This blog was written by John D. Wilson, former Deputy Director for Regulatory Policy at the Southern Alliance for Clean Energy.Guest Blog | November 10, 2016
With the defeat of the utility-sponsored anti-solar Amendment 1 in Florida, we are wondering what the utilities’ next step will be. Will they engage with stakeholders to put more sun into the Sunshine State?
If they don’t – we can expect more scapegoating of rooftop solar. The technical foundation was recently laid out in a report by the fossil fuel and utility front group Consumer Energy Alliance (CEA). Its fake pro-solar campaign is really a broad attack on rooftop solar and the policies that support it, as David Pomerantz recently blogged here.
CEA is the “consumer” group that is known for employing manipulative antics to promote the dirtiest fossil fuels, including the development of the Alberta tar sands (that’s where all the oil was going to come from that would have traveled through the Keystone Pipeline) and derail the transition to clean energy. The Alliance’s recently released solar report is its latest attempt to protect the profits of its big utility backers – this time by producing misleading information to thwart the expansion of rooftop solar power.
In its report, CEA attacks each policy that has been important to the growth of rooftop solar, from net metering to tax credits to third party leasing. CEA characterizes every single financial benefit of rooftop solar as an incentive, and then lays out why incentives are bad. According to CEA, net metering payments, which are credits that solar energy system owners receive for the electricity they add to the grid, are an incentive, even though utilities sell that electricity to solar neighbors at the retail rate. Likewise, Renewable Energy Certificates, which represent the environmental attributes of the power produced from renewable energy projects, are an incentive, even though they are primarily valued by and traded in the open market. Solar tax credits, asset depreciation deductions, and state and utility rebates are also incentives.
And what’s so bad about these so-called incentives? Well, CEA says they are “substantial,” even “more significant” if the solar system is owned by someone other than the home or business owner (the dreaded third party owner model), a threat to large-scale solar PV, and shifting costs onto the less affluent. That’s what is bad about incentives, according to CEA.
Really, CEA is using the term “incentive” to scapegoat any person or business that puts solar panels on the roof of their home or business. While the CEA report is full of interesting numbers, it is fundamentally flawed because it ignores three critical realities.
Rooftop solar provides a net benefit to the grid
The CEA report wrongly assumes that “customers with solar … avoid paying their appropriate share of the utility’s fixed costs” for the grid. The reasoning goes that solar customers still rely on the grid but have a lower demand for utility-generated power and thus pay lower electric bills. And that constitutes a cost shift from solar-owning households to others, including less affluent households.
But studies ordered by regulators across the country and aggregated by the Brookings Institution conclude that costs associated with rooftop solar are generally outweighed by benefits. In other words, when one customer lowers demand for electricity, that can result in a lower cost of service for all customers.
For readers who are not familiar with the regulation of monopoly utilities, it may be confusing to think through what exactly the “cost shift” is and how a customer’s solar panel can trigger a “cost shift.” The CEA report’s reasoning is that the rooftop solar imposes a cost on the utility system, and because a utility is entitled to recover its costs, other customers will have to pay. The report suggests that the solution is to continue to collect those costs from the solar customer, even though that customer is now buying less electricity.
One problem with CEA’s claim, that utilities are entitled to recover a certain amount of cost from a particular customer, is that utilities don’t routinely try to fix other changes in customer demand. Vacation homes, more efficient street lighting, residential energy efficiency upgrades, and downsizing or closing manufacturing plants are all examples of customer choices that can result in decreased revenues and increased costs to a utility, yet utilities don’t accuse those customers of free riding and impose new billing charges on them. Singling out customers who generate solar power as shifting costs to other customers sensationalizes what has, to date, been a mundane and normal part of the utility business.
The other problem with CEA’s claim is that utility regulators do not guarantee utilities revenues or profits. Utilities are entitled only to a reasonable opportunity to sell power and recover their costs. CEA’s perspective suggests that monopolies should be entitled to anticipated revenues – not just in total, but the specific amount they expect from each individual customer. As a thorough report by Karl McDermott for Edison Electric Institute explains,
… there is a common misunderstanding that utilities are guaranteed a set profit level. The regulatory process does not guarantee the profit level, only a fair opportunity to earn a set profit level once rates are determined.
While customers feel they should be allowed to choose to put solar power on their home or business, if CEA and other net metering opponents have their way, then private utilities will effectively have gained an entitlement to charge fees for any solar power generated by and used by their customers.
Electricity isn’t a free market, and solar energy can’t be free
Electricity isn’t a free market – electric utilities are regulated monopolies. This CEA report is clearly part of a well-documented plan by the monopoly utilities to fortify their profits and growth, sparked by a 2013 Edison Electric Institute report. Because utilities are regulated monopolies, government sets the price of electricity. CEA’s fundamentally misleading study is based on the idea that if the government sets (or regulates) the price of solar power, then the price it fixes is an “incentive.” But this government regulation is intended to protect consumers from the opportunity that monopoly utilities would otherwise have to charge excessively high prices. Government sets and regulates the price of solar power just as it sets and regulates the price of other types of electricity.
And solar energy can’t be free. The four “types of incentives” studied in this report represent the entire potential revenue stream to solar businesses and homeowners. If every one of these “incentives” were removed, then a customer who used a solar panel to generate electricity would receive no tax benefit and no payment from the utility – not even a reduction in utility bills! Rooftop solar customers would be providing electricity to the grid for free. Classifying all revenue streams from customer solar systems as incentives is nonsensical.
Tax policy and other programs that influence energy markets favor fossil fuels and nuclear over renewables
Many of the “special” state tax credit, deduction or exemption provisions that the CEA report calls an incentive do little more than bring taxes into more reasonable alignment. State tax law often places a higher tax rate on solar power systems than it does on utility power plants. The state tax rate on solar can be as much as two to five times higher than the state tax on a nuclear or gas plant. The CEA report also ignores the fact that under federal programs, including those that provide tax and investment credits, fossil fuel and nuclear incentives far outstrip and outlive those for solar and wind.
A final irony
CEA’s report is written by James L. Borlick, an electric energy consultant. In a recent presentation, Mr. Borlick spoke in support of the opportunity for retail customers to “substantially affect utility planning and operations by substituting their preferences for the subjective judgments of utility planners, regulators and bureaucrats” by choosing to take advantage of demand response and energy efficiency.
But when customers affect utility planning by substituting their preference for solar power … well, Mr. Borlick seems to have a different perspective. At least when his client is CEA.