Equity at Stake in Solar Energy Ownership Debate

By Benjamin Mandel Published in The Energy Collective June 23, 2014

Solar panels are all the rage these days. They provide power with no fuel cost or carbon footprint, they ease reliance on utility service, and they democratize the energy system by placing generation in the hands of consumers. The technology is even picking up steam within finance circles, as installations are increasingly pooled into relatively safe yet productive investment vehicles.

Solar power already confers these benefits despite only being available when the sun shines. And if we are to reach the ambitious decarbonization targets the EPA has proposed, it will likely need to play an even larger role going forward. Yet its proliferation to date has raised prickly questions of policy design and social equity, signaling that efforts to expand distributed solar should proceed with caution…

One question that continues to plague policymakers is whether net metering policies—which allow homeowners to deduct on-site generation from total demand each month and sell any excess generation to the grid—adversely impact low-income groups. Former Michigan Public Service Commissioner Monica Martinez recently wrote that net metering rules compensate owners of distributed power at the expense of the poor, who are less likely to have solar panels owing to a lack of capital, credit, and information. Ms. Martinez cites a report that finds California’s net metering rules will cost non-solar ratepayers $1.1 billion per year by 2020.

The jury is still out on whether this effect will dominate in the long run; the benefits of distributed solar to the system as a whole, like improved grid stability and deferred maintenance, might ultimately bring rates down. In the short run, however, higher rates seem a very real possibility, mainly because of how rates are designed; in general, the price of a unit of energy reflects not only the cost of supplying a kWh, but also a proportional share to cover system fixed costs like ongoing maintenance of physical infrastructure. So when ratepayers displace energy demand from the grid with self-generation, this leaves a shortfall in a utility’s ability to recover its fixed costs. The result is higher rates, as utilities spread the same amount of fixed costs over fewer unit sales.

One approach utilities are taking to avert this fate and avoid shifting the burden of fixed costs is to ensure that solar customers keep contributing to the upkeep of the system. Residential solar customers still rely on the grid, even if only for backup power, so utilities contend they should continue making contributions in the form of these “standby rates.” Along those lines, Utah’s largest utility has proposed a controversial $4.25/month fee on residential solar customers, while Massachusetts has proposed aminimum monthly bill for all customers.

Another way to engage those currently on the solar sidelines is to promote participation in community solar gardens. Shares in of one of these arrangements allow customers who can’t afford panels, or those whose roofs aren’t conducive to installation, to offset their consumption from the grid with less expensive generation from a communally owned solar array.

If these strategies fail to stimulate solar diffusion, it may be worth considering the role that electric utilities could play in the solar game. Specifically, what if utilities themselves could own or help finance rooftop solar installations? Former FERC chairman Jon Wellinghoff recently suggested that utilities may have a future building and owning rooftop solar on customer property.

Some view this reversion to utility control over generation as an “assault on the democratization of energy.” It’s also worth noting that many states have stripped utilities of generating assets to reduce the size of their monopolies as part of electric sector restructuring in recent decades. The Wellinghoff scheme could be seen as undoing some of that progress.

Even so, there are some plausible benefits to a utility role in rooftop solar that merit consideration. For example, utilities have unparalleled data on their customers’ energy usage. This comparative advantage may allow them to site and size solar installations in a manner that confers maximum benefits to the system. Furthermore, if utilities were able to lease dormant rooftop space from customers and install panels themselves, they could share the avoided cost savings with residents of those properties in the form of clean, low-cost power. This approach might extend the reach of solar energy while being more inclusive of currently sidelined groups.

Naturally, utility involvement in rooftop solar brings to mind other tricky questions. Are utilities better suited than the private sector to intervene in the rooftop solar market? What roles might they be better positioned to serve? Furthermore, would allowing utility ownership of solar assets expose distribution networks to market power concerns?

These questions aren’t any more straightforward than those concerning the social equity effects of net metering. But given the potential advantages of giving utilities a stake in the solar game, it would be unwise to dismiss this possibility out of hand.

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