Solar Smackdown: Utilities Take On Rooftops

It’s the utilities vs. rooftop solar and with PV becoming more accessible and installations soaring, the fight is heating up.

In San Antonio, the municipally owned CPS Energy last week said it will slash the value of the credit for solar produced from rooftop installations. The company’s claim is a central one made by the utilities: that as more people produce their own power through rooftop solar – and reduce their electricity bills – companies are left unable to meet their cost of maintaining the energy infrastructure. CPS Energy said it had two options: reduce the amount it credits solar households for rooftop-produced solar, or raise rates for everyone.

Solar installation in downtown San Antonio (image via CPS Energy)

Solar installation in downtown San Antonio (image via CPS Energy)

Now, power company fears about distributed solar aren’t new – investor-owned utilities in California have long fought to temper net metering and community solar, for instance. But the issue is top of mind now amid widespread discussion of a report [PDF] by the utility trade association Edison Electric Institute that said solar photovoltaics – along with battery storage, fuel cells, geothermal energy systems, wind, micro turbines, and electric vehicle (EV) enhanced storage – “could threaten the centralized utility model.”

CPS Energy seemed to waste little time in moving to keep the upper hand. Here’s how Cris Eugster, executive vice president and chief strategy and technology officer for the company, explained the company’s move, in a statement:

Costs to install photovoltaic systems continue to fall, making them increasingly available for more customers. And with that growth, the costs of the utility infrastructure are borne by fewer customers—those who don’t have solar systems. To ensure that solar customers continue to enjoy the benefits of any distributed energy they produce, and pay a fair share of the infrastructure that they rely on, we’re taking a different approach. This is really important in San Antonio, where one quarter of the community’s residents are at or below the poverty level, and monthly energy bills absorb a larger portion of their monthly budgets.

But not everyone is buying that solar is putting such a squeeze on CPS Energy. Lanny Sinkin, executive director of the advocacy group Solar San Antonio, told Texas Public Radio that the company’s customers don’t have anywhere near enough solar to present a cost-structure issue.

“In San Antonio, we have about 8 megawatts of solar distributed in a system that’s more than 7000 megawatts,” Sinkin said.

As it stands today, CPS Energy credits customers at the retail rate for any rooftop solar production. That’s now amounts to 9.9 cents per kilowatt-hour. The company proposes replacing that with a “SunCredit” of 5.6 cents/kWh beginning in November. The company says this rate takes into account the cost of poles, wires, substations and the like – things that all customers, even those who produce more solar than their total power usage, rely upon.

Solar advocates have argued that this sort of raw accounting ignores the benefits that distributed solar brings: reduced pollution and expenses for conventional power; less need for new investment in transmission and distribution; reduced transmission losses; and reduced costs of meeting renewable energy standards.

The California pro-solar group Vote Solar Initiative earlier this year released a report that called utility cost claims for net metering inflated, and said that once the 5 percent net-metering cap is met in the state, non-solar ratepayers will benefit to the tune of a combined $92.2 million per year.

UPDATE: Readers should be sure to check out the comments below, including those from CPS Energy rep Lisa Lewis, which offer additional perspective on CPS Energy’s approach to solar. -PD

Sports columnist, newspaper desk guy, website managing editor, wine-industry PR specialist, freelance writer—Pete Danko’s career in media has covered a lot of terrain. The constant along the way has been a fierce dedication to knowing the story and getting it right. Danko's work has appeared in Wired, The New York Times, San Francisco Chronicle and elsewhere.

