Value of Solar Tariffs

[Important Update] Also see: Tax Threat To Solar Homeowners With Feed-in Tariffs or Value Of Solar Tariffs

It’s well known that feed-in tariffs have supported most solar power growth across the world. It’s also well known that very few places in the US offer a solar feed-in tariff (FiT). I was recently contacted by someone who had started a petition pushing for a solar feed-in tariff in California. I went ahead and published a quick article on the petition over on CleanTechnica.

Quite frankly, aside from any commentary on the details of the proposed policy, I am a firm believer in the need for more citizen action supporting the growth of solar power. We need more people to email, call, and talk in person with their political representatives to push for more solar power. We need more people to get motivated about this topic, as citizens were about civil rights, women’s rights, and the need to ban harmful pesticides. But, yes, the details of the policies we push for are of course important, and we should focus our efforts on the strongest solar policies. In California (and other places in the US), is a FiT really the best way to go?

Photo Credit: Striking Photography by Bo Insogna / Foter / CC BY-NC-ND

Interestingly, following the above-mentioned article, the folks at Sunrun, “the nation’s #1 home solar company,” reached out to me to have a discussion about why they aren’t a fan of the petition, nor a push for feed-in tariffs in the US in general. Rather, they’d like to see a continued focus on net metering.

Of course, hearing Sunrun’s take on this was appreciated. And I was intrigued that it was so opposed to a FiT push that it would reach out about that. Is there really any chance a California-wide FiT could be passed? (I didn’t think so.) How would a FiT policy threaten Sunrun’s business? I got to speak with Sunrun’s Director of Government Affairs, Walker Wright, and Sunrun’s Manager of Public Policy, Susan Wise, about these matters.

The main opposition to feed-in tariffs was expressed in the initial email from Susan: “There are a few things about them — mainly that they put a ceiling on solar deployment and allow monopoly utilities to maintain control over how consumers get electricity.”

Of course, with every policy, there is room for manipulation. The devil is in the details, as they say. In the case of the US, and even the state of California, the concern seemed to be that the management of such details is so distributed that it’s impractical, and that FiTs are so open to highjacking and manipulation by the utility industry and its allies that they seem like more of a risk than another helpful solar incentive.

Susan and Walter see net metering as the best and most fair policy for both homeowners and the utility. Net metering policies are in place almost all across the US and were set up in a decent way. Regarding the petition we shared, the main concern was that “it distracts from what’s really needed and what works, which is the net metering policy that is in place and successful today, and should remain in place,” as Susan wrote. “It’s the cornerstone policy for solar growth and provides a critical framework that gives consumers fair compensation (full retail credit) for the solar they put back on the grid. NEM is what will allow solar adoption and the solar economy to continue to expand.”

The claim that it gives fair compensation is actually debatable. Utilities debate it, trying to reduce the amount they pay to solar homeowners, but much more realistically, it has been shown to be too low by researchers who have calculated the myriad social, environmental, and grid costs and benefits that solar provides. I brought up the potential growth of Value of Solar Tariffs (VOSTs), which are supposed to more intricately calculate “fair compensation.” Sunrun’s concern, as with feed-in tariffs, is that the assumptions used to determine VOSTs would largely be set by anti-solar utilities, and the value would be less than what simple net metering policies offer. Indeed, I did note that the VOST used in Austin is considerably less comprehensive in its inclusion of solar benefits than the one that came out of a report for the Mid-Atlantic Solar Energy Industries Association (MSEIA) and the Pennsylvania Solar Energy Industries Association (PASEIA).

So, as with FiTs, the concern was that they would stifle solar growth. Here’s a full response from Sunrun:

• Net metering is the only path forward if the objective is to give solar deployment a chance to meet is technical potential.

• The VOST concept fundamentally moves rooftop solar from a behind the meter policy (BTM) to an in front of the meter policy (FTM) – an incredibly important distinction.

• Moving rooftop solar in front of the meter gives the utility the ability to control/throttle future market development.  They will use this to limit the market because, at the end of the day, rooftop resources will compete with their central station resources.  They could either say “we don’t need any more generation resources – we’ve got plenty because our coal plants have years of life left on them….so we are only going to allow X MW of VOST to interconnect this year,” or they could drastically reduce the value of the tariff to undermine future deployment and maximize the financial performance of their generation portfolio.

• In contrast, NEM is a BTM (behind the meter) policy.  The only two throttles on solar deployment in a BTM policy context are 1) consumer choice/demand (we know this to be incredibly strong for solar) and 2) technical integration in terms of interconnecting with the grid, and we are far away from even having that discussion at this point.

