The explosive growth of the rooftop solar market over the last several years may be slowing down, but the policy debates are not.
If the numbers show us anything, it's that more and more states are tackling complex proceedings over the proper compensation for distributed generation — particularly rooftop solar.
In 2015, there were 175 debates over solar policies in the U.S., according to the North Carolina Clean Energy Technology Center (NC CETC). In 2016, there were 212. And this year, those numbers are expected to rise yet again, according to Autumn Proudlove, a senior solar analyst at the NC CETC.
These policy discussions have largely evolved from utilities requesting quick fixes to retail rate net metering policies to more complex and comprehensive debates over electricity rate reform.
“These conversations are moving beyond industry specific conversations to a conversation to what the future utility looks like and how distributed energy resources will fit in.”
Benjamin Inskeep
Analyst at EQ Research
“A lot of the conversations have evolved from simple discussions about net metering, for example, to broader conversations about rate designs where concerns [are] beyond the solar industry,” Benjamin Inskeep, an EQ Research analyst specializing in solar policy, told Utility Dive. “These conversations are moving beyond industry specific conversations to a conversation to what the future utility looks like and how distributed energy resources will fit in.”
But the animosity between distributed solar companies and utilities from years past continues to simmer as they fight over rate reforms and appropriate compensation for rooftop solar.
Many of these policy debates are transpiring in familiar battlegrounds like Nevada and Arizona. But states in other regions, such as the Southeast and Midwest, appear ripe for precedent-setting decisions on solar policy. Utility Dive takes a look at the ten states that will host the most heated policy debates over rooftop solar in 2017.
1. Arizona
Arizona is the first state many observers think of when it comes to rancorous debates over rooftop solar — and this year promises to be no different.
“I think that there's a sort of cyclical basis where Arizona returns as the major policy [bastion] to watch, and once again at the beginning of this year, it will continue to be that,” said Cory Honeyman, a senior solar analyst at GTM Research.
Ever since 2013, Arizona utilities, regulators and solar companies have engaged in an on-and-off policy war over the state's net metering program, which credited solar customers at the retail rate for excess energy sent to the grid.
The story was a familiar one: Utilities wanted the existing net metering policy gone or reduce the retail rate of net metering to eliminate “cost-shifting” — the claim that rooftop solar users don’t pay their fair share of grid upkeep costs. Solar companies, on the other hand, say regulators and utilities fail to recognize the full benefits of rooftop solar — including positive environmental impacts and the deferral of costly infrastructure upgrades.
“I think that there's a sort of cyclical basis where Arizona returns as the major policy [bastion] to watch, and once again at the beginning of this year, it will continue to be that."
Cory Honeyman
Senior solar analyst for GTM Research
To solve those problems, the Arizona Corporation Commission opened a value of solar docket in late 2015 to fully analyze distributed generation — and more specifically, rooftop solar. Once completed, regulators planned to use the collected data to make a decision on future compensation rates for distributed solar
During the course of 2016, Arizona utilities Arizona Public Service Co. and UniSource Energy Services filed rate cases proposing mandatory residential demand charges for all or parts of their customer bases. Residential demand charges bill customers based on their peak monthly usage, and has historically been used primarily for large energy users like commercial and industrial customers. Solar advocates have condemned the proposals, saying they were too complex for the average ratepayer and could essentially negate any savings from net metering policies.
Meanwhile, another Arizona utility, Tucson Electric Power, requested to cut down the retail rate for net metering in a pending rate case. The ACC deferred a decision on those rate reform requests until after the conclusion of the VOS docket, which came at the end of the year.
In the VOS decision, the ACC chose to eliminate the state's retail rate net metering policy in favor of an avoided cost rate for rooftop solar generation. Solar advocates said the reduction will trim about 30% from the compensation value, though regulators said they didn't want the rates to fall more than 10% in any given year.
Those rates will be decided in individual rate cases, the regulators said, including the debate over residential demand charges. That particular rate design has popped up in proposals all over the country, but has for the most part yet to see success in regulatory decisions. Any decision coming out of Arizona could set a precedent that extends beyond state borders.
With three pending rate cases this year, the stage is set in Arizona for yet another showdown over rooftop solar compensation.
2. Illinois
Illinois makes our list of rooftop solar debates to watch for the first time this year.
