Searching for the Through Line in States’ Net Metering Moves

For a company selling rooftop solar, the essence of its pitch is explaining how long it will take for a customer’s energy savings to cover the costs of the system.
 
The shorter the payoff period, the easier the sale.
 
Those pitches are getting harder in some places because payoff periods are getting longer.  I set out to explain what’s driving the underlying policy changes. The resulting story, published this week, was a challenge because of the complexity of the material and the fact that each state has its own flavor of policy when dealing with rooftop solar.
 
First, the big picture: Rooftop solar ownership has soared more than 12-fold since 2010, boosted by falling costs of solar panels and tax incentives.

This growth is forcing utilities and regulators to sit up and figure out how these systems should be regulated in an electricity system designed without distributed renewable energy in mind. At the same time, most utilities see rooftop solar as competition that saps sales and means less money to pay for wires and other infrastructure.
 
Utilities are powerful political interests in most states, so their concerns rise to the top of the agenda. Legislatures and regulators took actions related to rooftop solar in the first quarter of this year in 43 states, the District of Columbia and Puerto Rico, according to a report from the NC Clean Energy Technology Center.
 
So now, the hard part: When we look at the most substantial actions, is there any indication of a direction for rooftop solar policy?

The answer, I eventually found, is that there is a trend: States are moving away from “net metering” policies that give rooftop solar owners the full retail rate for power sold back to the grid. The new rates are almost always lower than the old ones, making it harder for solar owners to pay for their systems.

One example is in Michigan, where a 2016 state law teed up new rates that regulators approved last month for the state’s largest utility, DTE. Under the utility’s old rates, a typical household solar system would pay for itself in 9.4 years, according to a fact sheet from the Michigan Public Service Commission. With the new rates, it's 13.3 years. If DTE had gotten the rates it wanted, that would have been 17.7 years.
 
One reason the national trend is hard to pinpoint is that there are exceptions, such as in Maine, which passed a measure restoring the full retail rate for net metering.
 
And yet, most of the debates are about how to move away from net metering, not whether to reinstate it.
 

‘A Palpable Sense of Momentum’ in South Carolina

So now that we know the trend in state net metering policies, what state epitomizes it? There are several good answers, but I’m going to go with South Carolina.

Gov. Henry McMaster signed a measure last month that lifts a cap on rooftop solar eligible for full retail net metering. (The cap was 2 percent, meaning the state’s total generation from net metering has hit that share.) While the bill lifts the cap, it also begins a process of determining new rates, which likely will be lower than the full retail rate, but higher than if the cap remained.

The law is the result of compromise between utilities, clean energy companies and environmental groups, said Tyler Norris, director of market development in the Southeast for Cypress Creek Renewables, a developer of utility-scale solar farms.

“I think everyone involved was very excited by the results here and the fact that this was the most meaningful step the state had taken” on renewable energy policy, he told me. “There was a palpable sense of momentum.”

He was excited because the bill includes provisions that will allow for more utility-scale solar.

While the South Carolina bill was being debated, a very different process was happening in Kentucky. There, utility companies managed to push through legislation that will drastically cut rates for rooftop solar and bears few signs of compromise with the solar industry.

The contrast between the outcomes in South Carolina and Kentucky illustrates the current moment. They are both examples of states reducing net metering rates. But the approach in South Carolina is likely to increase solar adoption, while solar advocates fear the one in Kentucky will slow growth there.

As the solar industry grows and gains political power, I expect to see more compromises like the one in South Carolina and fewer one-sided laws like the one in Kentucky.

This is all vitally important because states are setting the pace of expansion of rooftop solar, which is the most popular form of customer-owned electricity generation.

Burcin Unel, energy policy director for the Institute for Policy Integrity at New York University's law school, explained to me why this is about more than rooftop solar.

“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.”

(Photo: Alan Hancock/SC Coastal Conservation League)
 

Utility’s Coal-to-Renewables Plan Gets Approval in Michigan

Now, an update on one of the country’s notable clean energy transitions by a utility. Michigan regulators last week approved a plan by Consumers Energy to eliminate coal from its generation mix, reduce natural gas and replace those fossil fuels with renewables and energy storage.

Consumers is Michigan’s second-largest utility, and its embrace of carbon-free energy is in contrast to the largest, DTE, which is moving much more slowly.

“This plan establishes Michigan as a national clean energy leader and provides benefits to homes and businesses, as we supply affordable, reliable and clean energy and create innovative solutions to our state’s energy needs,” said Patti Poppe, Consumers Energy’s president and CEO, in a statement.

In January, I wrote how the company, along with NIPSCO in Indiana and Xcel Energy in Minnesota, are leading the clean energy transition in regions that have a history of fossil fuel dependence.

Consumers Energy’s plan calls for shutting down the D.E. Karn Plant in 2023, and then shutting the J.H. Campbell Plant as soon as 2025. The two coal-fired plants have capacity of about 540 megawatts and about 1,390 megawatts, respectively. The timing on the Campbell plant is contingent on a study of how the closing would affect energy costs and reliability in the region. The study is one of the conditions of a settlement that Consumers Energy reached with interested parties to help pave the way for the approval.

Ben Inskeep, an Indiana-based clean energy analyst for EQ Research, told me the plan “represents a significant shift away from fossil fuels, particularly aging and polluting coal plants,” while also adding solar at an unprecedented level for a Midwest utility.

To replace electricity from the coal plants, the company will go into a bidding process for proposals to provide renewable energy, including 1,200 megawatts of solar power from 2019 to 2021. The bidding process is an essential part of the plan, Inskeep said, because it will help ensure customers are getting the lowest prices.

One important detail is that the plan includes programs to encourage customers to use less electricity, with a stated aim of avoiding new power plants.

This combination of renewable energy, energy efficiency and coal-plant closings is a roadmap that other utilities can follow. The next step is to watch this plan unfold, and see what challenges the company faces in making it happen.
 

PG&E Clean Energy Contracts Now More Likely to Be Trimmed

When Pacific Gas & Electric filed for bankruptcy protection in January, one of the big concerns for clean energy businesses was that the process could force the renegotiation of renewable energy contracts.

We now have some clarity about how this will proceed, and it’s not good for those contracts. A judge has ruled that the Federal Energy Regulatory Commission does not have jurisdiction to stop the bankruptcy court from reopening energy contracts.

PG&E, the California utility, invested heavily in solar power in years when the prices for that resource were much higher than today. If the court forces PG&E and solar developers to renegotiate those deals, it casts doubt on the whole world of contracts between utilities and energy developers.

The danger is that developers will face cuts in income in the PG&E process and then need to increase prices in other places to cover those costs. Also, the experience with PG&E could lead developers to do more to price in the risk of bankruptcy.

So renewable energy projects would get more expensive, which would affect the price comparisons as utilities and regulators determine how quickly they want to move in the transition to clean energy.

We don’t yet know how much the PG&E bankruptcy will reverberate through the clean energy economy. It could be that the court doesn’t do much with its power to force changes to the contracts. But a lot of businesses are on edge as we watch the process unfold.

Correction in the June 7, 2019 Clean Economy Weekly: In last week’s newsletter, I wrote that a Wisconsin utility, We Energies, had gone to court to block a Milwaukee solar project. We Energies had already blocked the project, an action that was upheld in March by state utility regulators. The current lawsuit was brought by the developer, Eagle Point Solar, attempting to overturn the decision by regulators.

Go Deeper 

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


• New Wind & Solar Power Is Cheaper Than Existing Coal in Much of the U.S., New Analysis Finds


• Inside a Southern Coal Conference: Pep Rallies & Fears of an Industry's Demise