It’s might the hottest issue in solar, but a leading analyst says not to worry – for now, at least.
We’re talking about the debate over net metering – NEM, for net energy metering, by the industry’s nomenclature. Utilities have been pushing back against NEM policies that often reward solar power system owners at the full retail rate for the energy produced beyond their own usage. This has led to fears that less generous programs could be coming, dampening solar adoption.
But don’t expect the state-level fevered fighting about the issue to make much of a difference this year, IHS said. “After examining proposed changes and recent utility commission rulings, IHS has determined that net metered PV project economics will not be significantly impacted in 2014,” the company reported.
IHS said around 85 percent of U.S. distributed solar PV capacity is in states with full retail-rate NEM. States that are reviewing their policies comprise about 70 percent of such solar PV capacity.
Utilities have argued that full-retail NEM schemes are unfair because the energy they’re essentially buying is pricier than wholesale sources they can turn to, and because even with widespread adoption of solar they still need to bear the costs of building and maintaining transmission and distribution systems. The utilities say this opens up a cost gap, and that if it continues, they’ll need to boost rates for non-NEM customers.
For example, as IHS details, in Colorado, Xcel says it pays $104 per megawatt-hour (the average retail rate) for NEM solar that it claims has a value to the company of $45/MWh in avoided costs. But solar advocates dispute the low valuations that utilities give to distributed solar. From IHS:
Avoided fuel costs, a portion of capacity, and avoided distribution losses seem to be common areas of value, but what percentage of these utility-cost categories are avoided will be debated. Other categories that are likely to be the subject of debate are avoided transmission and distribution investments, renewable power purchases and emissions. In addition to these debates being shaped by local power market dynamics, the local political environment will also influence the final determinations and lead to fragmented outcomes across the United States.
But looking at hotspots like Arizona and California, in addition to Colorado, IHS said recent NEM policy shifts don’t figure to change the landscape much for 2014.
California has a full retail-rate NEM program in place until the state reaches its 5.3 GW aggregate limit on NEM capacity. At the end of the third quarter of 2013, the state’s utilities reported 1.7 GW of interconnected NEM capacity. The Arizona Corporation Commissions’s $0.70 per kW of NEM PV charge should have negligible impact on NEM PV project economics.Meanwhile, Colorado will continue to be a market dependent on local incentives.
IHS suggests that in the long run rollbacks, to an unknown degree, are inevitable, but there are trends and possibilities that solar developer can take advantage of:
Distributed solar developers should continue to focus on driving project costs lower through improved installation, streamlined customer acquisition, and innovative financing/business models, in order to prepare for a future of avoided cost valuations. With utility costs generally seen as increasing over time and PV costs expected to continue to decline, the future of distributed PV generation could be promising in select areas.