The state's nascent solar market has not received much attention until Exelon helped push through a massive energy bill at the end of 2016. Buried in the details are a slew of initiatives aimed at growing solar investments in the state, including rooftop solar.
The Future Energy Jobs bill garnered nationwide attention over the bailout of Exelon’s two struggling nuclear plants: Quad Cities and Clinton. But the solar industry can also count a victory since part of the bill revised its renewable portfolio standard to increase carve-outs for wind and solar. The new RPS requires a minimum of 3,000 MW of solar and 1,300 MW of wind to be constructed by 2030.
“Most markets are thinking about slowing down the allocation of incentives [and] most of the debates are not how we should incentivize rooftop solar but how we should properly value it,” Honeyman said. “So Illinois can definitely stand on its own in 2017 as being the lone emerging state market where you have a robust incentive program targeting rooftop solar.”
Even though Illinois's rooftop solar market is set to take off this year thanks to the legislation, debates over the incentives, particularly the Adjustable Block Program, could set the stage for a policy battle similar to ones taking place in Massachusetts and New Hampshire.
"Illinois can definitely stand on its own in 2017 as being the lone emerging state market where you have a robust incentive program targeting rooftop solar.”
Cory Honeyman
Senior solar analyst for GTM Research
Under the legislation, more than half of the new solar capacity must come from distributed solar, community solar and arrays built on brownfields. In addition to the capacity requirements, the bill also boosted incentives for renewable energy.
Part of those incentives include an Adjustable Block program designed to procure renewable energy credits from distributed energy resources, particularly solar. Under the program, each block of credits is assigned a certain purchase price and a nameplate capacity; beyond that, the details are fuzzy.
“There's still lingering questions on how the Adjustable [Block] program will look like and what the initial additives will be so that's less so a debate over rate design and net metering,” Honeyman said. But “it’s the biggest incentive program for distributed solar [to] get approved since the Megawatt Block Incentive programs got approved in New York.”
While the state’s solar profile isn’t as ideal as Arizona and California, analysts told Utility Dive that 2017 is the year where the program and incentives laid out in the legislation will start to accelerate.
“There’s something in there for the entire industry and appropriately generating a lot of interest,” Inskeep said. Part of what makes Illinois such an ideal market to break into is “market development that fosters all kind of technology. You have some sort of energy choice in Illinois and third party power purchase agreements are legal and good net metering foundations. I think you have the right market policy positions in there."
3. New Hampshire
New Hampshire is another nascent solar market under scrutiny since legislation passed last year directed regulators to craft a successor tariff to its net metering policy. Though currently ranked near the middle of states for total installed solar capacity, the state has experienced strong growth in the residential sector, priming it for a policy debate over retail rate net metering.
“As technology continues to get cheaper and popularity continues to get extremely high, I think the outlook is pretty clear [that] we’re definitely moving toward a more distributed energy economy where rooftop solar is going to be a large part of that,” Inskeep said.
That appears to be what is happening in this state. Since the Public Utilities Commission opened its docket to find a successor tariff in early 2016, several familiar policy proposals have been filed to address cost-shift arguments while keeping the fledgling solar industry afloat.
Some of those proposals include residential demand charges, which have sparked controversy states like Arizona and Illinois. Solar advocates say that particular rate reform — where customers pay an added fee based on the period of highest consumption or their usage during a pre-defined peak period — essentially negates any savings from net metering. They prefer time-of-use rates for their more precise alignment of pricing signals with distributed energy resources.
Other proposals include a market-based incentive program proffered up by the New Hampshire’s Office of Consumer Advocate. This option has previously popped up in Maine and Arizona. Pitched as an alternative to net metering, customers have their pick of three choices:
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A time-of-use option for net metering customers that would charge customers more for the energy used during peak demand hours, but would also earn a bigger return for exported energy. But the option would be confined to a certain MW capacity threshold which has yet to be defined.
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Under the Fixed Solar Credit Rate scheme, residential and commercial customers can lock in a bill credit for excess energy from distributed generation for 20 years, but it will eventually step down in tranches to reflect fluctuating market prices.
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Finally, a community solar option will open access to solar for customers of all incomes.
It’s unclear how regulators will rule, but a consultant for the PUC staff recommended against residential demand charges and pushed for more data from utilities before making a decision.
