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Work Group, Meet ‘Value of Solar’

Ex-utility exec shows how sun power can make dollars and sense

Clean Energy, Solar | March 4, 2014 | By Jim Dulzo

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Jim Dulzo is the Michigan Land Use Institute’s senior energy policy specialist. Reach him at jimdulzo@mlui.org.
 

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This is Part 2 of our ongoing coverage of the MPSC solar work group. See the entire series here.

Solar power is growing rapidly in many part of the United States, but not in Michigan.
Solar power is growing rapidly in many part of the United States, but not in Michigan.

LANSING, Mich.—About 40 energy experts gathered in Lansing last week for their second discussion about ways the state’s top utilities can spur more solar power development in Michigan, which is now well behind many other states in deploying the booming clean-energy technology.

The solar work group, formed after DTE Energy and Consumers Energy proposed dropping their small solar programs, watched a presentation by Karl Rabago, a former executive at the Texas public utility Austin Energy, who explained what he calls “Value of Solar.”

Rabago told the roomful of utility staff, solar business advocates, and Michigan Public Service Commission officials who hosted the Feb. 25 session that a fresh analysis of AE’s operational data revealed that, contrary to conventional wisdom, using sun power can make sound economic sense.

The numbers showed solar could cut AE’s operating and capital costs and slow future rate increases. Rabago said the analytic techniques his muni used are applicable to all electric companies.

The former utility executive, who was also a Texas Public Utility commissioner and a top official at the U.S. Department of Energy, said that utilities are doing business during truly transformative times for the industry.

Pointing to soaring solar installation rates around the country and to a recent Sierra Club-Georgia Tea Party alliance that stopped attempts to crush the rise of solar power there, he said only utilities that change their basic, century-old business model to profit from new, “distributed” technologies like solar will prevail.

“But we must look at that not as a danger, but as an opportunity,” he said.

He added that, while it makes sense that utilities are monopolies, it means that regulators must do what the free market would if power companies were competing—make sure they are as efficient as possible, treat customers fairly, and embrace technological innovations.

“Using Value of Solar does that,” he asserted.

Doing the Math

Rabago explained that, like truly competitive companies, VOS calculations look at all aspects of the business and measure not just their cost, but their value, before making decisions.

With utilities, that means evaluating the cost and value of fuel, new power plants, grid and substation expansion and maintenance, and new technology; the risks weather presents to that infrastructure and to sales; new regulations that can shut down older power plants; labor costs; financing; economic cycles; and customer satisfaction.

“What you are trying to find,” he said of VOS analysis, “is what I call the ‘indifference price’—the price for purchasing solar power that neither adds to nor subtracts from the company’s bottom line.

“If the VOS pushes up rates, then it’s too high and not fair to all customers; if it pulls them down, it’s not fair to the solar panel owners.”

He said AE staff derived VOS during a rate case involving solar power. AE’s analysis produced a rate for solar power from customers’ panels that, he said, proved fair to the utility and customers without panels; compensated panel owners fairly, encouraging more solar; allowed the company to cut expensive solar incentives; helped disconnect the muni’s bottom line from sales volume; and was easy to understand and administer.  

He added that using VOS is not about “extracting revenge from utilities for unpaid-for externalities like air and water pollution or climate change.

“Most of solar’s value is in the effect it has on a utility’s grid,” he emphasized. And, he added, it follows a basic fairness principal: “If I give you a fair price for what you are producing for me, you should give me a fair price for what I’m producing for you.”

That means net metering should be replaced with “net billing.” Net metering runs the electric meter in reverse when panels are making more power than the building is using, but alarms utilities by cutting their sales and, some argue, allows panel owners to shift some utility costs to non-solar customers.

Net billing requires lifting the cap most net metering programs impose; keeping separate track of how much retail power a solar customer takes from the grid and how much power, at a different, wholesale price, the panels supply to it; showing the monetary difference; and declaring a credit or amount due.

The approach is better, he said, because it explicitly charges for all energy consumption. It also supports energy efficiency; respects the utility’s service overhead; makes rate setting easier and more transparent; and provides panel owners with clear return-on-investment information unclouded by incentives.

