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Continued growth of solar power may hang on changes in government incentives

When Mike Rott installed 34 solar panels on the roof of his Getzville home in August 2014, he did it to save money on his electric bill.

He has.

His monthly electric bills, which ran between $100 and $180 a month before he installed his 10-kilowatt solar array, now are down to $16.

And thanks to a state policy that allows him to sell his excess electricity to National Grid for the same price the utility charges its residential customers, he’s earned almost $1,800 from his surplus power.

But Rott’s solar system also shows how the solar energy industry – including SolarCity and its plans for one of the world’s biggest solar panel factories in South Buffalo – depends on policies crafted by politicians and regulators from Washington, D.C., to Albany, and even places as far away as California and Nevada.

Since December, Congress and state regulators have adopted policies that have vastly different impacts on solar energy developments. Some extend current policies aimed at subsidizing the industry’s development. Others seek to vastly scale back incentives.

The regional skirmishes are the new battleground for solar energy. How they’re settled will have a big say in how fast the industry – and SolarCity – develops. With the state building a $900 million factory for SolarCity set to employ 1,460 people in Buffalo that will provide most of its solar panels, what regulators in states from Nevada to Hawaii decide will have a big impact on the Buffalo Niagara region’s economy.

“It creates winners and losers,” said Andrea Luecke, executive director of The Solar Foundation, an industry group. “We’re seeing a ton of activity on the state and local side.”

Different policies

For most of the past decade, federal and state policies generally favored solar power, giving lucrative tax subsidies on solar providers and consumers to spur the development of a green energy industry whose costs are too high to compete on its own against electric utilities.

The theory is that, as the industry grows and gains economies of scale, it will become more efficient, while new technology will further drive down costs. Over time, solar power prices will drop, eventually reaching the point where it can stand on its own against power produced from natural gas, coal and other fossil fuels.

While solar prices have dropped, they still are higher than utility-generated power in all but the highest-cost power markets, like Hawaii. So any changes in incentives or state regulations that reduce those subsidies can have a big impact on whether solar energy is a financially viable choice for consumers.

And there have been a lot of changes lately.

Washington, D.C.: The solar industry won a key victory in Washington in mid-December, with Congress approving a five-year extension of a tax credit that currently saves consumers 30 percent when they install a solar array.

Solar energy’s future looked bright.

Solar energy stocks, including SolarCity, shot up, with the company’s shares more than doubling from their mid-November low. Supporters hailed the extension as a move that kept solar energy economically viable and bought the industry time, giving it five years to lower costs enough to compete against utility-generated power.

Nevada: A week later, Nevada regulators upset the solar industry’s uneasy economic balance all over again.

Nevada regulators slashed a key state incentive, called net metering, that cut the rate that solar users receive for the electricity they generate by three-quarters, while tripling the monthly fees they pay to connect to the electric grid. Instead of saving money by installing solar arrays, Nevada regulators said the new rules would apply retroactively to the state’s 17,000 existing residential solar arrays.

SolarCity, which had about 60 percent of the Nevada market for rooftop solar, closed its operations there, cutting more than 500 jobs. Its stock, which topped $57 after the federal tax credit was extended, plunged below $17 by early February.

“Nevada is going backward, not forward,” SolarCity CEO Lyndon Rive said during a stop in Buffalo, just before the Nevada regulators issued their final ruling. “It’s the state with the most sun. It makes no sense.”

Nevada regulators in mid-February eased their stance, agreeing to spread out the cut in net metering payments over 12 years, instead of four.

California: In late January, California, the nation’s biggest residential solar energy market, eased fears that other states would follow Nevada’s lead and scale back incentives for solar arrays. Instead, regulators in California, which accounts for about half of all residential solar in the country, decided to keep paying solar customers the full retail rate for the power they sell into the grid.

“In the vast majority of states, including most recently California, regulators have adopted policies that are supportive of rooftop solar, and we expect any changes in net metering to be gradual,” said Morgan Stanley analyst Stephen C. Byrd.

Net metering

At issue is just how much solar power consumers should be paid for the excess electricity that their rooftop systems produce.

Utilities buy that excess power and, under a pricing mechanism called net metering, consumers receive credits on their bills for the unused energy that their systems produce.

But how much those consumers receive varies by state. Many states, like California and New York, offer credits that are near the retail rate that residential consumers pay when they purchase electricity from their utility. Other states offer credits that are much less valuable, closer to the wholesale energy price, which can be about two-thirds less than the retail rate.

The difference between the two can be the tipping point between whether a rooftop solar system will cut a consumer’s electric bill or cost more. Nationwide, more than half of the 42 states that offer net metering are either changing or reviewing those policies, according to the North Carolina Clean Energy Technology Center. More than 60 percent of those states also are considering or have changed the fixed charges residential customers pay to hook up to the grid.

“Net metering is the hot button issue right now,” Luecke said.

Rate fights

Solar energy supporters say consumers should be paid the higher, retail rate because their excess electricity reduces the need for utilities to buy high-priced electricity on the wholesale market. The renewable energy also helps the utility reduce its harmful greenhouse gas emissions, which have been linked to global warming.

But utilities and some ratepayer advocates argue that solar energy cuts into a utility’s revenues, which forces its remaining customers to pay higher rates because they must absorb a bigger share of the utility’s infrastructure costs.

At heart, utilities really fear solar could put them out of business. An Edison Electric Institute report three years ago warned of a “utility death spiral.” As more consumers generate their own power, the utility’s fixed costs will be shared by a smaller customer base, raising their rates, which then will prompt more of them to install their own rooftop solar array or wind turbine.

New York changing

New York, under a mandate from Gov. Andrew M. Cuomo to get half of its electricity from renewable sources by 2030, is in the midst of a major revamping of the state’s energy regulations, including its net metering policy.

“What we want to do is build the market so it sends the right price signals,” said Aubrey Zibelman, the state Public Service Commission’s chairwoman, during a recent industry conference.

That system currently pays consumers with solar arrays the retail rate. A PSC staff report, which is one of the cornerstones of the review, said net metering has been “a very successful tool to support the growth of the solar industry” and recommends that it continue.

But the report also leaves the door open to changes in the state’s net metering policy, raising the possibility that factors such as the time of day that the excess power is available and if the solar array is in an area with tight power supplies also could factor into a revised pricing formula.

“The current convention of crediting at the average retail rate may be either too little or too much, based on the nature of the resource and its location,” the staff report said.

In an unusual display of collaboration in what usually is a highly contentious issue, six New York utilities and three major solar energy companies, including SolarCity, in mid-April came together to propose a plan to phase out the state’s program that allows the owners of solar energy systems to sell their electricity back to the utilities at the retail price.

The proposal calls for the state’s current net metering policy to remain in place until 2020. After that, the payments would be reduced using a formula that considers a solar project’s environmental benefits, whether it’s in an area that would benefit the most from having more solar capacity, and the wholesale price of power.

Same sun, different approaches

California: Slightly reduced payments to solar panel owners for electricity

Nevada: Made big cuts in payments, even for existing owners

Arizona: One utility has sharply reduced payments for solar power

New York: Big solar companies and utilities to compromise on payments

email: drobinson@buffnews.com