Arizona net-metering decision may slow solar adoption

A decision by state regulators to end net metering for customers with rooftop solar panels will curtail demand for such systems in Arizona, industry officials say.

But the depth of that impact remains largely unknown and depends on further proceedings to set a new solar-energy “export rate” for each utility.

The Arizona Corporation Commission voted on Tuesday to scrap net metering — a process where customers are credited for excess solar-energy production at retail rates — in favor of a lower export rate, despite the objections of some solar advocates.

The new export rate will be based initially on the cost of energy from large, utility-scale solar farms, while companies and regulators come up with an alternative methodology based on the “avoided cost” of rooftop solar.

Though the export rate will be set individually in each utility’s rate case, the export rate stands to be much lower than the retail rate, which is about 11.5 cents per kilowatt-hour for Tucson Electric Power Co.

TEP had proposed using the cost of its most recent power-purchase agreement for utility-scale solar, about 6 cents.

TEP had no estimate of the utility-scale “resource comparison proxy” rate as of Wednesday, saying officials are still studying the decision.

Whatever it ends up being will likely be far short of the retail rate, pushing the payback period for solar installations to beyond what many customers are willing to wait, solar installers say.

Kevin Koch of Technicians for Sustainability said the current payback period for a typical residential photovoltaic system runs about seven to eight years, including net metering at the retail rate of about 11.5 cents per kWh for TEP.

That stretches to 10 years at an export rate of about 9.5 cents per kWh, and anything longer than a 10-year payback period gives prospective solar customers pause and will likely cause demand to fall, Koch said.

Katharine Kent, owner of The Solar Store in Tucson since 1998, generally agreed with Koch’s assessment.

The industry will learn to adapt, solar prices may continue to fall, and the lower export rate will help drive sales of home battery systems, she said.

“In all the years I’ve been in this industry, where there’s a good product or solution, it will find a way,” Kent said.

For example, with a lower export rate and the commission’s move to abolish carryovers, or banking, of excess solar generation, many people may choose to add a battery to their home solar systems and simply never export energy to the grid.

Though home battery products are just now emerging — Kent offers a lead-acid battery and plans to offer a more efficient lithium-ion model next year — the changes may have significant effects on the market in the meantime as people see little benefit to solar overproduction, Koch said.

“If you end up getting rid of banking, you’re going to end up cutting the size of systems, and that will drive up prices,” he said.

One tricky issue not addressed by regulators, Kent said, is how solar installers will comply with a state law requiring them to disclose financial estimates for rooftop solar systems, over the coming months as the utilities and regulators finalize new export rates.

“I don’t know how we can follow the law and do what the Corporation Commission says,” she said.

Solar-industry officials also criticized part of the net-metering decision that locks in the new energy export rate for rooftop solar for 10 years.

Solar advocates wanted a locked-in export rate for at least 20 years, reflecting the useful 20- to 30-year life of solar panels.

“You’re going to have people who are going to sign up for solar with no idea what happens after 10 years,” said Court Rich, representing the solar-industry group The Alliance for Solar Choice.

But the Arizona Public Service Co., the largest state-regulated utility, said in a prepared statement that the decision “is good for solar in Arizona” because it “makes solar fairer because all customers will begin to share more appropriately in the cost of the electrical grid.”

TEP supports the net-metering decision because it “will ultimately help reduce subsidies paid by customers without rooftop solar and support our efforts to provide more cost-effective solar energy for our community,” spokesman Joe Barrios said.

“The commission and other stakeholders have worked hard to consider competing interests in these proceedings and the result brings us closer to establishing rates that are more fair for all of our customers,” he said.

Long slog

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The 4-1 commission decision came after nearly three years of proceedings, including four hours of public comment Monday, culminating with a marathon session that ended Tuesday evening.

“I think we’ve accomplished something pretty historic today,” commission Chairman Doug Little said after the vote. “It’s not perfect, but it’s a step in the right direction.”

Commissioner Bob Burns, who favored a 20-year export rate lock-in and consideration of longer-term solar benefits, voted against the proposal.

Arizona utilities including TEP and APS, as well as co-ops like Trico Electric Cooperative, had sought to eliminate net metering, contending that solar customers aren’t paying their fair share of fixed grid costs.

Solar companies and advocacy groups counter that solar is worth far more than the utilities say in terms of reduced costs and pollution, and that any cuts to net-metering rates would devastate the industry.

Two other states, Nevada and Hawaii, have ended net metering, and at least 25 other states are considering that and other solar rate-design issues.

The Corporation Commission’s policy decision is expected to guide pending and future rate cases, including pending cases filed by TEP and APS, while the rate case of TEP’s rural sister utility, UNS Electric, will be reopened for a second phase to set the solar export rate.

The initial “resource comparison proxy” rate will be based on a weighted, five-year average cost of power from utility-scale solar farms.

The new export rates will vary by utility and be stepped down annually, in increments limited to 10 percent each year.

Over the longer term, the utilities are required to develop solar valuation methodologies based on a five-year forecast of “avoided cost” of conventional generation, including such things as fuel costs, to be updated with each rate case.

APS has advocated using its own proprietary cost studies to set an “avoided cost” rate for solar credits, at about 3 cents per kWh.

Solar advocates wanted the value of solar to be considered over a longer time period, 20 years or more, to capture environmental and other long-term benefits.

Going forward, the utilities, with commission approval, could use either the resource proxy or the avoided-cost models to set an export rate, which would be updated in subsequent general rate cases.

Grandfathered customers

The new solar-compensation scheme will apply to customers who apply to connect their systems to the grid after each utilities' new rates go into effect.

Customers whose rooftop solar panels are connected before the rate decisions will be grandfathered to continue to receive the benefits of existing net metering, but Tuesday’s decision limits those benefits to 20 years from the date of interconnection.

Solar advocates had contended that anything other than full grandfathering of net-metering rates would be unfair and lead to litigation, noting that Nevada appears to be backing off its retroactive elimination of net metering in the face of public outcry and lawsuits.

Commissioner Bob Stump, who has been sharply critical of the solar industry, said the net-metering rules had to be updated for consumers and the long-term future of the solar industry.

“To maintain the status quo would have made the industry less sustainable and less self-reliant,” said Stump, adding that he was proud to make his last vote as he is stepping down from the commission at the end of the year.

Chairman Little said much work remains to be done.

In the pending rate cases, regulators are also likely to consider requests by the utilities to impose new fixed charges or special “demand rates” based on peak usage.

Despite objections of the solar industry, the ruling also allows utilities to request classification of rooftop-solar customers as “partial requirements” customers, which could single them out for special rate analysis and class treatment.

“I think this will become more of an evolutionary process,” Little said. “We’ll be revisiting some of these issues, but its a good step.”

APS, which has sought to increase fixed charges on rooftop solar customers and in 2013 was allowed to assess solar customers a $5 monthly “grid access fee,” signaled it is not done in seeking to correct what it says is a cost shift from solar to non-solar customers.

“While today’s action was a step in the right direction, subsidies and a cost shift still exist,” APS said.