As Star Wars: The Force Awakens takes the world’s movie theaters by storm, U.S. utilities, the Public Utility Commissions that govern them, and solar energy companies are increasingly fighting to control one particular star – our sun.
Last year I wrote about a movement by a government-owned utility in Arizona to effectively kill the rooftop solar industry by increasing the costs solar customers realize and reducing the revenue they receive for the excess electricity they usually generate on a sunny weekday.
Well, another major player in a sunshine-filled state has joined the club.
This time it’s Nevada, which not only changed the rules for future rooftop solar panel owners but also retroactively changed the rules for the thousands who already installed them.
Like in Arizona, some of what the Nevada Public Service Commission has done makes sense – but other actions are clearly aimed at killing residential solar just when it’s finally taking off.
The first thing the PUC did was reduce the rate that utilities must pay the owners of rooftop solar panels from a retail rate to a wholesale one.
While the exact rates are yet to be settled, it appears that those rates will be based on Nevada’s overall wholesale cost of electricity, not just on its cost of solar and other renewable energy, and will be even lower than Arizona’s rate of $0.05 per kilowatt hour (kWh).
The other action the PUC took was to institute a fixed charge for being connected to the grid at all.
The moves were so draconian that solar industry leader, SolarCity Corp. (SCTY), is completely pulling out of the Nevada market – and probably taking 2,000 jobs with it. And that decision isn’t just the company having a temper tantrum. Solar applications in the areas affected by the Arizona decision declined by 96%.
As I wrote about in the Arizona case, both of the changes the Nevada PUC imposed have some basis in reality, but they also seem to reflect a conscious effort to prevent homeowners from controlling their own energy destiny.
First, there’s the rate paid for solar power sold back to the grid. Known as “net-metering,” this idea was one of the main attractions for consumers to put solar on their properties.
At the time it was introduced, there were very few renewable energy alternatives available aside from hydroelectric power. Solar was far too expensive and inefficient for utilities to build large plants, so if there was to be solar energy, it would have to be at the home.
But that’s now changed in some areas. In California, Hawaii, Nevada, and other very sunny states, large-scale solar plants are being built at incredible rates. And the cost of solar power purchased from those plants is coming down quickly.
One example: In 2014, NV Energy, the main Nevada utility, agreed to pay $0.135 per kWh for electricity from a big solar plant – a very high price. Just one year later, the utility signed an agreement with yet another solar plant, but this time it will buy power for less than $0.04 per kWh. That’s nearly comparable with natural gas.
With those low rates for wholesale solar, it no longer makes sense for NV to pay a retail rate for rooftop solar – at least for newly built installations. But what about existing solar homes?
NV isn’t going to stop paying that $0.134 to the first solar plant just because the second one is cheaper, so why should it pay less to existing customers, who made a good faith effort to build their solar systems in an era of higher costs?
And even for future customers, perhaps the rate NV pays should at least be for their blended cost of wholesale solar, not for fuel from all sources.
The other move the PUC made, regarding the fixed charge for being connected to the grid, is even more troublesome. Fixed costs are indeed a big part of a utility’s operations. But passing those fixed costs on to solar power users at a higher rate than non-solar customers is pretty clearly aimed at killing the home solar industry, not at recovering costs.
Clash of the Titans
It’s all too easy to see this change as a battle among giants.
I’ve been talking about homeowners and independence, but the truth is that even with vastly improved economics over the past few years and continued subsidies from the federal government, not many people can afford the upfront cost of solar, even if they’d make their investment back fairly quickly.
So companies like SolarCity have stepped in. Those companies will build a solar system on a house for no cost or very low cost and then take some, but not all, of the benefits of solar such that the homeowner sees a lower electricity costs than he would have before the system installation.
And with that happening, why should anyone care if NV Energy, a company controlled by multi-billionaire Warren Buffett, outmaneuvers SolarCity, a company controlled by multi-billionaire Elon Musk?
Well, it’s precisely because these battles are among giants that the giants are setting the terms of the fight, leaving normal Americans out of it all together.
Need an example? In the Nevada PUC decision, NV Energy alleged that the old solar rates were being “subsidized” by non-solar customers, to the tune of $471 per year in northern Nevada and $623 in southern Nevada.
SolarCity disputes that contention, but the PUC apparently agreed, since they used that figure in their press release announcing the changes. So where is the rate decrease for these customers in the new scheme?
You guessed it – there’s no rate reduction to offset the end of these “subsidies.”
On the other side, SolarCity claims that no grid charge is justified at all because locally generated electricity is better than electricity generated from far away. There’s something to be said for that argument – it’s cheaper to move electricity just a few hundred yards or a few miles than it is over a longer distance – but utilities have high fixed costs wherever the electricity they buy is generated.
They also defend full retail rates for solar electricity because they claim prices should be set with a goal to “encourage clean energy generation, conservation, energy efficiency, etc. not discourag(e) it.”
But that’s not right either. The market should set rates in a competitive scenario – and in monopoly scenarios, like utilities, they should be matched with costs.
So while these giant corporations do battle over billions of dollars and take billions more from the federal government in loan guarantees and tax credits, the person who simply wants to become less dependent on any giant corporations at all is left out.
What is needed is some leadership – in Congress, at the White House, in state legislatures, and governors’ mansions.
Someone to say, “We’ve had the same solar policy for way too many years – it distorted a tiny market in the past so it wasn’t really worth worrying about. But now solar is real – it can be a viable competitor to other sources of electricity. It’s time to rethink solar pricing and subsidies both for big companies and for individual homeowners.”
Instead, the Federal government just passed a bipartisan extension of existing solar incentives with not a whit of thought about the issue, and states like Arizona are passing laws that essentially capture a lot of those incentives for the utilities.
Regulatory certainty for homeowners is necessary if the solar boom, and the increasing independence from monopoly utilities, is to continue.