  • http://twitter.com/CPS_Lisa Lisa Lewis

    Pete, there are a couple of points missing in relation to San Antonio. In addition to net metering, CPS Energy offers customers a generous rebate for solar upfront ($2/watt, up to 50 percent of the purchase price for solar). We account for it as a pre-pay for generation, which equates to an average of $12,000 to $14,000 per system paid to the customer at the time of installation. Second, CPS Energy has an average residential rate of 9 cents/kwh (all inclusive) . We have heard the feedback that the solar placed on the grid offsets any costs for use of the infrastructure, but this is somewhat flawed. Utilities like CPS Energy issue bonds (debt) to pay for infrastructure. Those bonds are paid over time. To use a metaphor: if you bought a car, and had a $300/month car payment, your car payment (debt) wouldn’t be reduced just because you caught a ride with a friend for a week or two. If solar customers–who use poles, wires, etc. to put energy on the grid and/or take energy from the grid–don’t pay a portion of those costs, they’re put onto other customers. Municipal utilities build their rates to recover costs. And unfortunately, even though CPS Energy has bills that are the lowest of the 20 largest cities in the U.S., the bills are not low enough, because we also have a poverty level of 25 percent in San Antonio. It’s true that net metering is not a problem yet. Before it becomes a problem, we want to come up with a solution that supports solar (because we believe in it), but also that maintains low rates and proportionally fair ones. Our objective is to provide affordable power for our customers, and we take that one step farther by trying to help them do it–not because we’re required to, but because we think it’s the right thing to do. We offer energy efficiency rebates, demand response technologies for residential and commercial customers and free weatherization for low-income households. And we’re well on our way to having a generation fleet that is 65 percent low- and no-carbon emitting by 2020. The proposed SunCredit (which is just a different version of net metering) includes the wholesale price, as well as factors for transmission cost reductions, line loss and environmental benefits. We don’t claim to have the answer. We’ve proposed an option, and we expect to be working on it for the next couple of months.

    • http://www.facebook.com/petedanko Pete Danko

      Lisa, thanks for your comment! All good, interesting point — especially that there are other incentives offered for solar by CPS Energy. I’ll post a note at the end of the story alerting readers to it.

    • Solarphobia

      Besides the adulterated truth about the simple community benefits that distributed solar brings to the table for a very low cost, CPS Energy constantly skirts around the issue of economic development and their (in conjunction with city council) abandoned commitment to “add jobs” to San Antonio. As many as 60 solar contractors started solar companies, relocated or established satellite offices in San Antonio based on a commitment through the year 2020 from the local government. Some almost 40 solar contractors who have survived previous similar tactics from CPS Energy are in imminent peril if this program is implemented on April 27th as announced. Not only will these companies have no option but to close up shop, over 1000 solar customers will not have a company to rely on for the warranty service that normally extends 10 years after purchase.

      • http://www.facebook.com/petedanko Pete Danko

        Solar contractors are a very big job growth driver — and could be bigger with a robust commitment to wider deployment. Thanks for raising that aspect of the issue.

      • http://twitter.com/CPS_Lisa Lisa Lewis

        Back in 2009, CPS Energy committed to spend $40 million on solar rebates between 2010 and 2020. Last year, at the request of solar installers, CPS Energy frontloaded that budget, agreeing to allow it to be spent as quickly as the installers could sell/install solar, rather than more evenly over the decade. To date, about $20 million in solar has been rebated to CPS Energy customers for solar installations. When CPS Energy set the rebate amounts, customers who used local installers could qualify for a higher rebate. This measure was intended to help customers identify local installers who were likely to be around after installing. CPS Energy did not require or ask installers to relocate to San Antonio, but some installers opted to do that in order to qualify for the higher rebate amount.

        • Solarphobia

          For the record the Mayor of San Antonio asked us to start businesses here and relocate businesses here. April 27th the industry here in San Antonio will wither and die if CPS Energy has their way.

  • http://twitter.com/SolarPowerUSA Solar Energy USA

    The 9.9 cents per kWh buyback rate is much more solar friendly than most utilities in GA offer – normally their “avoided cost” around 5 cents per kWh. Nonetheless solar will prevail because it is what the people want.

  • http://twitter.com/RabagoEnergy Karl Rabago

    A lot of facts are missing and some concepts confused. First, it sounds like the 9.9 cents is a utility charge for gross consumption – the consumption rate as if the solar customer had no solar system at all. If so, the utility is recovering all the costs created by the customer for network, past investments, etc. They are making all the “car payments.” So it is really unclear why solar payments are 4 cents lower than retail and some 10 cents lower than a value of solar analysis suggested. Second, incentives like rebates are economically distinct from fair compensation for value. Conflating the concepts in rate design makes it hard to manage both – and make the move to a self-sustaining, low- or no-subsidy solar ecosystem. As markets mature, we want incentives to go down, but compensation should always be fair. Third, it is not clear where the 5.6 cents comes from. It looks and sounds a lot like a PURPA avoided cost calculation – a measure of the savings (mostly fuel) from a reduced volume of sales in a single, historical year. And it appears that there is no credit for the future stream of energy, capacity, fuel price hedge and other benefits that the solar system provides. So it is not clear why future “stranded” costs are charged against solar value, but not future solar benefits. Finally, it looks like the solar value is being reduced by stranded costs just for being solar. This seems to be a second bite at stranded costs – since the 9.9 cents recovers a fair share of those payments already. And charging stranded costs against the solar would be bad financial policy. Stranded costs are “sunk” and should not be used to distort the price of future investment options. The stranded costs may be real, but just like with stranded costs from utility restructuring, they should be allocated to system costs at large–not just to one competitive market entrant. Charging stranded costs to new solar is like the utility sending customers a bill for switching from incandescent bulbs to LEDs, or upgrading their air conditioner to a more efficient model. In all, this discussion would be a lot more meaningful with the real numbers and costs behind the proposal.