Finally, he cautioned the crowd about possible tax problems other approaches to customer-based solar can create, and warned about using drawings to choose which customers who apply for solar programs can participate.

“A lottery is a lousy way to run a solar program,” he said.

Big Utilities, Tiny Pilots

Rabago’s presentation followed an MPSC summary of the two big utilities’ solar pilots, and an introduction to community solar programs by the Great Lakes Renewable Energy Association.

MPSC’s Jesse Harlow said DTE’s and Consumers’ solar programs use lotteries because they attract more applicants seeking to sell solar power at a premium rate than they can accommodate.

As intended, he said, both companies cut rates for newer systems to reflect solar technology’s steadily falling costs.

The programs pay their participants differently.

DTE’s SolarCurrents pays for part of the panels’ cost, limits how much power it purchases to the amount the customer typically uses, and pays a below-retail rate for 20 years. The program sold out in 2011 after attracting 589 customers who, among them, can generate five megawatts of electricity—the pilot’s original goal and less than one percent of the output of a medium-sized coal plant.

MPSC ordered DTE to add two megawatts to its program in 2012. DTE cut panel payments and rates, shortened contracts, installed a lottery, and, so far, has hooked up 38 more customers who can produce .2 megawatts of sun power.

DTE also install its own, large systems on commercial rooftops leased for 20 years. Its 19 completed projects can produce 7.3 megawatts; three more will add another 2.5 megawatts.

Consumers’ Experimental Advanced Renewable Program doesn’t help purchase panels, but pays significantly higher rates for their electricity. It has the same cap on purchased power, and gradually lowers rates on new, 15-year contracts. Consumers' lottery winners have so far installed 210 solar systems that can produce 2.7 megawatts of the company's expanded, 6-megawatt goal.

Harlow said both programs provide valuable experience with different solar systems, installation costs, blending solar onto the grid, billing and customer support, and long-term solar contracts.

But, he said, the programs reach few customers, shift costs to non-participants, and  leave out resource planning. They have yet to improve reliability or power reserves and cost more than the firms’ wind power. He said lotteries are problematic because each application costs time and money, and many do not win.

Harlow said MPSC wants to identify a “perfect price” for solar that protects electric rates yet encourages wide participation, and also create “community solar” pilot programs using Value of Solar rates to attract more investment.

He said there’s enough Michigan sunshine to make solar power economically viable.  He touched on solar’s underutilized value, and said Michigan’s chief market barriers to solar are complicated, inconsistent permitting and unclear, unfavorable state and local tax laws.

Small Utilities, Big Community Solar Step

David Konkle, of GLREA, told the work group about Michigan’s first community solar program. Launched last spring by Cherryland Electric Cooperative and joined by publicly owned Traverse City Light & Power, the program sells shares in a solar array on the co-op’s front lawn.

According to a Cherryland spokesperson, the project has sold or signed contracts for 190 of the project’s 240 shares.

Konkle explained such programs, which are springing up nationally, are for people who like solar but live where it won’t work or can’t afford their own system. Shareholders receive monthly credits reflecting the amount of electricity their share of the system produces. The Cherryland/TCL&P program pays investors at the firms’ wholesale electric rate.

He said the U.S. Department of Energy is serious about developing community solar because it spreads solar’s benefits to many people, cuts costs via economies of scale, encourages entrepreneurs, attracts low-cost financing to local communities, and provides management experience.

Konkle said well-designed community solar systems should help more people access solar power, hold down energy costs, and support existing renewable energy projects. He said nine states now have pro-community solar policies; four more are considering them.

Konkle also said “crowd sourced” funding, now legal in Michigan, offers another route to financing community solar, and that a survey of Cherryland/TCL&P community solar investors indicated they were more concerned with protecting the environment and promoting solar power than cutting energy bills or making money.

Jim Dulzo is the Michigan Land Use Institute’s senior energy policy specialist. Reach him at jimdulzo@mlui.org. This is Part 2 of our ongoing coverage of the MPSC’s solar work group. Read Part 1 here.

1 Comment

1009 days ago, 2:27pm | by JoAnne | Report Comment

Lots to think about and share. What can we do to make energy companies more responsible? I like the idea of community solar.

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