Feature

CPS Energy tackles the cost shift by building solar on its own terms

The San Antonio muni wants all its customers to have access to solar and to share costs

San Antonio municipal utility CPS Energy has rolled out a novel program aimed at boosting solar adoption and addressing the ongoing fight between utilities and the solar industry over perceived cost-shifts to non-rooftop solar ratepayers. 

The cost shift argument from utilities claims rooftop solar users don't pay their fair share to maintain the grid. CPS Energy’s solution: Boost the growth of rooftop and community solar on its own terms to ensure it is not paying more than it wants for for electricity generated by distributed solar arrays.

“Less than 1% of our customers have taken advantage of solar over the last seven years and the other 99% are paying for it,” said Raiford Smith, CPS Energy's vice president of development and planning. “That is the wrong model and the wrong outcome.”

“Instead of having a large group of customers paying for a benefit for a small group of customers, we are providing this opportunity to the other 99%, to rebalance the utility’s revenue profile and effectively take the issue of the cost shift off the table," he said. 

Those numbers suggest that the perceived cost-shift isn't yet substantial. But anticipating solar growth, Smith and the CPS Energy team have collaborated with the San Antonio solar and environmental communities to develop two utility-owned solar pilot projects. And the utility’s customers are racing to buy in.

The new programs target customers otherwise barred from adopting solar, Smith said. 

CPS Energy has had solar incentive programs, including net energy metering and renewables targets, in place for at least seven years, Smith said. Those programs attracted some 2,100 customers and a cumulative installed solar capacity of 24 MW.

But these new pilot programs have packed a bigger punch in the first 72 hours after being rolled out, with 2,100 customers signing up, Smith said. 

 
CPS says it wants solar to reach more customers than it sees the private sector serving today. 
CPS Energy
 

The new pilot programs

The first pilot is the 1 MW community solar program dubbed Roofless Solar, which is aimed at utility customers without solar-suitable roofs. The second is the 10 MW SolarHostSA program. Under that scheme, CPS Energy will own the solar panels installed on customers’ roofs by third-party installers and remunerate the roof owners with what is essentially a roof-rental fee of $0.03 per kWh for the electricity the solar generates.

For the 2,700 customers who had signed up as of Sept. 26, it's not yet certain which program best fits them, Smith said. But if they don’t qualify for one, they will be pointed toward the other. And If neither works, they will be queried about interest in the utility’s demand response or energy efficiency programs.

The pilot programs aim to solve three problems, Smith explained. The first is low solar adoption. The second navigating the costliness of residential rooftop solar compared to the installed cost of a big array. And the third is what he says is the inefficiency in one-at-a-time customer acquisitions.

Two sets of factors contributed to the limited developement: the lack of solar-suitable roofing and the ability to afford solar. The two programs ways to confront these factors, Smith said.

In one-by-one residential solar installations, consumers don’t get the cost benefit from the economies of scale assoicated with utility-scale solar installation. Doing a large-scale program means the cost benefits will flow to consumers, Smith said. 

The second is that the higher costs associated with installations from third-party companies potentially threatens the residential solar business as a whole, especially if the 30% federal investment tax credit (ITC) is not extended after 2016.

“By bringing the equivalent of 11 MW of solar to market, which almost doubles San Antonio’s annual installed solar capacity, we get the cost benefits and give the installers stable steady work now and through and beyond the expiration of the ITC," Smith said. 

CPS Energy awarded Austin-based PowerFin Partners the 20 year power purchase agreement (PPA) to lead the SolarHost installation work. In collaboration with neighboring municipal utility Austin Energy, PowerFin has built 45 MW of capacity across ten sites.

It's already jumpstarted coordination with San Antonio installers, PowerFin's vice president Jason Pittman told PV Magazine.

SolarHost costs and benefits

For those who provide rooftops for CPS to connect solar on the utility side of the meter, CPS Energy will give them the $0.03 per kWh bill credit discount from the average residential electricity rate of $0.10 per kWh. The credit is paid for all the kWh of solar energy generated electricity sent to the grid by the system on the rented roof.

That bill credit is quite a bit less than the retail rate that other solar customers receive for their electricity under net metering arrangements, but the CPS program touts no costs to the consumer.

Under SolarHost, CPS will pay owners a remuneration of less than the retail rate of electricity, but the customer avoids all costs.
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CPS Energy will also pay PowerFin a retail market competitive PPA rate for the system’s production. That, alongside the 30% ITC, will align "the incentives and the payment method,” Smith said.

