Pennsylvania leaders have big choices to make about the state's energy and solar future that will impact its power sector for the next decade.
Policymakers must choose how to change the state's Alternative Energy Portfolio Standard (AEPS), which now requires 18% alternative energy by 2021. And, if they replace the AEPS' 0.5% carve out, they must choose whether to include 90% utility-scale solar or 35% distributed solar.
At the end of 2017, Pennsylvania was at 0.2% solar. A draft plan for 10% solar by 2030 was released in July. Its choice of a largely utility-scale solar carve out, or one that includes over one-third distributed solar, has already started a classic solar debate between utilities and distributed solar advocates.
"Pennsylvania is working on the energy sector's next generation and solar should be key," said Patrick McDonnell, secretary of the Pennsylvania Department of Environmental Protection (DEP), which hosted the stakeholder-led process that produced the plan. "With its low installed price continuing to drop, solar must be a bigger part of our energy mix to keep us competitive with surrounding states."
The new solar plan shows Pennsylvania "wants the jobs and environmental and energy benefits that come with solar," he added. "The state's utilities need to understand we are moving from large centralized plants to a more distributed energy grid and that means changes, but those changes can help utilities deliver better power quality and resilience for their customers."
A state ready for change
"Pennsylvania is lagging behind its neighboring states," Vote Solar Mid-Atlantic Director Pari Kasotia told Utility Dive. "This plan may push the legislature into action on an increased renewables mandate that includes a solar future." The numbers support her point.
Pennsylvania installed 372.63 MW of solar at the end of 2017, to meet 0.2% of its electricity needs, according to the Solar Energy Industries Association (SEIA). That ranked it 22nd in the U.S., created 3,848 solar businesses and produced a total $1.5 billion investment in solar.
This puts it well behind its border-states, Maryland and New Jersey. Maryland, Pennsylvania's Mid-Atlantic neighbor to the south, has half the population, but an installed solar capacity of 932.7 MW which meets 2.92% of its electricity need, according to SEIA. It ranks 13th nationally, has 5,324 solar businesses, and a $2.6 billion total in-state solar investment.
Across the Delaware River, New Jersey has three-fourths the population, but ranks 5th nationally with an installed solar capacity of 2,446.79 MW, SEIA reported. It met 3.87% of its electricity need with solar in 2017, had 7,106 solar businesses and $7.8 billion in total solar investment.
"Nearby states have embraced solar development to a greater degree," the first paragraph of Pennsylvania's Solar Future Plan acknowledges. But the experience gained by policymakers, utilities, and solar developers in those states "can now be used [in Pennsylvania]."
Despite the state's apparent lack of progress compared to its neighbors, the state moved from 26th to 22nd in SEIA's 2017 national rankings, evidence that the state "is moving forward," the plan reports. "There is significant potential for solar to continue this growth and transform the electricity generation sector."
Pennsylvania Governor Tom Wolf's administration took a significant step forward with October 2017's Act 40, McDonnell said. The Act will help boost solar growth by protecting Pennsylvania's solar renewable energy credits (SRECs) price.
Several factors, including other states selling their SRECs to Pennsylvania utilities, caused an oversupply and drove REC prices prices sharply down, RER Energy Group VP for Strategy Chris Flynn told Utility Dive.
The plan describes a set of "Cross-Cutting Strategies" that go beyond the Act. They include a more demanding AEPS, carbon pricing, innovative rates and financing programs. Widely endorsed by distributed solar advocates and rejected by utilities, these strategies could bring down solar costs and drive Pennsylvania's solar market.
"The next step is to engage with the legislature and others," McDonnell said. "Reconsidering and expanding solar is the starting point because the AEPS's 18% mandate will be met by 2021. This plan asks 'what comes next?'"
Two roads diverging
The draft plan highlighted "enormous" potential benefits from increasing solar, including economic and job growth, public health protections from reduced air and water pollution and reduced greenhouse gas emissions (GHGs).
It also detailed Pennsylvania's "unique set of assets," including a rich solar resource, abundant available land, a developed grid, and experienced developers offering competitive prices in a maturing market.
Based on wide-ranging stakeholder input over 18 months, the plan offers three scenarios. The "reference scenario" assumes "business as usual." Both "solar scenario A" and "solar scenario B" would achieve the 10% solar by 2030 goal. Solar A would be 65% utility-scale solar and 35% distributed solar and Solar B would be 90% utility-scale solar.
Modeling of costs and benefits found annual costs for either plan would be from $513 million to $613 million. That would increase Pennsylvania's annual energy expenditures of $45 billion by only 1.2% to 1.4%. If environmental externalities are included, the solar scenarios would deliver benefits of over $25 billion from 2018 to 2030.
With 10% solar by 2030 through either scenario, GHGs fall 2% to 3%, the plan found. Neither scenario overburdens Pennsylvania's available land.
There is "significantly more" distributed solar in Pennsylvania than utility-scale solar, the plan reported and the state will need strategies to support the growth of utility-scale solar to reach 10% by 2030.
"One question is how to build on distributed solar's growth," Secretary McDonnell said. "Another question is how to grow grid-scale solar."
