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Years of debate by “nerds in beige rooms” has led to today’s booming solar market, but solar policy is becoming even more complicated.

As US solar expands, states increasingly tackle compensation and community project complexities

March 14, 2019 /
Utility Dive

By Herman K. Trabish

U.S. installed solar capacity grew by about a third from 2015 through 2018, but solar policy actions grew by over 50%, according to two recent reports.

In particular, there has been increased policy action in two critical areas: developing more equitable solar compensation and establishing growing community solar programs.

As the solar market continues to grow — estimated to reach 4.3 GW of new utility-scale solar capacity and 3.9 GW of new distributed solar capacity by the end of 2019 — its perceived threat to the utility business model is producing new debates about how to make solar work better for all power sector stakeholders.

“The utility industry continues to react to the low cost and popularity of solar and storage devices with efforts across many jurisdictions to question the benefits,” former Maine utility commissioner David Littell, now a principal at the Regulatory Assistance Project, told Utility Dive.

The changes that come with solar and storage are intimidating for utility executives and engineers because they are complicated, destabilize revenue and threaten system reliability, he added. “But they need to realize the world is more complicated.”

“Wanting to manage cost is not the same as opposing solar,” National Grid Director of Energy and Environmental Policy Tim Roughan told Utility Dive. “Solar should be priced so we can afford to do lots of it for a long time instead of increasing bills so much that no more solar gets built. But these policy debates are not leading to managing the cost or to a new tariff that works.”

Some see policy debates as the key to progress. “Every energy sector market is the result of policy debates by nerds in beige rooms who created rules to open up competition,” Western Resources Advocates (WRA) Clean Energy Program Deputy Director Erin Overturf told Utility Dive.

“A lot of meticulous and thoughtful work went into creating today’s solar policy,” she added. “It allowed us to build a solar market that drove prices down. And now we are working on new, more complicated policies to expand that market’s impact.”

Solar policy evolution

State-level distributed solar policy actions grew from approximately 175 in 2015 to 264 in 2018, according to the annual solar policy reviewreleased in January by the North Carolina Clean Energy Technology Center (NCCETC).

Policy actions on community solar, compensation debates and actions on controversial fixed, demand and solar-only charges all remain at the forefront of solar policy debates, according to the report.

With nearly every state now engaged in solar policy, the Center expects “even more activity in 2019,” NCCETC Senior Policy Research Manager and report lead author Autumn Proudlove told Utility Dive. “The common thread is increasing complexity, and that complexity will lead to more policy work.”

Only “a handful of states” had compensation debates focused on a successor tariff to replace net energy metering (NEM) in 2015, she said. Now, the “entire country” seems to be moving toward a more complex tariff aimed at supporting solar growth but also at protecting non-solar owners from a disproportionate cost burden.

Compensation reforms include proposals for fixed, demand and solar-only charges, Proudlove said. Proposed fixed charge increases and solar charges are not succeeding, but three demand charges were approved in 2018.

There are also complicated, largely unresolved debates over how to recognize the values of solar generation based on when and where it is delivered, and whether compensation should be lower during peak demand periods or more congested places on the grid.

In addition, there have been 19 community solar policies passed since 2010, turning the programs “from something fairly hypothetical to something very real,” Proudlove said. “Most installed community solar capacity is in states with those enabling policies.”

By 2023, “30% of annual non-residential installations will be community solar projects,” NCCETC reported. And policy has accelerated, with actions quadrupling from 2015 to 2018.

Newer community solar policies often have more “complicated objectives and complex financial structures,” Proudlove said. “Much of the 2018 activity focused on expanding access to low-income customers.”

Both compensation reform and new approaches to community solar are part of the policy solution for balancing benefits and protections for solar owners, non-solar owners and utilities, Overturf said. “As the ways we produce and consume energy change, the system will operate in new and different ways and new compensation tariffs will be needed to accommodate and maximize those changes.”

Successor tariffs

The growing search for a successor tariff to replace retail rate NEM is “simply because some policymakers see it as too lucrative for distributed solar owners and others say it doesn’t compensate fully for the value it delivers,” Littell said.

Retail rate NEM “is a crude instrument that imposes costs on all utility customers” and a tariff based on competitive bidding would “more accurately reflect solar’s value,” National Grid’s Roughan said.

In Massachusetts, the Solar Massachusetts Renewable Target (SMART) tariff is higher than the retail electricity rate and impose a cost on all National Grid customers, he said. But New York’s Value of Distributed Energy Resources (VDER) tariff has been delayed because policy work found solar’s value to the system may be below the retail rate.

