TODAY’S STUDY: SOLAR TRIALS

The 50 States Of Solar; A Quarterly Look At America’s Fast-Evolving Distributed Solar Policy Conversation

Q3 2015 (North Carolina Clean Energy Technology Center)

STATE DISTRIBUTED SOLAR MARKETS AND POLICY OVERVIEW

Distributed solar continues to thrive in many U.S. markets.

Through the end of 2014, more than 600,000 homes and businesses had installed on-site solar.1 The residential market grew by more than 50% annually in 2012, 2013, and 20142—a trend that some experts predict will continue for 2015 and 2016.3 These systems generate approximately one-third of the total U.S. solar electricity production.4 Although other states have rapidly expanding distributed solar markets, California accounts for approximately half of all residential solar installations. Seventy-two percent of residential solar systems installed in 2014 were financed through a third-party ownership model (i.e., solar leasing or a third-party power purchase agreement (PPA)), although solar loan products are rising in popularity. 5

Community solar programs are expanding into new states and utility service areas, yet this option is not yet available to most U.S. residential customers.

Community solar has sparked strong interest among many electric utilities.6 As of August 2014, there were 57 active or proposed utility-offered community solar programs in 22 states. 7 These utility programs range significantly in design and size. For example, Xcel Energy’s community solar program in Colorado, stemming from Colorado’s landmark 2010 community solar legislation, is currently capped at 30 megawatts annually, whereas Xcel Energy’s community solar program in Minnesota does not have an aggregate cap, but limits the size of each community solar garden to 5 megawatts.

Despite strong near-term growth projections for distributed solar, mid- to long-term policy uncertainties pose a challenge for the industry.

• At the federal level, an important solar policy, the 30% investment tax credit, is set to expire after December 31, 2016, for residential PV owners and drop to 10% for commercial PV owners. 8

• At the state level, the general trends are that solar rebate incentives are decreasing, solar tax incentives are expiring, renewable portfolio standards are nearing their targets, net metering caps are being reached, and net metering and rate design are undergoing regulatory and legislative review.

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Rate design, net metering, and distributed solar ownership are among the most contentious ongoing renewable energy policy issues. Some states have initiated studies or opened dockets to address these issues, and others have already approved some changes.

Many utilities have proposed or advocated for changes to net metering rules or residential customer rate design. Many utilities claim that net-metered customers are unfairly subsidized under existing net metering rules. The utility industry’s chief concern is the recovery of its fixed costs to avoid both stranded assets and cost shifts; they argue that non-solar customers pay a larger share of the fixed costs than solar customers who continue to use the grid.9 Consequently, many utilities have proposed net metering changes, such as reducing compensation rates for the electricity customers put onto the grid, or rate design changes imposing higher costs on solar customers. Solar advocates, on the other hand, point to a number of benefits that solar provides to both the grid and society more broadly. Thus far, no consensus on the presence or absence of a cost shift has been reached, based on empirical evidence. Many (but not all—e.g., Louisiana) studies conducted by state governments on these issues show that existing net-metered customers produce net benefits to all customers (e.g., Mississippi) and that solar electricity production results in substantial value, comparable to or in excess of the retail rate (e.g., Maine)…

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In Brief: Top Five Solar Policy Developments of Q3 2015

1. UTILITY-LED ROOFTOP SOLAR EXPANDS

Utilities are exploring new business models by owning and operating distributed PV assets. Programs developed across the country over the last quarter include in Arizona, Georgia and Texas. In New York, Con Edison proposed a residential solar and storage program as one of its demonstration projects as part of the REV proceeding, where systems will be owned and financed by the utility’s unregulated subsidiary.

2. THE UNCERTAIN FUTURE OF NET METERING IN CALIFORNIA

California received proposals from its IOUs and other stakeholders on future net metering tariffs in Q3 2015. Proposals included buy-all, sell-all options for customers, new charges and fees, and reduced compensation for net excess generation.

3. UTILITIES PROPOSE RESIDENTIAL FIXED CHARGE INCREASES

Utilities across the country continue to propose substantial increases in residential fixed customer charges. Fixed charge increases remain the most frequent proposed policy change impacting the residential solar value proposition in Q3.

4. RESIDENTIAL DEMAND CHARGES GAIN MOMENTUM

In response to growing interest in distributed generation, a number of utilities have proposed new rate structures which would subject residential customers with solar to demand charges, which are based on peak energy usage over a billing period. These charges have traditionally been included only for some non-residential customers. States with pending utility proposals in Q3 for new residential demand charges include Arizona, California, Kansas, Oklahoma, and Texas.