Pennsylvania is a deregulated state and its utilities are not allowed to own generation. One key change would be allowing utilities to own solar power plants. Another would be policies that give them the price certainty they need, in a volatile SREC market, to sign long-term contracts with solar developers.
"Right now, they are reluctant to lock in a price for longer than a few years because if the SREC price goes down, they made a bad deal," McDonnell said. But developers need long term power purchase agreements to build.
Other possible mechanisms include a state tax credit for utility-scale solar investments or a U-S solar carve out in the AEPS revision, he added.
Recent distributed solar growth rates would be adequate to meet the 10% target, even in scenario A , according to the plan. Proposed policies to sustain that growth rate include virtual net metering (VNM) to support a community solar policy and new rate structures to support customer investments.
With policies that remove barriers to growth, "the actual achievable solar penetration could far exceed the target of 10% by 2030," the plan asserted. But removing those barriers begins with choosing between solar scenarios, Secretary McDonnell said.
Solar vs. solar
Vote Solar's Kasotia anticipated "tension" between distributed solar advocates and utility-scale solar advocates, adding the nonprofit "thinks there should be both, but if the goal is economic benefits and job creation, distributed solar makes more sense."
The plan found both scenarios would add 11 GW of solar. "Scenario A's 65% utility-scale solar would create 100,604 construction jobs and 1,086 ongoing jobs," Kasotia noted. Scenario B's 90% utility-scale solar would create 67,716 construction jobs and 983 ongoing jobs.
"Both scenarios have a lot of solar, but which is better depends on the objective," Kasotia said. "To get more solar faster, utility-scale solar is better, but for energy democracy and more benefit to more Pennsylvanians, distributed solar is better."
A filing by the Mid-Atlantic Renewable Energy Association (MAREA), signed by dozens of renewables and environmental advocates, endorsed Kasotia's arguments.
The Energy Association of Pennsylvania (EAP), which represents Pennsylvania's utilities, objected to the 10% by 2030 goal because it "glosses over customer costs" and "minimizes costs to maintain electric grid reliability, resiliency, and security," EAP added.
Most of the recommendations "would require legislative and/or regulatory change" that would be "heavy lifts" and delay solar growth, EAP said.
"EAP does not view this plan as an objective, academic report that contains all necessary information," the filing concluded.
Comments in the filing from PPL Electric Utilities was representative of comments from the state's other utilities. PPL found the plan severely lacking. There was "narrowness" in the opportunities it described, its cost-benefit analysis showed a "lack of detail" and it demonstrated "limited research into the regulatory constraints present in the rules governing solar.
The plan "assumes a 1% per year increase in solar," which "seems high," the filing observed. "Over a 10-year period, that is a 20x increase compared to what Pennsylvania has achieved since the AEPS inception in 2007."
"Primary" concerns for PPL are "the lack of detail in the financial model" and "the lack of transparency when deriving costs and benefits," its filing reported. The modeling seemed to describe "solar expansion in a vacuum" and "includes items that bolster the benefits side, while the assumptions surrounding costs are tempered."
In contrast, a filing from Bohdan R. Pankiw, Chief Counsel for the Pennsylvania Public Utilities Commission, found the modeling and inputs in the plan's analysis "sound and reasonable."
PPL found the plan's assessment of benefits from distributed solar programs like net energy metering, virtual net metering, and community solar "singularly" focused on distributed solar owners.
"The plan fails to incorporate cross-customer subsidization, and grid support and management costs," PPL said.
The plan also exacerbates that cross-customer subsidization by increasing access "to 'full retail rate' compensation for excess generation" by adding community solar, PPL added.
The law that created the AEPS also requires Pennsylvania utilities to offer net energy metering and limited virtual net metering to distributed solar owners and compensate generation sent to their grids at a near-retail rate. The plan would eliminate the limits on virtual net metering to enable more community solar and would raise the compensation to the retail electricity rate.
The changes "would increase costs to non-net metering customers and result in cross-subsidization," First Energy said. Making the familiar argument that has led to cost shift disputes across the country, First Energy's filing said utilities would face full fixed system costs, even if net energy metering and virtual net metering customers lower their bills and, as a result, utilities' revenues.
Both Vote Solar and MAREA urged approval of expanded virtual net metering and net energy metering in the plan's final version. Vote Solar is currently working with state legislators to create a Pennsylvania community solar policy, Kasotia said.
Turning to lawmakers
The real solution, PPL said, is programs and policies to accelerate utility-scale solar growth.
Two things need to be added to the final plan, PPL recommended. One is the utility-scale solar expansion and with it, "a greater explanation of the legislative and regulatory changes that are required."
Given permission to own and rate base investments in utility-scale solar, utilities can more cost-effectively and efficiently get the state to 10% solar, PPL added. And without this option, legislation to increase the solar component of the AEPS would have less support.
RER Energy Group's Flynn agreed with Secretary McDonnell that the next step is up to lawmakers. "Choosing between the distributed solar scenario and the utility-scale solar scenario is a tough call," Flynn said. "But the plan is preliminary to revisiting the portfolio standard. The AEPS has to be opened."
"The most import thing that came out of the stakeholder process that led to the plan is that it all comes down to AEPS legislation," he added. "Without it, the possibility of movement on solar is limited."