In November of 1973, as a consequence of the Arab-Israeli Yom Kippur war, OPEC, the association of Arab oil providers in the middle east, instituted an oil embargo against the US and most western countries in Europe, all of whom were considered major allies of Israel. The US was supremely unprepared for this. Long lines at gasoline stations and endless suggestions of policy changes in Washington ensued. The president, Richard Nixon, declared a goal of energy independence for the country.
The embargo ended in May of 1974, averting a national gasoline rationing program, but doing nothing to stop the agitated discussion of US energy problems. As a result, the National Energy Act was passed in November of 1978. Little noticed at the time was a subset called the Public Utility Regulatory Policies Act, which laid out a number of requirements for utilities, establishing conservation programs and changes to electric rate design. But section 210 of the act created a Federal preemption of the state regulation for “co-generation” power plants—plants that make both electricity and steam. It included a mandate that utilities buy this power at their “avoided cost.” Up to this point, the generation of electricity was reserved for electric utilities; private, non-utility generation was not legal and not allowed.
From these seemingly harmless and certainly obscure twenty-seven words buried in the middle of a long document has come the entire independent power industry which now supplies a large and growing amount of America’s electricity, including most of its renewable power. Independent power producers, for example, generate one third of California’s electricity.
Sometimes, Federal legislation can make a big difference. And this understanding is important as we look to growing the solar industry.
The solar industry, over the last several years, has itself had a significant breakout. In 2015, for example, plants constructed using wind and solar as their fuel accounted for more new generation than did conventional fossil plant investment. The surprising good news is that these technologies, and especially large solar photovoltaic plants, can now make electricity at a price less than the operating cost of fossil and nuclear plants. Ten years ago, solar panels cost about $4 per watt. That cost today is 40 cents a watt and declining. The result has been steep declines in the price of electricity from new solar plants, a faster decline than even the most enthusiastic solar advocates could have predicted. Solar auctions in Mexico and Dubai have attracted bids of around three cents per Kwh. And in October, an auction in Abu Dhabi received a bid from a Jinko Solar/Marubeni joint venture of 2.42 cents.
But a remarkable number of non-price barriers still impede the development and construction of solar facilities, whether it is large plants in the southwestern desert or ten panels on a homeowner’s roof in Virginia. At the moment, the industry in the US receives a 30 percent tax credit which phases out by the end of 2023. But this tax advantage is increasingly less necessary, and the industry can stand on its own if it is treated fairly. To accomplish this, we should institute the following five policies. They can reasonably be called a “Solar Bill of Rights” and could have the same stimulating effect on solar generation as did the National Energy Act in 1978 on independent power generation. These rights are:
1. The right to be interconnected, quickly and reasonably
Solar panels can provide electricity when the sun shines and not when it doesn’t. That the obvious reason why homeowners want to connect to a bigger electric system. They need power at night. But they also sometimes generate more power than they can use on a sunny day. It makes sense for them to send that electricity back to the grid. So most solar facilities need to, and should be, connected to the grid. So what’s the problem?
Some utilities have been slow, needlessly slow, to connect their solar customers. After all, they are in the business of selling electricity, so your roof is their competition. Why be in a big hurry to connect you? On the other hand, if you have just spent fifteen thousand dollars for a bunch of solar panels that you can’t use due to the utility’s slow actions, you have a right to feel annoyed. It wasn’t like you were doing this at night or secretly, and, in fact, you have no doubt notified the utility well ahead of time. There is even one case, in Hawaii of all places, where the utility company, Hawaiian Electric, suddenly stopped connecting homeowners with solar already installed on their roofs. This behavior cannot be allowed, and a Federal mandate is necessary to prevent it.
2. The right to be paid a fair price for power sold to the grid
Ok, so now you’re connected, and you’re selling some modest amounts of power back to the grid when you’re not using it yourself. What do you get paid? The utility charges you a retail rate for the power, with the US average in October 2016 being around 12.45 cents per kwh. Shouldn’t you get 12.45 cents when you deliver energy back? This is the “net energy metering” issue, the “net” being the part of your generation that’s left after your house has met its electrical consumption needs and that can be sold back to the utility.
The utility, no surprise, sees the problem differently, and generally wants to pay you its own wholesale price, which is probably one third of the retail rate, or less. That’s really not fair either, as your solar electricity is being generated at a point of use and so doesn’t have to be transmitted over hill and dale from the power station out in the middle of the countryside. And then there’s the time of day or night when you are feeding the grid. Your energy is not especially valuable when demand is low, but since that’s pretty much always after midnight when you aren’t making any solar power, that’s not an issue. This is not an easy matter to solve analytically, and it has generated ugly political fights. The answer has to be determined through the state regulatory process, but your right to a “fair price’” at least will give you a chance for a fair fight in this matter.
3. The right to be charged electric rates that do not discriminate based on solar ownership.
As noted earlier, you may have put solar on your roof but you’d probably still like electricity after dark. Yes, you could install a big enough solar array and enough fancy batteries from Tesla once Elon Musk gets his giga factory running, but this would be more than a little expensive. So, you stay on the grid and use the power company’s juice at night or at other times when your consumption exceeds the supply generated by your panels. But overall you use way less power from the utility than you did before. And you might just assume that you pay the same price as you paid before for that energy.
