail, eventually.

If you want to support our efforts to introduce decoupling to New Mexico, please support us here.

Go to part 2:  Why decoupling?

 

Green tech jobs on the upswing in New Mexico

New Mexico joins 8 other states in MONEY magazine that shows green tech as the “hottest up-and-coming job” in the state.  In New Mexico, solar panel installation employment has been projected to increase 25% between 2017 and 2019 with a mean salary of $42,920.  MONEY’s study identified the fastest-growing occupation in each state, and for New Mexico, solar panel installer wins the number one job.

This just adds to the argument that renewable energy is New Mexico’s future economic gold mine.  Add smart policy that encourages the adoption of renewable energy through tax incentives, utility decoupling policy, and PACE (a program that makes solar accessible to everyone by attaching installation costs to a property’s taxes) means New Mexico can look forward to a growing economy and rank first in the nation for something good!  New Mexico has long been recognized as one of the best states in the nation to install solar, so by removing roadblock to progress, New Mexico can rank first in the nation for green tech job creation.

PNM shares 2017 Interconnection Data

PNM interconnections
2017 Interconnection Data now available–compiled by Alaric J. Babej, PNM Technical Program Manager, Renewables

PNM has shared their interconnection data as requested by members at our annual meeting.  Despite the elimination of the state tax credit, 2017 was another record year for the total number of interconnections through PNM with a total of 3529 interconnections, almost 25 MWdc installed.  Congratulations New Mexico Installers!

EXECUTE PNM AGREEMENTS FASTER:

As you may or may not know, PNM has made progress in energizing their document processing procedure.  Please check out the Docusign System.  It’s important to provide PNM with your customers valid email address in order to keep this process moving smoothly.

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