Utilities in the sunny Southeast face challenging policy questions from the region's spiking demand for solar.
The Southern Alliance for Clean Energy (SACE) expects the region's cumulative 6 GW at the end of 2017 to reach 15 GW by 2021, driven largely by utility-scale solar.
But this growth confronts utilities with big questions about costs and benefits.
The Rates of Solar website, launched in October by the Southern Environmental Law Center (SELC) shows that many Southeastern utilities have policies that limit distributed solar growth, and finds "two trends," SELC Staff Attorney Lauren Bowen told Utility Dive.
"One is that many utilities charge small solar owners extra fees and the other is that they do not compensate solar's full value. Those things dramatically impact the solar value proposition."
Southeastern states "are making great progress in large scale solar, but rooftop penetrations are still relatively low," she added. "The focus of policy should be on encouraging the market because consumers want solar, but some utility policies put the brakes on market growth."
In Florida, Sunrun, one of the biggest national solar installers, won a major victory at the Public Service Commission (PSC) in April by getting a form of third party ownership of solar approved.
"Third-party ownership of solar has driven residential solar market growth across the country, but Florida did not allow it," Sunrun Chief Policy Officer Anne Hoskins, a former Maryland utility commissioner, told Utility Dive. "After the PSC rejected our initial proposal for a no-upfront-cost leasing program, we used their feedback to develop a proposal that fits state statutes and satisfied the commission."
Sunrun expects third party ownership to drive new residential solar growth in Florida, while the SELC is keeping an eye on compensation and charges leveled by utilities on solar owners.
Third party ownership
Florida's PSC unanimously bypassed the state's prohibition against third-parties selling electricity and now allows consumers to lease residential arrays of up to 2 MW without upfront costs and maintenance costs, Hoskins said.
Customer interest in access to solar and solar plus storage systems for resilience has increased in the aftermath of 2017 and 2018 hurricanes and floods, she said. But many Southeastern utilities' punitive fixed charges, low compensation rates and prohibition against leases work against solar development.
That is beginning to shift, and some form of third-party solar ownership is now also available in the Carolinas and Georgia.
"Utilities are asking regulators to approve billion dollar investments for grid modernization that customers will pay for," Hoskins said. "We are suggesting they consider how new distributed energy resources can defer the need for that spending."
Some regulators and utility leaders assume distributed resources impose costs, she said. "It is time for a technical assessment of their full value, including resilience."
Charges, compensation, and solar "makers" and "brakers"
Resilience concerns are beginning to boost the Southeast residential solar market, but economics remain the main driver, strongly influenced by policy, SELC's Bowen said.
SELC defines "brakers" and "makers" as utilities which have policies that are either detrimental or supportive of distributed solar growth.
Two of SELC's three solar "braker" utilities, require customers who own solar to pay "a solar-specific fixed charge" that keeps their bills high, compromising the solar value proposition, Bowen said.
Alabama Power's $25/month fee is "one of the highest solar-specific charges in the Southeast," Bowen said. "Over a residential solar system's life, a customer pays $9,000 extra, which eliminates at least half the bill savings that would drive rooftop solar growth."
After SELC filed a lawsuit with Alabama regulators questioning the charge's validity, Alabama Power increased the fee from $5,00/kW to $5.42/kW.
The charge is for Alabama Power's costs to have infrastructure "at-the-ready" to back-up customers when their on-site generation is not producing, spokesperson Michael Sznajderman emailed Utility Dive. It prevents the "shifting" of those costs to other customers.
North Carolina's Blue Ridge Energy has a $53/month charge to solar customers that is $29/month more than the charge to customers without solar, which "sends a strong signal to customers that they will not benefit financially from solar," Bowen said.
Like Alabama Power, Blue Ridge justifies the charge as preventing a shift of costs to non-solar owners.
Utility fixed charges to residential customers are not justifiable, SACE Solar Program Director Bryan Jacob told Utility Dive, because "most businesses don't get that kind of income certainty. ... People don't pay a fixed fee for using a grocery store or restaurant because those costs are embedded in the things they buy, and can be in utilities' per-kW charge."
