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Why Would Consumers Freeze Its Hot Solar Program?

Manufacturers, installers say expansion would spur state economy

April 11, 2011 | By Jim Dulzo
Great Lakes Bulletin News Service

  Fluid Process Equipment of Kalamazoo used Consumers Energy’s feed-in tariff pilot program to install solar panels and turn a profit.

When Ross Draper’s boss asked him to find new ways to help his company, Fluid Process Equipment Inc., boost its revenue in Michigan’s torpid economy, his research uncovered a bright idea: Install solar panels at the Kalamazoo company and sell renewable electricity to Consumers Energy at a profit.

Mr. Draper discovered that Consumers was launching a pioneering pilot program that allowed businesses or homeowners to do exactly that. With owner Glenn Lake’s encouragement, he scrambled to get the company involved. Yet he barely made the cut. The pilot, with its 2-MW (million watt) cap in a system that on slow days peaks at about 4,000 MW, sold out very quickly.

The tiny program, however, made big waves throughout Michigan’s budding solar power manufacturing and installation sector, which currently numbers more than 120 companies. The companies viewed it as a way to grow jobs in a state whose sunshine, thanks to better technology and steadily falling solar panel prices, is very useable.

But recent events have turned that excitement into deep concern and prompted members of the state’s solar industry, several citizen groups, and two cities to send an urgent open letter to the company president and CEO, John Russell, and Governor Rick Snyder. Also, a citizen organization has filed several depositions with state utility regulators and is collecting support statements from the general public.

That’s because Consumers, whose parent company, CMS, increased its bottom line last year by 49 percent, to $324 million, told the Michigan Public Service Commission in February it wants to freeze its solar pilot at its current 100 participants, despite a long waiting list of homeowners and businesses eager to participate.

The utility says it wants to evaluate its pilot and, citing lower-than-predicted windpower costs and demand, cut its monthly renewable energy surcharge, which funds both wind and the solar pilot, from $2.50 to 70 cents per customer.

But the letter to Consumers and Governor Snyder urges the company to expand its solar pilot, not freeze it.

“The Company worked hard to get this solar pilot program up and running,” the letter said. “This is a successful pilot program worthy of expansion—not cancellation. Don’t strand the investment already made in this important program.”

Meanwhile, the Chicago-based, non-profit Environmental Law and Policy Center has filed two depositions with the MPSC urging Consumers not to make such a large surcharge reduction and, instead, expand the solar pilot. ELPC says even though the pilot pays rates far above Consumers’ normal energy costs, expanding it will barely affect customers’ bills because it would still be tiny. Cost estimates range from 7 to 25 cents per month per customer.

Both the letter and the depositions say that expanding the pilot would help Consumers diversify its energy supply, boost jobs in one of the state’s few economic bright spots—Michigan is America’s fourth-largest solar manufacturer—and save money by reducing the need for new transmission lines and expensive “peak” generation on hot days.

The letter and filings claim the groups seek co-operation, not a fight.

“They’ve been open; we’ve been open,” said David Wright, of the non-profit Ecology Center, in Ann Arbor, whose deposition is part of ELPC’s filing. “We just don’t want to see the program end. It’s in everyone’s best interest to diversify power supplies, find out about cost reductions, improve the program, and support our local solar industry.”

Balancing Costs and Customers’ Needs
Consumers told Great Lakes Bulletin News Service that it launched its solar pilot, which it calls its Experimental Advanced Renewables Program, because it wanted to test the approach, widely known as a “feed-in tariff.” FITs are common in Europe, expanding in Ontario, being proposed and, in some cases, enacted in various American states, and supported by some Michigan lawmakers.

“We thought that if we put together a pilot program and worked with a smaller number of customers so that if, in the future, it was required,” said Dave Ronk, the Consumers engineer responsible for resource planning, “we would have already learned how to do it efficiently and effectively.”

Consumers’ solar FIT offered 12-year contracts with high per-kilowatt-hour rates, allowing participants like Mr. Draper’s Fluid Process Equipment to quickly pay off their panels and, after their contracts expire, sell their power on the open market for at least another eight years, given modern panels’ 20-years-plus lifespan.

The pilot’s first phase offered 65 cents per kWh for smaller, residential systems and 45 cents per kWh for larger, commercial systems. In phase two, as is typical of FITs, Consumers cut its rates to 52.5 cents and 37.5 cents to hold down panel and installation prices.

“We’ve been told we would see declines by about 20 percent a year,” Mr. Ronk said. “We modeled our phases to reflect that.”

Mr. Ronk said he did encounter a few minor challenges regarding the utility’s renewables program. They included composing proper permitting rules, standardizing generating measurements, dealing with rule-bending customers, meeting MPSC’s insistence on supplying panel owners with cheaper but less data-rich power meters, and building a brand-new payment system for them.

He said, with most systems now installed, Consumers hasn’t encountered safety, reliability, or service problems.

But, he said, the company wants to analyze how the program is performing—particularly panel and installation costs and performance—before deciding whether to expand or drop it.

“The installation phase has really consumed a fair amount of effort,” he said. “The engineer I have assigned to the program, the interconnection group, metering and installation people—we really want to catch our breath: How can we do it better, especially things we are spending too much effort on?”

Neither Mr. Ronk nor Dan Bishop, Consumers’ public information director, said that the $2.50 monthly renewables energy surcharge, which varies according to ratepayer types, had encountered much customer pushback. But, they said, keeping customers’ bills down is always a goal.

