Green-energy mandates, subsidies: at war with each other?

As more people move to solar energy, states like Colorado are in a quandary. Should they force those homeowners to pay more to a utility so it can upgrade the grid with more green energy – keep those net payments low so more homeowners will move to solar?

In many parts of the country, homeowners who produce their own electricity through solar rooftop panels want to break free of the pact that has traditionally bound utilities and their customers – where all-hands pitch in to pay for the network’s upkeep and growth.

That fight has taken place in Arizona and California and it's reaching its peak in Colorado. Louisiana, Texas and Georgia – and at least a half dozen other states, including Vermont, are poised to join the fray. Just how the battle is resolved in the early going may determine how it ends. The trends suggest that, for now, that residential users who “unplug” – at least partially – from the grid will make fewer contributions than what their utilities had thought necessary.

The fight is not about whether green energy will expand – everyone agrees it will – but where it will be placed: in the grid, as large plants feeding utilities, or as smaller rooftop installations powering individual homes and businesses.

The irony is that federal and state tax incentives and mandates are pushing both solutions. Green-energy subsidies and mandates are at war with each other. With no direction at the top, state utility boards are left to sort out the mess.

On one side, tax incentives and falling solar panel prices are pushing more homeowners to “disconnect.”

“The grid is best preserved by keeping electrons completely off the grid and sticking them on rooftops,” says Bryan Miller, vice president of public policy at Sunrun in San Francisco, which provides such rooftop solar panels.

Of course, except for a hardy few in remote areas who completely unplug, most homeowners who generate their own power remain connected to the grid – for those times when the sun is not shining or to sell their excess power back to the utility. The debate is over how to allocate those costs and payments – the technical term is called “net metering.”

Utilities argue that if more people go off the grid, then the cost of maintaining and modernizing the transmission network falls on fewer people – just when it may be needed most to build costly green-energy plants – as well as other types of generation, like natural gas or nuclear plants.

The PJM Interconnection, which orders up power sources and schedules their delivery in a 13-state region in the eastern United States, says wind and solar energy can play a larger and more constructive role in its territory. To do so, though, investments in the electrical grid must be made: At a 20 percent penetration rate, 820 miles of wire would have to be installed for around $3.8 billion, it says.

That's why utilities, generally, want solar-power customers to pay a large monthly fee and to offer them only the wholesale rate for the electricity they sell back to the grid. Otherwise, fewer fully-paying customers leads to higher costs for everyone else, making solar power even more attractive to homeowners.

“The threat to the centralized utility service model is likely to come from the new technologies or customer behavioral changes that reduce load,” says the industry’s trade representative, the Edison Electric Institute, in an analysis. “Customers are not precluded from leaving the system entirely if a more cost competitive alternative is available.”

Now, state regulators are trying to find a happy middle ground where utilities can afford to maintain their systems and homeowners are motivated to go green.

Last October, the California Public Utility Commission issued its own findings on net metering, declaring that utilities generally benefit because the power companies have less traffic and are thus able to avoid certain costs associated with grid upkeep. About a month later, the Arizona Corporation Commission settled on a small charge for home-based generators because of their occasional need for access to the grid. Arizona Public Service, the incumbent generator, had asked for a $50 charge but the commission voted, for now, to implement a $5 monthly charge.

Colorado is now having the same debate. Residential customers want a credit of 10.5 cents per kilowatt-hour for the power they sell back to the utility. Xcel Energy says that the rate should be 4.6 cents. Any more than that would be tantamount to Xcel subsidizing homeowners who produce their own power, the utility says.

“Installations are up 34 percent in Colorado in 2013,” says Mark Stutz, spokesman for Xcel. “There is a cost associated with using our grid, which we feel is not being given proper credit. We need the public utility commission to recognize this. If you look at the rooftop benefits, it does offset some of our generation. But it does not cover the full distribution and transmission costs, which our customers pay for.”

Solar advocates point out that costs depend on time of day. “Isn’t solar 'worth' more because it can feed into the grid at peak times and days?” asks Nancy LaPlaca, a renewable energy consultant in Arizona.

Onsite generation is building strength and its interests are beginning to out-muscle the utilities, which are trying to reconcile their current business models with those happening in the new energy world. Deciding the issue will have profound consequences as electric reliability and the future shape of the utility industry are at stake.