A solar settlement for the good of the grid
Originally published on ILSR.org
Getting electricity customer-generators the compensation they deserve has been a battle in many states. Could a settlement between the utility and solar advocates squash net metering conflict for good?
For this episode of the Local Energy Rules podcast, host John Farrell speaks with Thad Culley, Senior Regional Director of the Southeast at Vote Solar. They discuss a novel utility-advocate settlement underway in the Carolinas: a net metering and demand response compromise benefitting the utility, customer-generators, and the electric grid.
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A “Landmark Settlement” for Solar
Thad Culley, a former attorney and now the senior regional director at Vote Solar, represents Vote Solar in a novel settlement deal between Duke Energy and solar advocates in the Carolinas. The settlement, which Utility Dive calls a “landmark settlement” may finally put to rest the controversy over net metering.
Utilities often oppose customer-sited solar and net metering. By producing their own electricity, customer generators threaten utility monopoly power in the market. In a 2013 report for the Edison Electric Institute, Peter Kind went so far as to say that net metering would cause a “utility death spiral.”
Kind’s analysis is often cited by opponents of net metering. The “utility death spiral,” however, was never realistic. In 2013, says Culley, net metering customers made up only one percent of California utility revenues – a state with high solar penetration. In the Carolinas, Culley believes it is only a fraction of a percent. Customer-sited solar may cut out of utility revenue and profits, but it is not an “existential threat,” says Culley.
There’s a certain panache to the utility death spiral. You could give them some points for flourish, but there’s not much to it when you look at the numbers.
An Update to Net Metering Policy
Net metering has been the standard for home solar electricity generation in the United States. Enabled in 43 states, the policy allows solar-generating customers to “net” the difference between energy use and energy generation. If they generate more than they use, the utility either compensates the customer-generator for that energy or rolls it into the next month for them to use.
Culley highlights how net metering keeps rooftop solar policy in the hands of the states, rather than the Federal Energy Regulatory Commission (FERC). A dark money group petitioned to move net metering under federal jurisdiction in Spring 2020, an act that could have effectively ended net metering, but the petition failed.
Where is the Settlement Now?
Although there haven’t been any major attacks on net metering in South Carolina, the state did cap net metering capacity and some utilities had reached this limit. The Energy Freedom Act, passed by the South Carolina Legislature in 2019, removed net metering caps and laid the groundwork for the settlement, says Culley.
The utility and advocates filed the settlement on November second. Next comes a tariff application by Duke Energy, utility commission review in March, and if approved, the policy will be fully implemented in 2022. Both South and North Carolina must approve the policy.
Components of the Settlement
Culley believes that the settlement preserves “net metering at its essence.” However, the policy will look much different than the existing net metering scheme. Culley describes three key components to the proposed policy:
Time of use pricing and critical peak pricing: time of use pricing allows the utility to charge varying rates over the course of the day, which correspond to electricity demand. This pricing mechanism discourages excess electricity use when the grid is under strain.
Dynamic and temporal pricing: The critical peak pricing component gives the utility authority to designate a few “critical peak events” each year, during which the utility charges an additional 10 cents per kilowatt hour.
Demand response: the utility will give customers an upfront incentive in exchange for control of the customer’s thermostat. This measure also eases grid stress and may save the utility from costly upgrades.
Well, here’s an opportunity. You have a policy that’s very popular. Most people want to have solar on their roof. I do. Let’s piggyback on that and try some other policies that are beneficial to the grid.
Another popular claim against net metering is the cost-shift argument: that solar generators shift grid maintenance and other utility costs onto other customers. This claim, though flimsy and unproven, is addressed by the cost recovery component of the settlement.
The settlement allows Duke Energy to recover costs using a $30 minimum bill and non-bypassable riders. Culley concedes that a $30 minimum bill “is on the very high side,” but customers are already paying a $13 fixed charge. He says that essentially, customers have to use $17 worth of energy every month. Customer-generators can also lower their monthly bill with excess generation.
Regulators… have kind of taken these arguments to heart, that solar customers are avoiding paying their share of the fixed cost of the grid. We’re not conceding that to be the case at all, but we’re just saying, as a matter of compromise and fairness, this seems like something where the industry can still survive and actually thrive.
Culley acknowledges that monthly netting and a minimum bill both incentivize a reduced solar system size, but does not think the effect will be significant.
Many Wins for Solar Advocates, Too
Though many items of the settlement are a compromise for solar supporters, not all is lost. Investors are given certainty by a constant rate design (the smart thermostat program has a 25-year rate structure guarantee). This stability is essential for a thriving solar market, as seen in Minnesota.
We have a lot of work left to do to get it over the finish line and get it approved, but I think, for at least for the Carolinas, we found kind of a secret sauce.
For advocates hoping to replicate the settlement in other states, Culley emphasizes the need to collaborate with the utility. Without Duke’s willingness to sit down with advocates, there may have been yet another contentious net metering battle in the Carolinas.
If advocates want to take anything away from the South Carolina deal, it’s that we’re broadening the conversation beyond just the typical battle lines between solar and utilities. Hopefully there are going to be more utilities out there that are willing to think about it that way.
See these resources for more behind the story:
Learn more about other alternatives to net metering in New York and Hawaii
For concrete examples of how cities can take action toward gaining more control over their clean energy future, explore ILSR’s Community Power Toolkit.
Explore local and state policies and programs that help advance clean energy goals across the country, using ILSR’s interactive Community Power Map.
This is episode 118 of Local Energy Rules, an ILSR podcast with Energy Democracy Director John Farrell, which shares powerful stories of successful local renewable energy and exposes the policy and practical barriers to its expansion.
Local Energy Rules is Produced by ILSR’s John Farrell and Maria McCoy. Audio engineering for this episode by Maria McCoy.
This article originally posted at ilsr.org. For timely updates, follow John Farrell on Twitter, our energy work on Facebook, or sign up to get the Energy Democracy weekly update.
Featured Photo Credit: plien via Flickr (CC BY-NC-ND 2.0)