    • http://www.facebook.com/petedanko Pete Danko

      From a CPS Energy FAQ:

      How did CPS Energy come up with the SunCredit?

      To develop the SunCredit amount-per-kWh, CPS Energy considered input from a variety of sources, including utilities, solar trade organizations, etc., as well as our own cost analyses.

      • http://twitter.com/RabagoEnergy Karl Rabago

        That answer does not really satisfy my own intellectual curiosity. Compare that to the SolarSanAntonio study on Value of Solar – much easier to figure out where those numbers come from.

        • http://www.facebook.com/petedanko Pete Danko

          Indeed. It would be interesting to hear a fuller explanation from CPS Energy.

  • http://www.facebook.com/jim.winterle Jim Winterle

    I don’t really buy the argument that the cost of transmission infrastructure justifies paying a reduced fee for excess solar that a house puts back on the grid. In reality, any excess energy produced by a rooftop system has only to travel a few hundred feet to the nearest neighbor who is drawing from the grid, where CPS can then sell it at the retail rate.

    A better way to justify it is that, when you tie your solar system into the grid, you are saving save the huge cost of providing your own battery storage. Basically the grid is acting like a big battery. When you produce excess, it goes onto the grid to be used by your neighbors. At night, when you don’t have solar, the grid gives back to you the energy you need. In essence, the grid is providing a valuable storage service to solar users and saving them the huge cost of battery storage. It seems like it would not be unfair for the utility charge a fee for this benefit, but at the same time keep paying the 0.09/kwh credit for excess solar generation. Of course, the net effect of a reduced credit to the solar producer remains, but the justifcation seems fairer.

    In any event, the whole issue is probably moot for most rooftop solar owners, however, because an optimal grid-tied solar sytem would be sized so that your net monthly solar production is somewhat less than your total energy use. In other words, most solar owners are net users, not net producers.

    • http://www.facebook.com/petedanko Pete Danko

      Jim, this isn’t moot for anyone with solar in San Antonio. CPS Energy used to credit residential customers who generated solar an average of 9 cents for each kilowatt-hour of solar they produced. Now it will pay 5.6 cents/kWh. This does not apply only to net producers. From the release: “Using CPS Energy’s current energy charges, a residential customer using the average 1100 kWh per month of electricity would pay April’s current rate of 9.9 cents for what they use, a total of $108.90. Assuming the customer’s solar system generated 870 kWh, the SunCredit of $48.72 would be applied, resulting in electric charges of $60.18 for the month.” So in this instance, the residential customer is using a net of 230 kilowatt-hours of electricity, for which she pays $60.18 — 26 cents per kilowatt-hour. That is a hugely less attractive incentive.

  • http://twitter.com/ExasDougShort Douglas Short

    Lisa Lewis – Could you clarify whether your new policy will require a buy all, sell all arrangement as your sample rate calculation seems to indicate? (This would be similar to the Austin Energy approach.)

    Also, if your marginal costs are 5.6 cents per kWh (which seems very low), you would probably be better off using that as your variable price and collecting the rest through a customer charge. Then you would not have to discriminate against solar customers, all customers would be treated the same. The Sacramento Municipal Utility District has taken this approach, recognizing that it has to reach it in a series of steps and has to support those impacted by the change in rate design. See my comments on an Idaho Power proposal similar to yours (http://exasconsulting.com/news/solar-energy-companies-upset-over-idaho-power-proposal).

    Finally, by subsidizing the installation costs, you reward inputs, not outcomes. While logically net metering is not sustainable (theoretically you could have no sales but still incur generation and transmission costs), you probably should reward the actual production of what you want, solar kWh, instead of reward installing solar panels alone. That is why Germany’s feed-in tariff was so successful and efficient.

    Thanks,
    Doug