It’s been a busy year for solar.

If 2015 was the year that brought high-profile changes to state solar policies, particularly net metering, 2016 was the year that saw their consequences play out, spawning copycat proposals or inciting criticism in other jurisdictions.  

Most policy trends build on themselves year after year, and the solar industry is no exception.  But as solar comes down in cost and more utilities adopt the resource, conversations are intensifying over the right policies, rates and reforms for solar development.

Some of these discussions specifically target different sectors such as distributed solar and independent developers who fall under the federal Public Utility Regulatory Act (PURPA). Others are more broad, like the grid modernization efforts underway in New York, Maryland and Minnesota.

As 2016 slips into 2017, we’re taking a look at the top policy trends that dominated the solar sector this year.

Net metering & value of solar

Net metering is likely the most familiar solar policy nationwide, due in no small part to acrimonious debates in states with high amounts of distributed solar.

In 2015, key regulatory decisions in Hawaii and Nevada ended retail rate net metering in favor of lower payments to rooftop solar customers. California preserved the retail rate credits, but only for a few years.

“A lot of these other decisions came at the end of last year and we’ve just seen continued attention to them like Nevada,” said Autumn Proudlove, a senior analyst with the North Carolina Clean Energy Technology Center.

Retail net metering has drawn fire from utilities for years over what they call the “cost shift” — rooftop solar customers not paying their fair share to maintain the grid.

On the other hand, solar companies say the rooftop systems provide grid benefits that utilities and regulators fail or refuse to recognize. That has opened up state debates over the value of solar, a key subject of interest to the sector this year.

“A lot of these net metering debates have been around adjusting that credit rate and making it maybe time varying or based on location to the value of solar,” Proudlove said. “I think we’ve been seeing more of that.”

That’s the case in Hawaii, where regulators have opened a docket to determine a final tariff to replace the net metering program it terminated in 2015. In California, regulators chose to preserve the retail net metering program until 2019, but added time-of-use rates and a small fixed charge. And in Arizona, regulators chose to end the retail net metering program this week after a year-long debate. In their order, regulators set the export price at the avoided cost rate or use so-called Resource Comparison Proxy, which values rooftop solar exports at the same price of a utility-scale power purchase agreement. Upcoming rate cases in the next year will determine future solar compensation.

Some of those discussions over solar valuation have begun to bleed into community solar debates, Proudlove said.

“I think a lot of community solar policies generally credit customers at the retail rate, so as states re-evaluate those net metering rates, community solar gets tied in there as well.”

Massachusetts and New York are two prime examples. For Massachusetts, which is land-poor and cannot support much utility-scale solar, community-shared solar is one option to open access. The net metering credit is tied into the remuneration for customers who buy into a community solar project. Now the state is directed to come up with a successor tariff after numerous failed attempts to do so in the previous years. Whatever tariff is composed will likely affect community shared solar, experts told Utility Dive earlier this year.

In New York’s case, the state’s net metering program is also tied to community solar facilities up to 2 MW. Part of that reason falls under the Reforming the Energy Vision initiative, which seeks to overhaul the utility business model.  For now, the shared renewables project appears to have stalled as groups ask for clarity from regulators over the credit. Until that issue is resolved, New York’s community solar program is in limbo.

State incentives

Despite late 2015’s reprieve for federal renewable energy tax breaks, industry officials say the general trend is for subsidies is downward.

The ITC and PTC were both extended for five years, but the value of the incentives will decrease each year beginning in 2017 until they sunset completely.

While the decision has been applauded for giving the solar industry, some breathing room, it also signaled a new attitude toward incentives at both the state and federal level.

“I think a broader long-term trend that we’ve seen is a decline in incentives,” said Brian Lips, the director of the North Carolina Clean Energy Technology Center. “Certainly last year, we saw the federal government extend the ITC and the PTC and for the first time, kind of built in step downs for the value of them. So it kind of feels like once those step-downs are complete, those credits are most likely gone for good.”

In 2015, 15 states had residential solar tax credits, but those numbers have since been trimmed to 11, according to the Database of State Incentives for Renewables and Efficiency (DSIRE).

For some states, local incentives are also set to expire or were not designed to deal with the boom in residential and large-scale solar. North Carolina and Utah are prime examples.

North Carolina’s incentives expired at the beginning of 2016, despite attempts by legislature to keep them afloat. Those incentives are estimated to have brought in more than $4 billion in revenue. Because of that, the state is one of the top 5 for installed capacity, but that soon could change. Proudlove told Utility Dive in August the residential and commercial sectors, already modest in the state, had dropped off since the policy change.

In Utah, residential solar was supported by a hefty state tax credit, along with a separate rebates from Rocky Mountain Power on top of retail rate net metering. But last year, the utility cut its rebate and is now seeking to roll back the net metering rates. The state solar incentives will also go up for review in 2017.

If those remaining incentives, particularly net metering, are reduced next year, industry officials worry it could paralyze the nascent industry there.

As state and federal incentives continue to wind down, state value of solar dockets are likely to get even more important.

