Solar Power’s Dependence on Subsidies

by Institute for Energy Research, October 19, 2016

While solar advocates like to say that solar is cost competitive with traditional forms of energy, several states have found that not to be the case. In Hawaii and Nevada, interest in solar waned when these states modified their incentives for solar power, cutting back on their net metering programs and making rooftop solar owners pay for their use of the electric grid. In both cases, the program changes resulted in many fewer customers investing in solar power.

Hawaii

Hawaii has a goal of 100 percent renewable energy by 2045. Its high electricity prices and net metering program propelled the state to reach a higher penetration of rooftop solar than any other U.S. state. About 17 percent of Hawaiian Electric customers have rooftop solar.

But, in October 2015, the Public Utilities Commission in Hawaii replaced its net metering program, which provided solar owners with the retail rate for electricity sold back to the grid, with two options. One option, called the grid-supply program, credited customers with a fixed rate below the retail rate for excess solar power. The program credits customers at a fixed rate between $0.15 per kilowatt hour to $0.28 per kilowatt hour, depending on the island on which they are located.[i] The second option—a self-supply option with no grid-export capabilities–requires storage capacity for any excess power and has a minimum bill of $25 for residential customers and $50 for commercial customers.[ii]

Each Hawaiian island has a cap on the amount of solar capacity that can be eligible for sale back to the utility. The only island not yet reaching its interim cap is Oahu, though it is at 87 percent of its cap.

The reason that Hawaii had to change its solar subsidy program is that the solar generation can overload local circuits on the utility’s grid, causing the grid to malfunction.

After Hawaii’s lucrative net metering program ended last October, the solar industry in the state lost about 450 jobs. Total employment now is just above 600.

Nevada

Nevada also made changes to its net metering program. But, unlike Hawaii, existing customers were originally not to be grandfathered under Nevada’s new solar program.

On December 22, 2015, the Nevada Public Utility Commission tripled the fixed charges solar customers would pay over the next four years, and reduced the credit solar customers receive for excess generation by three-quarters. The change was designed to make solar customers pay their fair share for use of the electricity grid. According to the commission’s marginal cost of service study, solar customers are subsidized by $16 million per year at the expense of other customers. [iii]

Under the new rates, Southern Nevada solar customers, who make up the majority of solar customers in the state, will have their fixed charge increase incrementally from $12.75 to $38.51 per month by 2020. Over the same period, the net-metering credit will decrease from 11 cents per kilowatt-hour to 2.6 cents per kilowatt-hour.

SolarCity calculated that the new rates could cost existing customers an additional $11,000 over the 20-year life of their systems. Another group estimated that rooftop solar contracts would not make economic sense as of 2017. Further, by 2020, almost all solar customers are expected to be paying more per month than if they had not gone solar. Even if a customer owns the system, exports little to the grid and is helped by time-of-use rates, the economics are worse because of the higher fixed charges.

Due to legal and regulatory battles, Nevada utility regulators restored retail-rate net metering for the Nevada’s 32,000 existing solar customers. The agreement allows all customers who applied for a residential solar system before December 31, 2015 to be grandfathered for 20 years under Nevada’s original net-metering tariff and sets a cutoff date of November 30, 2036.[iv]

Solar companies realized that without the original subsidies, rooftop solar economics would be unworkable. After the new rate took effect on January 1, 2016, the larger solar companies (SolarCity, Sunrun and Vivint) announced that they had to cease operations in the state and local installers reduced staff.

Conclusion

States are realizing that the net metering rules as originally established were hurting non-solar customers and the local utilities because the non-solar customers had to pay for the use of the electricity grid by rooftop solar owners. As a result, a number of states are evaluating changes to their net metering policies. Two states, Hawaii and Nevada, have instituted changes. But solar companies, such as SolarCity, have announced that these changes are uneconomic and have indicated that they can no longer operate in those states, reducing solar employment–by as much as 42 percent in Hawaii. Clearly, solar is not yet competitive with traditional generating technologies.

For a complete list of states that are making changes to their rooftop solar policies, see IER’s report “The High Cost of Rooftop Solar Subsidies”[v].

[i] Utility Dive, Hawaii PUC ends net metering program, October 14, 2015, http://www.utilitydive.com/news/hawaii-puc-ends-net-metering-program/407328/

[ii] Utility Dive, Hawaii solar sector on the ‘brink of collapse’ as employment dips 42%, October 7, 2016, http://www.utilitydive.com/news/hawaii-solar-sector-on-the-brink-of-collapse-as-employment-dips-42/427831/

[iii] Green Tech Media, Does Nevada’s Controversial Net Metering Decision Set a Precedent for the Nation?, February 4, 2016, http://www.greentechmedia.com/articles/read/nevada-net-metering-decision

[iv] Green Tech Media, Nevada Regulators Restore Net Metering for Existing Solar Customers, September 16, 2016, http://www.greentechmedia.com/articles/read/nevada-regulators-restore-net-metering-for-existing-solar-customers

[v] IER, The High Cost of Rooftop Solar Subsidies, October 2016, http://instituteforenergyresearch.org/wp-content/uploads/2016/10/The-High-Cost-of-Rooftop-Solar-Subsidies-Oct-16.pdf