“Since all electric systems are affected by DER increases differently, before a jurisdiction embarks on the journey to implement substantive reforms due to the growth of DER adoption, it should look closely at data, analyses, and studies from its particular service area before any such actions are taken,” Stan Faryniarz wrote in his testimony. “The impacts that are occurring in one jurisdiction due to higher DER adoptions may not necessarily be the same for another that is experiencing similar DER adoption levels.”
The PUC is expected to issue a final decision in June of this year.
4. Massachusetts
Massachusetts is bullish on offshore wind and energy storage thanks to mandates encouraging those resources. But it has a history of failing to craft a permanent solution for its beleaguered net metering and solar renewable energy credit (SREC) programs. This year may be different.
Last year, solar companies were squeezed as utilities hit aggregate net metering caps set on their peak loads, forcing lawmakers to come up with a quick solution to relieve some of the financial pressure.
Needless to say, the solution was neither quick nor substantial as lawmakers struggled to come to an agreement to lift the caps, and a final resolution remained elusive until the end of 2016. Tired of the unfruitful debates, lawmakers passed a bill directing regulators to find an “immediate” successor tariff to spur 1,600 MW of new solar capacity.
Much like the debate unfolding in neighboring New Hampshire, regulators must tackle the cost-shift argument, quantify the value of solar exported to the grid, and figure out how to distribute credits equitably to offsite subscribers — typically seen in community solar programs.
The state’s Department of Energy Resources (DOER) proposed a declining-block incentive tariff that would apply to the next 1,600 MW of installed solar capacity. Under the program, owners would receive credits in varying rates contingent on assigned blocks. For instance, the first 200 MW would receive a certain credit, and the next 200 MW would obtain a smaller one, and so on and so forth.
Utilities urged regulators in comments to consider how the complexity of administering these credits can boost costs. They also said that the tariff prices and adder prices — a price added for solar installations on landfills and brownfields — fail to distribute costs equally among all ratepayers, putting them at odds with the directive.
As the debate over a successor tariff continues, DOER recently unveiled a new plan designed to cut costs by dropping installation expenses from $500 million to $250 million. The proposal also extends the SREC program into 2017 until the state designs a new tariff.
Meanwhile, utilities expect to file a proposed tariff with the Department of Public Utilities by early spring of this year, with a final rulemaking slated for the summer.
5. South Carolina
The Southeast has been one of the last U.S. regions to craft policies that foster vibrant distributed solar markets, but South Carolina is one of the states leading the charge.
In 2014, the state’s General Assembly passed a bill that mapped out how policymakers would handle net metering, solar’s value and third-party ownership. Under that legislation, utility regulators established a retail rate net metering program until 2020, when it will be up for review. But the response from utilities has been predictably mixed.
In late 2015, public utility Santee Cooper approved a package of solar rebates and increased fixed charges, which drew fire from solar advocates. But the public utility is exempt from provisions requiring a certain amount of renewable capacity laid out in legislation. So far, it hasn’t appeared to affect solar businesses moving into the state.
Sunrun, one the nation’s largest rooftop solar installers, expanded operations in South Carolina earlier in 2016 after pulling out of Nevada following a controversial decision to gut its retail rate net metering policy.
For the most part, South Carolina steered clear of rooftop solar policy debates last year, but analysts have warned that may not be the case in 2017.
“I think there will be a lot of proactive regulatory action over the long-term policy solution with the NEM caps beginning to come to a close.”
Cory Honeyman
Senior solar analyst for GTM Research
Net metering is capped at 2% of the average retail peak demand for the previous 5 years, according to DSIRE, a database that collects information on solar policies nationwide. According to GTM’s Honeyman, the rapid market growth in the state could see installers hitting those caps within the year, setting the stage for policy discussion.
“I think there will be a lot of proactive regulatory action over the long-term policy solution with the NEM caps beginning to come to a close,” Honeyman told Utility Dive.
6. Arkansas
Arkansas is another Southeastern solar market that, until recently, flew under the radar. But in 2015, the state entered a familiar rooftop solar policy battleground after lawmakers directed regulators to compose a successor tariff for its net metering policy.
“We’re seeing a lot of utilities wondering exactly how to change the way they’ve been doing business for a century now in order to ensure their financials remain viable while getting customers the choices they are demanding as well.”