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5. NEVADA HITS NET METERING CAP

In August 2015, Nevada reached its 235 MW net metering cap. Revised net metering tariffs were to take effect after the cap was reached. Until the Public Utilities Commission approves revised tariffs, new systems are being net metered under existing policies. NV Energy’s proposed successor tariffs feature a new rate class for net metering customers with both time-of-use (TOU) and demand charges…

6. COMMUNITY SOLAR POLICY ACTION

Several states took action in Q3 2015 to enable community solar policies or programs, with particularly noteworthy developments in New York and Hawaii, where utilities have been directed to file tariffs that would enable community solar projects for the first time in both states. California has also made steady progress in developing its Green Tariff Shared Renewables program, and Oregon has also opened a proceeding to develop a proposed community solar program design. In Minnesota, state regulators issued a ruling that clarifies size limits of community solar projects and establishes time limits for community solar interconnection requests. Notably, many utilities have separately proposed implementing community solar programs for their customers outside of these types of policy changes; these individual utility programs are not tracked here…

7. FIXED CHARGE INCREASES

The trend of utilities proposing fixed charge increases for all residential customers continued in Q3 2015. These fixed charge increases (which are sometimes accompanied by a corresponding decrease in perkilowatt-hour (kWh) rates) impact the financial value of solar to residents by limiting the portion of their electric bill that can be reduced through self-generation and reducing the value of any net metering credits that residential solar systems generate. Furthermore, rate structures that increase fixed charges and decrease variable energy charges have the effect of decreasing utility bills for large energy consumers while increasing utility bills for customers who consume less energy (including distributed solar owners).12 Figure 6 showsstates where utility proposals for monthly fixed charge increases were pending or decided in Q3 2015. Twenty-six rate increases were under consideration across 18 states. The largest pending increases were proposed in Missouri, Kansas, Arizona, and Wisconsin, where utilities proposed increases of $10 per month or more…

8. SOLAR AND DISTRIBUTED GENERATION CHARGE INCREASES

An increasing number of utilities are proposing extra charges that apply only to solar or distributed generation customers. In Q3 2015, state regulators approved or were considering solar or DG charge increases for 19 utilities in 12 states (see Figure 6 and Table 7). The structure of proposed charges vary significantly, including flat monthly charges, charges based on the capacity of the installed solar system, charges based on measured monthly peak generation, and increases to variable per-kWh charges that would apply only to net metering. The vast majority of these increases are still pending regulatory decision as of the end of Q3…

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9. THIRD-PARTY OWNERSHIP

State third-party solar ownership laws—or the lack thereof—can be a financing barrier for distributed solar. Florida, Kentucky, North Carolina, Oklahoma, and South Carolina currently disallow third-party solar PPAs, and the legality is unclear in about 20 other states.14 While no additional states enabled third-party ownership in Q3 2015, there are pending decisions in Delaware, North Carolina, and New Hampshire to clarify the regulatory treatment of third-party entities seeking to offer solar PPAs. In Florida, an ongoing ballot initiative would create a constitutional amendment legalizing third-party PPAs…

10. UTILITY-LED ROOFTOP SOLAR

Utility-led residential rooftop solar programs are an emerging trend. In these programs, utility-owned solar systems are installed on customer roofs. These programs provide an opportunity for utilities to participate directly in the distributed solar market, though they have been met with controversy in some states.16 The financial value to customers varies widely across programs. In Arizona, for example, Tucson Electric Power offers to convert the electric accounts of solar customers to a fixed charge account, where customers pay a flat monthly fee based on their existing energy consumption. The monthly fee will be fixed for 25 years, insulating the customer against future rate increases. In Georgia, conversely, the state’s largest utility has begun selling customer-sited solar systems through its unregulated business arm, offering a customer value very similar to that of third-party ownership options…

Q4 2015 SOLAR POLICY OUTLOOK

Q4 2015 will include significant action on key pending distributed solar policies, perhaps most critically on the future of net metering policies in a number of states.

• In October, the Hawaii Public Utilities Commission issued a decision, making it the first state in the nation to end its net metering policy (see the forthcoming Q4 edition of The 50 States of Solar for more details).

• Final decisions on net metering successor tariffs are expected in California and Nevada.

• Arizona regulators will be examining the cost-of-service and value of solar for distributed generation customers in a generic docket.

• Massachusetts is poised to enact a new solar policy this legislative term, with possible changes including an increase in net metering caps and changes to net metering and virtual net metering compensation rates.

• The Vermont Public Service Board is required to propose new net metering rules by January that would apply once net metering at a utility reaches 15% of peak load.18

• Current commissioners on the Mississippi Public Service Commission have until December 31, if they want to adopt net metering rules during their term. A number of utility proposals for monthly fixed charge increases or additional charges for solar customers are scheduled for a final decision in Q4. If recent trends continue, utilities will increasingly look to recover more of their costs from fixed monthly charges rather than variable charges and propose changes to net metering or distributed generation customer tariffs that ensure cost recovery from solar customers.

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