The other kind of policy that affects the solar value proposition is compensation to solar owners for the generation their arrays send to the grid, which helps offset the cost of solar, Bowen said. Retail rate net energy metering, "is a positive driver for solar growth, but many utilities compensate far less than what the customer pays for grid electricity."
Alabama Power compensates solar owners for electricity sent to the grid at $0.04/kW, but charges a $0.127/kWh retail rate. SELC found. One Blue Ridge Energy offering compensates at the wholesale rate and another offsets the retail rate but requires a higher solar-specific charge.
Although "customer demand is important for developing solar supportive policies" state leadership is another important driver, according to Bowen.
In South Carolina, policymakers, utility leaders, and renewables advocates anticipating customer demand collaborated to pass Act 236 in 2014, which instituted a wide range of policies and programs to support solar growth, including third party ownership, retail rate net energy metering compensation and avoided solar-specific charges.
Now solar is growing so fast, policymakers are being forced to look closer at the Act's limitations.
A tale of two utilities
SELC and SACE both rank utilities on solar growth by separate sets of criteria. The rankings find the same two large Southeastern utilities earned special recognition.
"Duke Energy was in our highest category and [The Tennessee Valley Authority] was in our lowest category," for solar growth, SACE's Jacob said.
TVA has "no need for new energy and capacity, but [has] responded to customer demand with year-over-year growth in renewables," TVA Director of Business Development and Renewables Tammie Bartlett told Utility Dive. She said the utility shares the goals of SACE and SELC and "[doesn't] have an explanation" for its low ranking.
TVA's installed solar capacity was 382 MW at the end of 2017. This year, to meet Facebook's demand for renewables to power a planned facility, TVA signed contracts for 377 MW of new utility-scale solar. Duke Energy had 2,979 MW of installed capacity at the end of 2017 and expects to add an estimated 300 MW this year.
TVA was ranked low by both groups because it has built comparatively less utility-scale solar than other utilities in the region and because SACE's "participation in four meetings with the TVA solar Stakeholder Advisory Group produced no progress," Jacob said.
TVA also has not supported distributed solar growth by clarifying the legality of third-party ownership and its residential solar programs are "two bad alternatives" which seem designed to "stifle" growth, said Bowen.
One is a 20-year, buy-all, sell-all contract that prevents customers with on-site generation from offsetting the retail cost of electricity, Bowen said. And it is capped at 10 MW/year, which limits growth and creates "boom and bust" demand cycles with which local solar installers struggle.
The other offering allows use of on-site generation but compensates exported electricity at $0.024/kW, which is "a fraction" of the retail price and "one of the lowest solar credit prices in the region," Bowen said.
The buy-all, sell-all program is "comparable" to a retail rate compensation program because "it provides a consistent compensation rate with a clear return on investment over time," Bartlett clarified, adding TVA also offers a third option which allows customers to use on-site generation, and includes a community solar program.
Duke Energy was named a "sunriser" by SACE and a solar "maker" by SELC. Guided by state policy, which it took a role in shaping in the Carolinas and Florida, Duke offers retail rate compensation, imposes no solar-specific charges and works with third-party lease providers.
"It starts with recognizing customer demand," Duke Energy spokesperson Randy Wheeless told Utility Dive. "We partnered with stakeholders, including environmental groups and solar installers, to work out policies that led to programs that offer what customers are asking for."
Duke's strategy is to identify programs that are "acceptable to regulators" and that work "for the utility, solar businesses, at the residential, commercial-industrial, and large scale levels," Wheeless said.
All eyes on South Carolina
Because Duke remains active in shaping policy, it is "a utility to watch" in the 2019 debate over changes to Act 236 in South Carolina, Bowen said.
Jacob agreed. Skyrocketing distributed solar growth in South Carolina has led to a new stakeholder process, he said. There will be a reconsideration of the retail rate compensation, solar charges, legalization of third party ownership, rebates and program caps that made growth possible and "Duke may introduce new solar-specific fixed charges in 2019 rate cases."
Sunrun is focused on growing solar in states where third-party ownership is now legal and is waiting to see whether South Carolina takes a step backward or a step toward the future, Hoskins said.
"If utilities continue to double down on central station generation and fixed charges, it will eventually be so uneconomic that customers will find ways to curtail their usage," she said. "We should instead work together to integrate distributed resources to support the grid."