Benjamin Inskeep
analyst at EQ Research
While the state’s net metering customers only number in the hundreds, regulators and utilities are seeking to get ahead of problems that states with higher distributed solar penetrations have faced.
“We’re seeing a lot of utilities wondering exactly how to change the way they’ve been doing business for a century now in order to ensure their financials remain viable while getting customers the choices they are demanding as well,” Inskeep said.
But solar advocates worry that the finalized tariff could damage the nascent solar market and scare off businesses like solar installers.
The docket is split into two proceedings: one to evaluate the size of rooftop solar systems and the other to analyze utilities’ costs associated with the number of net metering customers connected to the grid in order to draft a new rate or fees.
While the first phase of the proceeding focused on size limits and wrapped up in a matter of weeks last year, the second phase will likely not conclude until the end of 2017. However it plays out, the decision will have a sizable impact on whether distributed solar flourishes in the Southeast.
7. Utah
Utah’s battle over net metering began in 2015 when utility regulators ordered utility Rocky Mountain Power to conduct a study over the costs and benefits of residential net metering. In late 2016, RMP found that rooftop solar customers underpay their actual cost-of-service by $400 per year, amounting to a cost-shift of $6.5 million annually. To solve this perceived cost-shift, RMP proposed to lower payments and add monthly fixed fees to the tune of $15.
Solar advocates protested RMP's proposal, and came out with a 10-year roadmap designed to encourage rooftop solar growth. While suggestions ranged from streamlining interconnection queues to revising local zoning regulations, the ultimate issue was with the utility's business model.
"The cost of rooftop solar has fallen dramatically and both customers and utilities are now active participants in today’s electric grid," the report noted. "It is critical that we plan for a future where customer-deployed resources are widespread and seek strategies for their integration that embrace customer choice, maximize benefits, and keep costs low for all customers."
Utah’s solar market is small compared to some of its neighbors like Nevada and Arizona, but attractive state incentives and a recently-expired rebate from RPM attracted solar companies and boosted installations. According to the Solar Energy Industries Association (SEIA), Utah’s solar market boomed over the past year, growing 1,538% largely due to utility-scale solar. However, the state can lay claim to a healthy residential sector that boasts 59 MW of installed capacity.
Proceedings over net metering are set for the summer of 2017, laying the ground for a familiar fight between solar interests and utilities in the West.
8. Maine
In 2015, a study came out valuing solar at $0.33/kWh, a rate substantially higher than its electrical retail price of $0.0913/kWh, suggesting that solar was significantly undervalued in Maine.
Last year, analysts told Utility Dive that Maine might move away from its net metering policy as lawmakers tried to push through a bill that would set up a market-based approach to compensating rooftop solar users for their excess energy. Under the bill, residential solar owners would participate in a declining block program with a credit would gradually step down with different tranches.
Gov. Paul LePage (R) vetoed the bill in April of last year. Lawmakers tried to override the veto, but failed by two votes. Gov. LePage later rolled out his own proposal, which would eliminate net metering in favor of a market-based approach similar to the one outlined in the vetoed bill. The proposal also included a three-year grandfathering period.
Described by opponents as “a crock of lies and misperceptions and misinformation,” solar advocates said the proposal with the shorter grandfathering period would add uncertainty over the future of the net metering policy in Maine.
LePage punted the decision to regulators, who finalized a decision last week that sought to strike a balance between both sides. Of course, it appeared to please no one.
Under the new plan, existing rooftop solar customers are grandfathered into the original rates for 15 years. But new customers who sign up after January 1, 2018 will see their rates reduced. The PUC said the transmission and distribution credit of the bill will decline over a 10-year span beginning in 2018, but customers will still receive a full credit for the supply side. For instance, a customer who signs up in the first year of this policy will receive the fully supply credit and 90% of the transmission and distribution credit locked in for 15 years. As each year passes, customers will be signed up for a lower rate on the transmission and distribution credit.
Solar installers and Gov. LePage alike condemned the decision. Solar advocates say the decision is too complex for ratepayers to understand and will cost jobs down the road. On the other hand, Gov. LePage pushed for even greater cuts to the compensation. The future of the decision is questionable as well: Maine lawmakers are currently considering a measure that would preserve retail net metering.
As 2017 plays out, Maine will be a state to watch as we see how the PUC decision affects its small solar market.