“It gives rise to the greater importance on the net metering discussion we’re now seeing,” Lips said

Grid modernization 

Grid modernization is a broad term that can mean a host of things. For the most part, it’s a vast undertaking by regulators, utilities and other stakeholders to shore up the grid and figure out ways to integrate emerging technologies, like storage and renewable energy.

Efforts underway include New York’s REV, surely the most well-known. Under the REV, utilities will be transformed into a platform akin to an air traffic controller, managing the integration of distributed energy resources, like residential solar. Other efforts include Maryland’s recently launched grid modernization proceeding, as well efforts in Massachusetts, Minnesota, and California, which is addressing modernization in a number of separate dockets.

While each grid modernization or utility reform docket is different, most feature at least one similarity critical to the solar sector — the goal of removing utility disincentives for distributed resource investment. Instead of spending on traditional utility infrastructure, the REV and other dockets push utilities toward ways to meet system needs with solar, storage and other DERs, with the aim of fully integrating them into grid planning processes.

While most efforts are still in the pilot stages, they could point the way toward enhanced cooperation with solar providers as utilities learn how to use DERs as grid assets. One ConEd program under REV, for instance, is aggregating 300 solar-plus-storage homes into a virtual power plant, which will participate in NYISO wholesale markets.

But while the grid modernization dockets can encourage partnerships, they can also bring sticky valuation questions to the fore. In New York, part of the REV includes a docket examining the value of DERs to come up with a compensation scheme.

“We’ve seen as part of these grid modernization proceedings attacks on distributed generation,” Proudlove said. “Some of the value of solar studies that we’ve been tracking include these grid modernization efforts because they want to identify how DG solar looks into that.”

PURPA

Residential solar gets most of the media attention about state policy battles. But many small utility-scale solar developers have been in incentive fights of their own, this time involving

the federal Public Utility Regulatory Policy Act (PURPA).

First passed in 1978, the act sought to break utility monopolies on generation by mandating they purchase from certain small-scale generators, though states set size limits and signed off on contracts.

But of late, several states have sought to revise long-standing PURPA policies. Utilities argue the law locks them into expensive long-term contracts that do not reflect market prices.

Idaho was the first, whose main utility sought to trim contract lengths from the standard 20 years to two years, and Oregon, Utah, Montana and North Carolina are also tackling discussions related to PURPA

“PURPA has been on the radar of states lately, particularly the Mountain West in Idaho and Montana,” Proudlove said. “In those states and the Southeast, PURPA has been a big driver of utility-scale solar.”

In North Carolina, Duke Energy recently submitted a request to streamline the bid process, allowing the utility to compete against independent developers.

In the most recent decision related to PURPA, FERC rejected Montana regulators' decision to suspend guaranteed rates for small-scale solar developers. But the agency stopped short of taking the issue to court.

Outside the case, FERC continues to keep an eye on PURPA issues, holding a technical conference in June to examine key provisions. Among those include the size of the projects and worries from utilities and regulators that locking in those longer contracts will increase the burden on ratepayers. For independent developers, reducing those contract lengths could hurt development.

Rate design

Several states are currently locked in battles over the proper rate reform as distributed energy resources expand. Many of these rate battles also target residential solar, leading to some of the most acrimonious debates.

From raising fixed fees to implementing demand charges, utilities are pursuing several options to recoup fixed costs, and most are unpopular with solar advocates.

This year, many policy debates weighed residential demand charges against time-of-use (TOU) rates to help utilities recoup costs.

Demand charges, common for commercial and industrial customers, came into the residential rate conversation after Arizona public utility Salt River Project imposed one on its rooftop solar customers in 2015, precipitating a handful of proposals from other utilities.

Under demand charges, customers pay a special fee for their peak demand period each month, often as short as an hour.

Those charges, solar advocates say, could wipe out savings from net metering credits, and are challenging for the average consumer to understand. They prefer the TOU strategy, which varies utility rates for all consumers depending on the time of day, encouraging demand to shift to low-use hours.

Many of these state debates have attracted national attention. In Illinois, Exelon sought to implement residential demand charges as part of its comprehensive energy bill, but a last minute compromise eliminated them.

Arizona regulators are also tackling two widely watched rate cases seeking to implement mandatory residential demand charges on solar users and ratepayers. The stakes are even higher after the conclusion of the value-of-solar docket.

Rome wasn't built in a day...

It’s obvious these trends are long-term, and will not finish after the champagne flows on New Year’s Eve. Hearings over Arizona’s rate cases are set to begin in the new year, and Utah will be embroiled in a debate over incentives as well as net metering.

Delaware and New Hampshire will also see action over rate reform discussions. In New Hampshire, regulators are re-examining its retail net metering policy. And in Delaware, Exelon's Pepco Holdings plans to file a proposal for residential demand charges.

Other states face long-term grid modernization proceedings; the REV, for instance, is already into the implementation stage. What is clear, however, is that these trends will continue to shape how regulators, utilities and developers seek to integrate solar into the grid.