The latest energy debate in Concord is centered on attempts to raise the 50 MW cap on retail net energy metering—a policy that requires utilities to pay for excess electricity (usually solar) generated by a homeowner, business or municipality. When utilities are forced to pay retail rates for solar electricity that are two times the wholesale rates they pay in the market, it shifts costs from every other customer to solar customers. Basically, everyone who doesn’t own solar panels is paying those who do.
For example, at National Grid 99% of customers pay 80% of the solar incentives for the 1% who have solar. And just who are the 1% of homeowners? In 2013 the California ISO released a study conducted by Energy and Environmental Economics, which concluded that utility customers in California with net metering had an average median household income nearly 70% higher than the rest of the state. According to a 2013 paper from Wellesley College, even though “Massachusetts doubles the solar subsidy for moderate income homeowners or moderate-value properties (27% of installations have received that rebate), that has apparently not resulted in more even participation across lower income brackets.” Translated: poorer people pay for more wealthy people to have solar panels on their homes.
Here are the subsidies currently enjoyed by solar installers/homeowners in New Hampshire: 30% federal investment tax credit; up to an additional $2500 paid for by New Hampshire ratepayers via alternative compliance payments (ACPS); 5 cents per kWh for Renewable Energy Certificates (RECs) paid by all ratepayers to comply with Renewable Portfolio Standards; tax abatements (available in some towns) and accelerated depreciation of capital.
And why does solar needs all of these subsidies? The answer is simple: solar panels don’t generate a lot of power— only 12.6% of the time in New Hampshire according to ISO-NE. Lower capacity factors mean solar generators need larger subsidies to get a return on their capital investment. Natural gas combustion turbines also don’t run often (generally as peaking units when power prices are high) but they provide tremendous value to the grid because they can ramp up at any time and produce power very quickly. That’s something solar can’t do as it only produces power when the sun is shining.
The Peterborough solar project illustrates the perverse economics of solar power. Borrego, the developer of the $2.6 million solar photovoltaic (PV) array received a $1.2 million ratepayer-funded grant from the New Hampshire PUC as well as a 30% ($780,000) federal investment tax credit. Thus, 75% of the capital costs for the project costs are covered by ratepayers and taxpayers, basically removing any risk from Borrego who “carefully calculated the level of NH PUC grant support needed to provide adequate returns for our investors” in its grant proposal. Nice deal if you can get it. This saved Peterborough $25 to $50 thousand annually. Without these benefits this project would face a 50 to 100 year payback; which makes the project entirely unjustifiable without the ridiculous cost-shifting subsidies. Nothing like taking money from the pockets of ratepayers in the other 233 New Hampshire cities and towns to save Peterborough some money (and provide an all-important return to Borrego’s investors).
This brings us back to the net-metering cap and how to approach it. The answer is simple: remove the cap, treat distributed generators like any other generator in the marketplace and pay them the wholesale price for electricity. If solar companies can’t survive on the panoply of state and federal subsidies currently available then they need to re-evaluate their business model.
Of course, proponents will argue, solar should be compensated more for the externalities – the non-economic benefits that solar provides. The value of those “externalities” can be debated, but all those state and federal subsidies ARE the compensation (and in most cases over-compensation) for the externalities. Solar generators should be paid what every other generator gets for the electrons produced – the wholesale price of their power. More importantly, if solar generates electricity when it is needed most, they will get paid handsomely for providing power when demand is high.
If the cap is raised and utilities are required to pay more than wholesale prices for power, then lawmakers and bureaucrats will continue to take from ratepayers to line the pockets of companies like Solar City. It’s time to stop adding to the $13 billion net worth of Elon Musk while making our most vulnerable citizens a little bit poorer. Remove the caps and pay solar the wholesale price. It is the fair, equitable and rational way to address this issue.
Marc Brown is the Executive Director of the New England Ratepayers Association, a nonprofit dedicated to protecting ratepayers.
(A version of this column originally appeared in the NH Union Leader.)