The solar industry is booming across the U.S. and the numbers are staggering. Residential solar installations in 2012 reached 488 megawatts — a 62 percent increase over 2011 installations. And according to GTM Research, a solar photovoltaic (PV) system is now installed every four minutes in the U.S.
As rooftop solar and other distributed energy resources have begun to take off across the country, utility companies are becoming increasingly concerned about this “existential threat to their business.”
The threat, often referred to as the “utility death spiral,” goes like this: as customers choose to install solar panels or adopt energy efficiency measures, a utility will sell fewer units of energy and has to increase what it charges for electricity to ensure that it can still cover its fixed costs, such as grid maintenance and labor. As energy prices go up, more customers will look to energy efficiency and distributed energy resources to reduce their energy bills, which will continue to push electricity prices up and drive customers toward other energy sources and services. Although the death spiral isn’t likely to happen for several years (rooftop solar makes up less than a quarter of 1 percent of the electricity produced in the U.S.), it’s hard not to notice the solar industry’s rapid growth over the last few years — thanks in large part to customer incentives and falling solar panel and installation costs.
Investor-owned utilities got a wake-up call in January when the Edison Electric Institute put out a report on the upcoming changes the sector will face, labeling distributed energy resources as “disruptive challenges.” In response to these new challenges, the report encouraged utilities to alter their economic incentives for solar to “mitigate (or eliminate) cross subsidies and provide proper customer price signals” in the near term.
Many utilities have already begun to revise some of those tariff structures. Net energy metering policies, which allow solar energy system owners to get credit for any excess energy they feed back to the electric grid, are getting the most scrutiny and pushback at the utility level — pitting some utilities against solar advocates. Utilities argue that customers who generate their own solar power are not paying their fair share of fixed costs, which are then passed on to generally less wealthy, non-solar customers.
Solar companies and advocates say that utilities aren’t adequately accounting for the benefits that solar brings to the grid, including an energy source that decreases demand during peak use (when electricity is most expensive), reduces transmission and distribution costs, increases consumer choice, lowers greenhouse gas emissions and contributes to cleaner air. In April, a group of solar companies and physicians in California formed the CAUSE (Californians Against Utilities Stopping solar Energy) coalition to fight back against the attempts to roll back or end net metering.
Currently, 43 states and the District of Columbia have net metering policies in place. California and Arizona, the two largest solar markets in the country, are at the center of the most contentious and closely watched debates over solar energy payments. Utilities in California are seeking to reduce the solar credits and limit the amount of customers who can receive them. A report by the California Public Utilities Commission is due out this fall on the costs and benefits of rooftop solar that may help determine the direction regulators and lawmakers take on net metering programs in the state. In Arizona, investor-owned utility Arizona Public Service (APS) has proposed reducing its net metering credits through two different options. The first option would add a grid use charge that could reduce its net metering benefits by up to 63 percent. In the second option, APS would buy all of the electricity produced by solar customers, issue a credit for the solar-generated power based on an amount set by regulators, and then sell electricity back to the customer at retail rates. This option could lower the net metering benefits by about 50 percent.
Though net metering fights have already spread to utilities in other states, such as Colorado and Idaho, some utilities are embracing rooftop solar through new programs and utility services. In North Carolina, Duke Energy installs, owns and maintains solar panels on homes, schools and businesses through its solar distributed generation program, which pays annual rental fees to property owners for the use of their roofs or land.
Mari Hernandez is a Research Associate on the Energy team at the Center for American Progress.