We now have to endure a short discussion about utility rate design, an important but pretty arcane field. The basic principle is simple: each customer should pay the utility the cost it incurs to providing said customer his power, plus a small and regulated return to his monopoly supplier. So, you get to pay your small share of the fuel cost of making the power, the operating and maintenance cost of the power plant, the capital cost of the generating plant, and the cost of all the lines and substations and transformers that make up the transmission and distribution system. Plus there’s the cost of your meter and the person’s time who reads it. Making these calculations precise to the individual customer is simply not possible, so customers are grouped into “classes” and the costs then calculated on an aggregate basis. There are always at least three classes: residential, commercial and industrial.
The problem arises because some utilities now argue that solar residential customers are no longer paying their fair share. The rate study that set the existing prices assumed each customer would use, let’s say, 900 Kwh a month (the US average), and thus have a bill that paid both the energy portion of making the kwh and the fixed assets (lines, transformers, meters, generation plant) portion. But the solar customer is, because of his own generation, now only consuming 100 Kwh. That’s ok for the energy part of the calculation, as the utility is making 800 fewer units and thus burning 800 units less fuel, but the fixed asset portion was calculated based on 900 Kwh, not 100. Solar customers, the argument goes, are still getting all the benefit of the lines and meters and the generation that is ready for them at a second’s notice, but not paying what they should. Other customers without solar are essentially subsidizing the lucky few with solar.
The solution frequently proposed is to add a special charge onto the bills of solar customers only. This seems unfair to solar customers as it doesn’t recognize that all customers benefit in a number of ways—reduced air pollution, reduced CO2 emissions, enhanced energy security—when solar goes on rooftops. More important, a customer could reduce his or her consumption in any number of ways, by hyper insulating the house and shutting off rooms and so on, and no one is suggesting charging you a special charge for that decrease in consumption. And what about customers who reduce their consumption by installing geothermal heat pumps—are they next to pay special extra charges?
This problem is a difficult one, but the fair approach is not to discriminate between who has a solar installation and who doesn’t. If there is a disconnect between what the rate design assumed and what the utility can now collect, because residential customers for one reason or other are using less electricity than assumed, then it should be “fixed” with a charge applied to all. It’s the only reasonable approach.
The next two proposals are more difficult.
4. The right to transmit and sell solar generated power across the grid from the generation site to any interested customer
The utility industry in the US is fragmented, a bit chaotic and changing rapidly. The old monopoly model where one company “owns” the service territory and all the customers therein, and makes, distributes and sells all the electricity used by those customers, has been breaking down since 1979. First the monopoly on central station generation went away as discussed above, but the monopoly on transmission and distribution and customers remained. Now rooftop solar and small scale but “community” solar challenges that last remaining monopoly. If that monopoly goes, then the utility becomes a common carrier, not a bad job and probably still a monopoly, but it will have no interest in who makes or who buys the electricity.
Think for a moment of the network of roads and streets that exists in the US. There are various levels of monopoly on the infrastructure itself. The federal government builds and owns the interstate network, the states each own their own “state roads” and local cities and towns own the streets in their towns. While it is possible to build a road on your own land if you choose, most people don’t own enough land for that to make any sense. What moves on these roads, on this network, is not a monopoly. What the cars and trucks carry is not the business of government, and where these passengers and cargoes go is not the business of the monopoly supplier of the roadways. There is substantial regulation of the network: we all drive on the right, we need to have licensed vehicles which meet safety and emission standards, we have speed limits, our cars and trucks have weight limits, we have licensing requirements for hazardous cargoes, we have stop signs and stop lights and other directional and activity signals.
The utility of the future needs to be like this. Solar generators who make more than they can use, need to be able to move this product to the customer who values it most, without economic regulation other than for the effectiveness of the network. Metering, voltage requirements, safety equipment, all these have analogues in the road network and should be required, but the economic purpose and consequences of the generation and transmission of electricity should be divorced from the owner and manager of the network. Without freedom of transmission and distribution to customers, the true potential of solar electricity will never be fully realized.
A final requirement:
5. The right to produce and sell without state or local economic regulation
Let’s go back to the road network. There are misguided cases of economic regulation even in this area. Many jurisdictions long regulated both the number of taxi licenses or “medallions” and the fares that could be charged. The taxi operators were willing partners in this regulation, generally benefiting from fewer taxis and higher prices than an unfettered market would have delivered. And then…along came Uber. De facto deregulation of the taxi system arrived with enormous impact and substantial benefit for taxi or transportation customers. In the past, it would cost me about $100 to take a taxi from my home to the airport. And I had to schedule it a day ahead of time. There was essentially no “on demand” taxi service in this suburban town of 63,000 people, part of the San Diego county metropolis of six million. It now costs $35 to go to the airport, and time of the day or night, and the Uber vehicle is never further than ten minutes away, frequently less.
Except for the reasonably obvious technical requirements of creating electricity that fits the network’s specifications, regulation is not necessary. Economic regulation is certainly not called for, since this unregulated market structure of many willing sellers seeking many willing buyers is not only not a monopoly, it will become a very competitive business environment, with the benefits to customers that lower prices will bring.
If the Trump administration is in favor of markets over monopolies, it should look no further than the enactment of these five proposals, this Solar Bill of Rights, to create the electric network of the future on the most favorable economic terms possible. The benefits will be substantial.