9. Nevada
Nevada’s decision to gut its net metering policy and exclude a grandfathering clause for roughly 30,000 existing solar customers sparked a storm of controversy in 2016.
The decision came right at the end of 2015, and much of the next year saw backlash unfurl against the decision. Two leading solar installers pulled their operations from the state, and Gov. Brian Sandoval condemned the decision, appointing a task force to look into it. He also chose not to reappoint Commissioner David Noble, one of the key architects behind the controversial decision, as well as Commissioner Alaina Burtenshaw.
NV Energy, a subsidiary of Warren Buffett’s Berkshire Hathaway Energy, later proposed a grandfathering provision with collaboration from SolarCity, one of the installers who left the state. The Public Utilities Commission of Nevada approved the proposal, much to the relief of installers who were reporting low installment numbers in a once-thriving market.
But the biggest surprise came at the end of 2016, when the PUCN — staffed with two new appointees — partially restored full retail rate net metering to NV Energy’s subsidiary Sierra Pacific Power’s service area as part of a decision on SPP's rate case.
The PUCN's decision to partially restore net metering marks a significant turnaround from regulators in terms of where the future of net metering policy stands in the state.
The number of customers within that territory is small, but it marks a significant turnaround from regulators in terms of where net metering policy stands in the state.
Predictably the decision did not please NV Energy, which filed a request to appeal the decision. The PUCN will rule on it later this year, as the debate over the state's solar policy continues.
10. Hawaii
No list of solar debates to watch would be complete without Hawaii. The most advanced U.S. market in terms of rooftop solar penetration, Hawaii eliminated its net metering policy in 2015 and replaced it with two interim tariffs, with caps on both, until regulators could draft a more permanent solution.
“From an industry perspective, it will be interesting to see how they are going to get through this challenge,” Inskeep said. “Hawaii is definitely facing some challenges without net metering and now without, in places, the option to have grid supply. It really is going to be a cutting edge market to watch to see how the industry can adapt and what policy mechanisms are going to evolve. They’re [going to have] to make sure they are balancing the very real need of grid reliability while also bolstering their rooftop solar market.”
The interim tariffs were separated into two types: grid supply and self-supply. Under the grid supply tariff, customers can export excess energy to the grid at a fixed rate between $0.15/kWh and $0.28/kWh, depending on location. The self-supply option, on the other hand, only allowed a limited amount of inadvertent exportation to the grid, with residential customers paying a minimum bill of $25 and small commercial customers shelling out $50 per month.
More customers preferred the CGS option, which led the industry to hit the caps toward the end of 2016 across Hawaii. The CSS option requires some sort of energy storage, which can come with a hefty price tag of roughly $44,000.
Hitting the cap in the state slowed down solar installations, as the industry reported job cuts and a slowdown in the market.
"I don’t think [Hawaii is] going to be as hot a market as some other states because they are reaching these technical and policy barriers that might prevent the rapid growth we are seeing right now.”
Benjamin Inskeep
analyst for EQ Research
Going into the new year, it’s expected that the solar industry will still experience growing pains as regulators continue to debate a more permanent solution.
“I definitely expect to see more to come from Hawaii when it comes to integrating solar,” Inskeep added. “But... I don’t think that’s going to be as hot a market as some other states because they are reaching these technical and policy barriers that might prevent the rapid growth we are seeing right now.”
Looking ahead
Some of these cases will likely not be resolved until 2018 or later, but they highlight the evolution from simple, financial fixes to net metering to more sophisticated debates over rate design.
“I think we’re going to continue to see more debates around net metering and credit rates for excess generation,” Proudlove said. “That’s where states are considering larger, more forward-looking changes.”
While President Trump’s election injected some uncertainty into the conversation, rooftop solar is still a resource where state policies determine the future.
“I’d say rooftop solar is still a market where state level policy is the most important level to pay attention to,” Inskeep said.
As these debates over compensation and rate design for rooftop solar play out, it’s worth keeping in mind that not all utilities and solar companies are at odds. In New York, solar companies and utilities came together and hashed out a transition from net metering last year. While the proposal still needs regulatory approval, it highlights the potential for the two sides to collaborate.
Whether New York's collaborative example will influence other proceedings is up in the air. Analysts expect continuing tension as regulators try to come up with rate designs that are fair to both utilities and solar customers. Stay tuned as those debates play out across these 10 states.