To further support the home solar company’s perspective on these important policy issues, Susan connected me with the Managing Director from Renewable Analytics, Dirk Morbitzer, who is a solar industry veteran and a native of Germany (where the country’s world-leading solar FiT basically grew solar power into the fast-growing, disruptive powerhouse that it is today).

Dirk offered up this extensive comment:

I think that Feed-in-Tariffs make sense for markets that have relatively low system output (in kWh per kW) and where utility electricity prices are low.

In markets that have high electricity prices (such as California) and a high kWh system output (as almost all of the US has compared to Germany) than Net Metering has significant advantages.

As regions in the US with high PV system output also have a high usage of Air Conditioning systems, there is a strong correlation between peak power usage (air condition) and peak solar production. This correlation provides a significant benefit to the utility companies that would otherwise have to contract (expensive) peak power generation.

Distributed Power Generation allows to dimension the grid infrastructure differently — depending on the power usage profiles of different customer groups.

Net Energy Metering also avoids the issue of overbuilding system sizes — something Germany has experienced over the last years.

With a FIT every system owner maximizes profits — e.g. build the maximum system size.

With annualized NEM, the system size is limited to the maximum energy use of that building — e.g. there is no incentive to build a system with maximum output, but size the system to the actual energy need.

The argument that NEM customers are not paying their share of the grid is a very interesting one — as NEM customers in most cases still buy some electricity from the grid — just a (significantly) reduced volume. They behave as if they conserve a large part of the previously used electricity.

The argument that anyone with a PV system should pay a grid connection or grid usage fee is the same as claiming that anyone who conserves water should pay a water system connection fee (base fee) as a penalty for conserving water.

Some very interesting comments. One in particular stands out for its similarity to a criticism of FiTs and VOSTs put forward by Susan above. This quote I’m referring to: “With annualized NEM, the system size is limited to the maximum energy use of that building.” In other words, just like a cap could be set on FiTs and VOSTs, a cap has already been set on NEM. People who go solar who might very well want to maximize the use of their roof and put as many solar panels on it as possible, can’t do so if that would exceed the maximum energy use of that building.

Yes, there are drawbacks to that maximization of rooftop space, but given the urgency and speed with which we must deploy solar power to help deal with the global warming crisis we face, I think the need far outweighs any downsides. That extra solar power from people who have already decided to go solar might be considerable. And, to reiterate, this is yet again an instance of the details being set up in a way as to limit rooftop solar power growth.

All in all, what’s my take on all of this?

1- I don’t think a statewide FiT really has a chance of being passed, and certainly not a nationwide one. But I’m still supportive of anyone who wants to push for FiTs. As I said above, we need people to get more heavily involved in pushing for strong solar policies. If FiTs get some people excited and active, that’s a great step forward. Perhaps from there they will also adopt or switch to a focus on other policies, like net metering. Also, as much as it is indeed true that the details of a FiT policy could make it worse than net metering, the details could also make it stronger.

Taking a US example, LA’s feed-in tariff stimulated a flood of solar power applications. The incentives were clearly attractive. Unfortunately, a low cap will result in a much smaller number of projects being built than were submitted. Will many of the solar projects that don’t get awarded a FiT contract end up getting built anyway? Will the disappointment or the hope for program expansion kill the projects or put them in permanent limbo? Would the LA solar market be better off without this policy? It’s hard to know, but this does give some backing to Sunrun’s FiT concerns.

2- Since Sunrun is more involved in the solar legislation arena in California, I’d probably defer to its expertise on the desire for net metering over a FiT. Though, I also wonder if perhaps a FiT would threaten the solar leasing model that brings Sunrun most of its customers. The current policies are a great support to the solar leasing model. A statewide FiT? Maybe not…

3- As a bit of an idealist, I’d love to see VOST policies adopted that really pay solar owners for the net value of the electricity they produce. As a bit of a realist, I know that will never happen in the majority of locations, that getting enough support and involvement from US citizens and nonprofits to make that happen is highly unlikely in the majority of cities, counties, and states. So, while a great policy model in theory, perhaps VOSTs are best left on the research table.

4- Net metering definitely warrants continued support, expansion, and strengthening. I am happy to see Sunrun so involved in that side of things… of course, it’s more than logical for the company to be so involved — net metering is a huge, non-subsidy support to the solar industry.

If you’ve made it through this entire article, I assume you are an informed and thoughtful solar power lover. What are your thoughts on the topics above?