For years, power companies have watched warily as solar
panels have sprouted across the nation’s rooftops. Now, in almost panicked
tones, they are fighting hard to slow the spread.
Panels in the Deer Valley section of Phoenix. Utilities say
the subsidies given to solar-minded homeowners are too generous.
Alarmed by what they say has become an existential threat to
their business, utility companies are moving to roll back government incentives
aimed at promoting solar energy and other renewable sources of power. At stake,
the companies say, is nothing less than the future of the American electricity
industry.
According to the Energy Information Administration, rooftop
solar electricity — the economics of which often depend on government
incentives and mandates — accounts for less than a quarter of 1 percent of the
nation’s power generation.
And yet, to hear executives tell it, such power sources
could ultimately threaten traditional utilities’ ability to maintain the
nation’s grid.
“We did not get in front of this disruption,” Clark
Gellings, a fellow at the Electric Power Research Institute, a nonprofit arm of
the industry, said during a panel discussion at the annual utility convention
last month. “It may be too late.”
Advocates of renewable energy — not least solar industry
executives who stand to get rich from the transformation — say such statements
are wildly overblown. For now, they say, the government needs to help make the
economics of renewable power work for ordinary Americans. Without incentives,
the young industry might wither — and with it, their own potential profits.
The battle is playing out among energy executives, lawmakers
and regulators across the country.
In Arizona, for example, the country’s second-largest solar
market, the state’s largest utility is pressuring the Arizona Corporation
Commission, which sets utility rates, to reconsider a generous residential
credit and impose new fees on customers, months after the agency eliminated a
commercial solar incentive. In North Carolina, Duke Energy is pushing to
institute a new set of charges for solar customers as well.
Nowhere, though, is the battle more heated than in
California, home to the nation’s largest solar market and some of the most
aggressive subsidies. The outcome has the potential to set the course for solar
and other renewable energies for decades to come.
At the heart of the fight is a credit system called net
metering, which pays residential and commercial customers for excess renewable
energy they sell back to utilities. Currently, 43 states, the District of
Columbia and 4 territories offer a form of the incentive, according to the
Energy Department.
Some keep the credit in line with the wholesale prices that
utilities pay large power producers, which can be a few cents a kilowatt-hour.
But in California, those payments are among the most generous because they are
tied to the daytime retail rates customers pay for electricity, which include
utility costs for maintaining the grid.
California’s three major utilities estimate that by the time
the subsidy program fills up under its current limits, they could have to make
up almost $1.4 billion a year in revenue lost to solar customers, and shift
that burden to roughly 7.6 million nonsolar customers — an extra $185 a year if
evenly spread. Some studies cited by solar advocates have shown, though, that
the credit system can result in a net savings for the utilities.
Utilities in California have appealed to lawmakers and
regulators to reduce the credits and limit the number of people who can
participate. It has been an uphill fight.
About a year ago, the utilities pushed regulators to keep
the amount of rooftop solar that would qualify for the net metering program at
a low level; instead, regulators effectively raised it. Still, the utilities
won a concession from the Legislature, which ordered the California Public
Utilities Commission to conduct a study to determine the costs and benefits of
rooftop solar to both customers and the power grid with an eye toward retooling
the policy.
Edward Randolph, director of the commission’s energy
division, said that the study, due in the fall, was a step toward figuring out
how to make the economics work for customers who want to install solar systems
as well as for the nonsolar customers and the utilities. The commission wants
to ensure, he said, that, “we aren’t creating a system that 15 years from now
has the utility going, ‘We don’t have customers anymore but we still have an
obligation to provide a distribution system — how do we do that?’ ”
The struggle over the California incentives is only the most
recent and visible dust-up as many utilities cling to their established
business, and its centralized distribution of energy, until they can figure out
a new way to make money. It is a question the Obama administration is grappling
with as well as it promotes the integration of more renewable energy into the
grid.
Utility executives have watched disruptive technologies
cause businesses in other industries to founder — just as cellphones upended
the traditional land-based telephone business, producing many a management
shake-up — and they want to stay ahead of a fundamental shift in the way
electricity is bought, sold and delivered.
“I see an opportunity for us to recreate ourselves, just
like the telecommunications industry did,” Michael W. Yackira, chief executive
of NV Energy, a Nevada utility, and chairman of the industry group the Edison
Electric Institute, said at the group’s convention.
The fight in California has become increasingly public, with
the two sides releasing reports and counter-reports. A group of fast-growing
young companies that install rooftop systems, including SolarCity, Sungevity,
Sunrun and Verengo, recently formed their own lobbying group, the Alliance for
Solar Choice, to battle efforts to weaken the subsidies and credit systems.
They have good reason. In California, as intended, net
metering has proved a strong draw for customers. From 2010 to 2012, the amount
of solar installed each year has increased by 160 percent, almost doubling the
amount of electricity that rooftop systems can make, according to the Solar
Energy Industries Association. With federal tax credits and a rebate program
for installation costs under the California Solar Initiative phasing out,
determining how much to pay customers has become even more critical.
“Net metering right now is the only way for customers to get
value for their rooftop solar systems,” said Adam Browning, executive director
of the advocacy group Vote Solar.
Mr. Browning and other proponents say that solar customers
deserve fair payment not only for the electricity they transmit but for the
value that smaller, more dispersed power generators give to utilities. Making
more power closer to where it is used, advocates say, can reduce stress on the
grid and make it more reliable, as well as save utilities from having to build
and maintain more infrastructure and large, centralized generators.
But utility executives say that when solar customers no
longer pay for electricity, they also stop paying for the grid, shifting those
costs to other customers. Utilities generally make their profits by making
investments in infrastructure and designing customer rates to earn that money
back with a guaranteed return, set on average at about 10 percent.
“If the costs to maintain the grid are not being borne by
some customers, then other customers have to bear a bigger and bigger portion,”
said Steve Malnight, a vice president at Pacific Gas and Electric. “As those
costs get shifted, that leads to higher and higher rates for customers who
don’t take advantage of solar.”
Utility executives call this a “death spiral.” As utilities
put a heavier burden on fewer customers, it increases the appeal for them to
turn their roofs over to solar panels.
A handful of utilities have taken a different approach and
are instead getting into the business of developing rooftop systems themselves.
Dominion, for example, is running a pilot program in Virginia in which it
leases roof space from commercial customers and installs its own panels to
study the benefits of a decentralized generation.
Last month, Clean Power Finance, a San Francisco-based
start-up that provides financial services and software to the rooftop solar
industry, announced that it had backing from Duke Energy and other utilities,
including Edison International. And in May, NextEra Energy Resources bought
Smart Energy Capital, a commercial solar developer.
But those are exceptions.
“The next six to 12 months are the watershed moment for
distributed energy in this country,” said Edward Fenster, a chief executive of
Sunrun, adding that if their side prevailed in California and Arizona, it would
dissuade utilities with net metering programs elsewhere from undoing them. “If
we don’t succeed, the opposite will be the case and in two years we’ll be
fighting 41 of these battles.”
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