“We need to keep cost and customer needs in balance,” Mr. Bishop said, noting that many people are having a hard time paying their bills in the severe recession.

Willing to Pay?
However, advocates like the Ecology Center’s Mr. Wright maintain that, even with a terrible economy, most people remain willing to pay a little more to encourage renewables growth. A 2010 phone survey by the University of Michigan’s Center for State, Local, and National Policy found that 56 percent of those interviewed would be willing to pay $50 more a year to increase clean energy—almost twice what Consumers is charging customers via its current renewables surcharge.

Mr. Wright, who submitted a deposition to MPSC, said the company should rethink its solar cost concerns.

He pointed to solar power’s potential to cut costs by reducing the use of pricey, gas-fired “peaker” plant generation during hot, high-demand days, when air conditioners strain the grid—and solar power production peaks, too.

And, he said, a five-year pilot, using a 20-year instead of a 12-year contract, would spread out the new costs, earn Consumers additional bankable renewable energy credits, and allow the company to lower its solar rates as the cost of solar panels, which has been declining steadily for 30 years, continues to fall.

“There will be a crossover point here in the not-too-distant future,” he asserted, when solar electricity would fall to the same price that new coal- or gas-fired power plants charge—something increasingly common with wind power. “We think ratepayers would be served by that, and it makes sense for Consumers to develop those systems now.”

Mr. Wright’s claim of falling solar power costs was echoed recently by publications as disparate as Bloomberg and Scientific American.

“It’s like when cars were first being built,” he explained. “Vehicle costs were quite high, but manufacturing brings the cost down. This would help diversify the state’s economy and our generation portfolio.”

Forward, not Backward
The letter to Consumers was coordinated by Martha Duggan, a 30-year energy industry veteran and vice-president of government and regulatory affairs for Uni-Solar, Michigan’s largest solar manufacturer.

“People were very enthusiastic about signing it,” she said.

Ms. Duggan said she was not surprised when Consumers included solar in its state-mandated renewable energy program, which stemmed from P.A. 295, passed in 2008 thanks to strenuous efforts by the Granholm administration.

“Consumers was interested in accomplishing what the law directed—diversity, energy independence in the state,” Ms. Duggan said. “All forms of energy help them do that.”

She also said that, while the 2 MW program did not affect Uni-Solar, which signed the letter and churns out about 150 MWs of new solar cells every year, mostly for export, it “served to create excitement all across the solar value chain in Michigan. We were excited to see them put their toe in the water. Now we’re saying, ‘Take the dive!’”

Ms. Duggan also submitted a deposition to MPSC regarding Consumers’ solar FIT, representing both Uni-Solar and The Solar Alliance, a national trade group promoting state and national solar policies.

“When somebody wants to take something backward,” she explained, “it is important for us to get involved.”

She added that the wind power Consumers is planning works very well with solar power because it’s sunnier in the summer and windier in the winter—and at night.

Mike Linsea, of Solar Winds Power Systems LLC, which installed Fluid Process Equipment’s system, offered another reason to keeping moving toward the sun.

“People don’t understand that this solar expansion could go on for years with what is already in Consumers’ rates,” said Mr. Linsea, referring to the existing $2.50 renewable energy charge. “The only other way to have that kind of impact would be if Michigan reestablished a 20-percent renewable energy tax credit, but I don’t think the state can afford that right now.”

The Kalamazoo-based installer said that Consumers’ solar pilot accounted for more than half of his work last year. He said his customers are usually retired scientists, engineers, or accountants, and mostly Republican.

“You hear from them that most businesses are sitting on their money, looking for investment opportunities right now,” he observed. “Well, Consumers solar FIT pulled some of that money out. Companies have the cash, the want to do it, but without this pilot, the return on investment is just too low.

“This is the social responsibility that needs to take place with Consumers,” he said.  “If I was in their board room, I would say, ‘Please, open your mind, see your place in assisting society in transition to renewables. Feed-in tariffs are a part of that; anything less is not responsible to people. We are 30 years behind the rest of the world now because of wrangling and positioning.’”

Mr. Draper offered another, more on-the-ground view.

“When I looked at all the businesses that benefited,” he said of his company’s installation, “the local steel fabricator for the mounting poles, the tree remover, the ditch digging, crane, and concrete companies—Consumers would be giving the state a much-needed boost.”

What Happened
Following recent approval by state regulators, Consumers Energy announced on Aug. 16 that it is expanding, instead of suspending, its very popular “solar pilot” program for customers interested in developing their own, income-producing renewable energy sources.

Consumers will more than double the size of its Experimental Advanced Renewable Program, which provides for the long-term purchase of renewable energy generated by solar energy systems owned by the company's electric customers.

EARP will add an additional three megawatts of solar power, following recent approval by the Michigan Public Service Commission. The original phases of the program are now completed and added enough solar panels on 102 rooftops and yards across Michigan’s Lower Peninsula to generate two megawatts of electricity on a sunny day.

"We're pleased to offer this opportunity to our customers and look forward to cost-effective innovation in advancing solar technology in Michigan," said David Ronk, Consumers Energy's director of transactions and resource planning, in a company press release. "The additional solar generation through this expansion will add to Consumers Energy's renewable energy portfolio."
Customer applications for the new expanded phase of the program will be accepted near the end of August. --Jim Dulzo

Jim Dulzo is the Michigan Land Use Institute’s managing editor. Reach him at jimdulzo@mlui.org.

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