“The utility is effectively building a 10 MW power plant and wants to pay for output,” he said.

Though many financial details remain undisclosed, SolarHost was designed to be a three-way win for the customer, the installer, and the utility, he added.

SolarHost could be a loss leader and simply provide a way to keep customers away from third party installers while selling them more profitable products and services, but it's not, according to Smith. As a municipal utility, CPS Energy revenues make up about 29% of the San Antonio budget.

“Part of my objective is to keep those revenues stable and predictable," Smith said. 

And as a former executive with Southern Company and Duke Energy, paired with regulatory experience as a regulatory attorney, Smith said, “I know for a fact I could make this model work for an investor owned utility with the one minor tweak of making it an asset and rate basing it.”

“Our maxim is ‘serve your customer or someone else will serve them,’” Smith said. “Other companies will offer our customers solar alternatives. The future of the utility does not lie in erecting barriers to customers getting what they want. If the customer wants it, it is incumbent on us to figure out how to do it. Losing a customer is a bad outcome.”

How SolarHost will be built

PowerFin will source its solar modules, which allows them to buy at scale, Smith said.

But CPS Energy will select the locations for the residential installations in an effort to address emerging circuit penetration concerns that could eventually “create havoc with the operation of the distribution system,” Smith said.

In addition, CPS Energy will require installers to incorporate smart inverters. Though not selected yet, the smart technology will overcome limitations of standard inverter capabilities, Smith said.

“Today’s inverters react to changes in the solar resource caused by things like passing clouds by turning off and then turning back on,” he explained. That sudden withdrawal and subsequent rush back of many systems’ collective output “causes sudden power quality issues across the grid,” Smith said.

“That sheer mass reaction is the problem. Smart inverters can allow the supply changes to ramp down and back up to mitigate the power quality problems," Smith added. But CPS Energy will not have centralized control, he said, with the utility "distributing the capability across the grid.”

CPS Energy is also investing in stochastic analytics and geospatial planning tools to integrate the new programs with its energy efficiency, demand response, and other distributed generation assets. This will make it possible to obtain enhanced value for them through the wholesale electricity market run by the Electric Reliability Council of Texas, the statewide grid operator.

The analytics and other tools will allow CPS to better understand where all the distributed technologies are on the grid and what benefits they are creating, Smith said. 

Such widgets will also provide the utility with circuit-by-circuit operational capability as well as allowing it to "manage solar and other distributed energy resources in a similar fashion to a distributed power plant.”

Roofless solar for the community

CPS Energy awarded Clean Energy Collective (CEC) with the 25-year PPA to build the 1 MW community solar project, otherwise named Roofless Solar, Smith said. 

In this case, the customer has to pay upfront to purchase panels, or panel, in the array since the program was designed to solve an access issue, rather than addressing a financial barrier, Smith said. 

CEC will source the modules, sign up the customers, and provide its software to the utility to manage the billing and bill credit processes.

The Roofless Solar customer pays CEC an electricity usage rate. But CPS Energy applies bill credits equivalent to the value of the solar output of the customer’s panels to offset that portion of the customer’s total cost of electricity. CPS Energy also pays CEC for the entire array’s output at the negotiated PPA rate. And CEC gets the benefit of the ITC.

It is a complicated three-way arrangement but it is made relatively simple by CEC’s software.

For under $300, CPS customers can get bill credits for solar power for 25 years.
CPS Energy
 

Community solar often seems complex from a utility’s perspective because “it seems to touch every functional area of the business, something utilities have not had to deal with,” said Julia Hamm, president of the Solar Electric Power Association President (SEPA). But when they see there are tools and existing models, they realize they can implement it, she added. 

Smith said much of the concern over a community solar billing system can be linked to the change management process. 

“As utilities get into community solar and get experience partnering with a third party company, they will learn lessons and eventually realize the end result is worth the bumpy road," he said.

CPS Energy wants to be its customers' valued partner through these solar programs and perhaps “move to demand response and energy efficiency,” Smith said. “We can ask how the utility can help those customers make their lives better through the use of energy. That is a very different utility paradigm.”

Smith is confident that there will be further solar offerings.

“We will go back out and do something much larger and continue this process and iron out the kinks and shift into high gear. I don’t see us stopping. I would like to see that every CPS Energy customer has a solar option."

Filed Under: Solar & Renewables Distributed Energy Regulation & Policy Corporate News
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