“We knew a carbon free future would cost more than the carbon-based economy, but policymakers have an obligation to manage cost,” Roughan said. Better policies “can do that in a more nuanced way.”

The landmark 2016 Colorado solar settlement protected retail rate NEM but also approved demand charge, time of use rate pilots and a controversial utility-led variation on community solar, WRA’s Overturf said. “Solar advocates accepted the new programs because they recognized that rate design and community solar policies are changing.”

More states have taken action

Community solar

“Where there is a community solar project, a bill was passed to create a program and regulators implemented it,” Coalition for Community Solar Access (CCSA) Executive Director Jeff Cramer told Utility Dive. “Community solar is a triumph of detailed policy work.”

As the community solar market grows, often with the benefit of retail rate NEM, it is being swept into the compensation debate, he said. “But most states don’t get more than 3% of peak demand from solar. It isn’t time to think about successor tariffs until solar is over 5% of peak demand.”

Not everyone in the debate agrees.

“When all utility customers [are] paying for the system, a large project that can be built on the distribution system for $1/watt should not be compensated the same as a 4 kW rooftop array that costs $5/watt,” National Grid’s Roughan said.

NEM may still be appropriate for supporting the limited amount of rooftop solar, he said. But in Rhode Island, projects as big as 10 MW get NEM, and over three-fourths of Massachusetts’ solar is made up of large distribution system-connected projects.

“For projects that big, there has to be a tariff that pays for the value of solar but doesn’t overpay, and it should be set through competitive bidding,” he said.

New England policymakers are not moving toward compromise because “there are no easy answers,” Roughan said. “It will take hard work by people sitting around a table to figure out how to compensate solar, and rethinking business models will be necessary, but the final policy can create a stable long-term program.”

Both Xcel Energy Colorado’s 50 MW Renewable*Connect project and Rocky Mountain Power Utah’s 20 MW Subscriber Solar project were responses to “huge customer demand” for the alternative, utility-led type of community solar approved in the Colorado settlement, WRA’s Overturf said. Both were initiated by utilities, approved by policy processes and quickly fully subscribed.

Minnesota’s policy is considered the most successful in the country and allows third party developers to build over 500 MW of community solar, Minnesota Citizens Utility Board Regulatory Director Joseph Pereira told Utility Dive. But policymakers are now revisiting it.

The state’s success was built on retail rate compensation, but will go forward with its value of solar tariff (VOST), Pereira said. The VOST’s recently calculated below-retail value required policymakers to provide a temporary adder to drive the next tranche of growth.

Xcel Energy might say the policy is a failure because the $170 million per year our 800 MW of distributed solar is costing ratepayers is about four times what Xcel can build utility-scale solar for,” Pereira said. “But distributed solar has policy goals, and they cost more. It’s not just about building more solar, it’s about getting value from solar.”

Policymakers are also working on ways to give residential and low-income customers more access to community solar, he added. “This is a policy success because it catalyzed the market and drove development. But to achieve other policy objectives, policy must evolve.”

The big picture

“Two decades ago, when cost was the biggest barrier to decarbonizing the power sector, policies were put in place that built markets that drove prices down,” WRA’s Overturf said. “Three kinds of policy we are developing now will remove the next barriers.”

First, policy solutions can speed the redeployment of stranded fossil fuel investments to low cost renewables instead of “waiting until those assets’ book lives end, which is costing customers unnecessarily and causing environmental consequences,” she said.

Second, policymakers can find ways to take advantage of over-generation created by high renewables penetrations, Overturf said. “That means reshaping load to serve the economy, which will likely require major changes in the way we consume and produce energy and a major rethinking of the power system.”

Third, policymakers are looking at ways “to leverage the decarbonized power sector to further drive emissions out of the economy,” she said, such as through electrification.

New tariffs must also recognize the value of solar generation to the market when and where it is produced, Roughan said. “It complicates the compensation question, but addressing it will be necessary as we go to advanced metering.”

Business likes stability, but renewables, customer demand and new system needs require change, Littell added. “The point is, are we going to think like we’re in the 20th century or are we going to think like we’re in the 21st century?”

A previous version of this article said the Solar Massachusetts Renewable Target tariff is costing National Grid customers $0.03/kWh. That amount is for the state’s current programs, not for SMART.

Author: Ben Bratrud

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