Author

John Farrell

John Farrell is the Director of Democratic Energy at the Institute for Local Self-Reliance. John is best known for his vivid illustrations of the economic and environmental benefits of local ownership of decentralized renewable energy. He’s the author of Energy Self-Reliant States, a state-by-state atlas of renewable energy potential highlighted in the New York Times, showing that most states don’t need to look outside their borders to meet their electricity needs. He’s also written extensively on the economic advantages of Democratizing the Electricity System, published a rich interactive map on solar grid parity, and polished the policies (like Minnesota’s solar energy standard) necessary to support locally owned renewable energy development.

Renewable Energy

Is Solar Net Metering a Subsidy to Utilities?

written by John Farrell

When Robert Nohavec of Park City, Utah; Jabbar Graham from Cherry Hill, New Jersey; and Don Born, of Waldoboro, Maine installed solar on their homes, they had something unexpected in common. They were all giving back to their electric company and their community. That’s because solar energy systems tend to provide more value to the electric grid and society than the solar producers are paid under net metering policy, confirmed by a new reportreleased by Environment America.

The report responds to an ongoing battle between electric companies and their customers over the value of solar energy. It shows how utilities have—falsely—asserted that customers saving money with solar are costing them, and that instead solar customers have been providing benefits far beyond what they’re compensated for. The following chart illustrates, showing the relationship between the value of solar energy and the retail electricity rate (the price per kilowatt-hour solar customers receive for their solar energy). In every state where the value of solar was calculated by an independent entity, the value was greater than the utilities provided for solar energy.

The heart of the battle is described succinctly in the report:

Historically, the relationship between power generators and consumers had been a one-way street. Utilities generated the power and customers bought it. Utilities simply sent customers a monthly bill for the amount of power they consumed. Utilities were granted a franchise and exclusive monopoly to serve an area in return for a reasonable opportunity to make a profit. The price of power was set at a level designed to recover the utility’s cost of building and operating the power plants, power lines and distribution systems needed to supply electricity to consumers.

Technologies like solar panels, however, enable electricity consumers to also be electricity producers.

The value of solar studies provide solid evidence that the utility efforts to curtail net metering have less to do with protecting ratepayers and more to do with understanding the end of their natural monopoly over power generation.

Ultimately, states may have to step in to fix the archaic electric market. In Minnesota, for example, the state created a value of solar tariff as an alternative to net metering. In New York, regulators are pursuing and end to the monopoly of the electric company over the distribution grid. There’s still a raging debate about the best strategy to appropriately value solar. Some feel that net metering is sufficient, and others argue that it’s an antiquated policy that’s not reflective of the costs and benefits on the grid.

Whatever the policy, Environment America’s newest report suggests that a properly designed program to support customer-owned solar needs to reward its full value.

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Want to weigh in?
Join ILSR’s Director of Democratic Energy and former Austin Energy executive and Executive Director of the Pace Energy and Climate Center Karl Rabago, for “Freedom to Generate: Alternatives to the ‘Value of Solar’ formula” on July 8, 2015.

This article originally posted at ilsr.org. For timely updates, follow John Farrell on Twitter or get the Democratic Energy weekly update.

Photo credit: Tim Fuller via Flickr (CC BY 2.0 license)

07/06/2015 1 comment

Renewable Energy

Dear Hawaii: Read Your Mail Before Your Utility Sells Out

written by John Farrell

If your electricity – generated from imported oil – is the most expensive in the country and your solar resource is terrific, you’d expect your electric company to be making great strides toward renewable energy. On Hawai’i, the progress toward clean energy is in limbo, because island’s largest electric utility – largely owned by islanders – is likely to be acquired by mainland utility conglomerate NextEra, parent company of another regulated utility, Florida Power and Light.

Should Hawaiians accede to the wishes of NextEra and sell their largest electric utility to off-islanders?

These postcards from Florida (inspired by a campaign by Vote Solar) shine a little light on what Hawaiians can expect from their proposed utility overlord.

For more on the takeover, check out ILSR’s Director of Democratic Energy commentary during the Maui Energy Conference, ILSR’s 2012 report—Hawaiian Sunblock—on the unexpected barriers to low-cost solar on the islands, Vote Solar’s Postcards from Florida campaign, and the continuing coverage of the utility acquisition on Utility Dive.

This article originally posted at ilsr.org. For timely updates, follow John Farrell on Twitter or get the Democratic Energy weekly update.

06/15/2015 1 comment

Renewable Energy

The History and Hope for a First-in-the-Nation City-Utility Clean Energy Partnership

written by John Farrell

In the past month, the city of Minneapolis and its two investor-owned utilities adopted the nation’s first clean energy partnership, with a wide range of goals including meeting the city’s ambitious greenhouse gas emission reduction goals. How did it happen and what can it accomplish? The following 8-minute video from one of the “lead rabble rousers” on the Minneapolis Energy Options campaign, John Farrell, explains what got things started and where the partnership may lead.

The Beginning
One of the primary motivators of the Minneapolis Energy Options campaign was to say, “How much money do we spend collectively as a city on these energy services, and how much of that is actually leaving the city of Minneapolis.” The answer is $450 million each year, for electricity and gas services, with most of the profits leaving town. “A lot of it is money that can be recaptured within the local economy, especially…when you’re talking about a transformation taking place in the technology in the electricity sector allowing you to generate energy much closer to home than we ever have before.”

Organizers of the Minneapolis Energy Options campaign started around a conference table asking how this notion of the local energy dollar could be addressed, and immediately thought of the municipalization fight in Boulder, CO. But “it seemed sort of silly to be saying, “let’s go out and form our own utility” [when] we haven’t even really talked to the ones that we’ve got about what we could do with working with them.” On the other hand, the city needed leverage in its negotiations with utilities since most of the power in utility regulation is at the state and federal level. So the campaign was meant to elevate the notion of the city’s energy options, up to and including the formation of a city-owned utility.

The campaign was hottest during municipal elections in 2013: “we had a lot of candidates talking about it, the mayoral candidates talking about it, city council candidates talking about the campaign. We had the specter of a ballot initiative around municipalization.”

The result of the campaign was that the utilities came to the table to negotiate.

A Novel Partnership
As of October 2014, “we have a first-in-the-nation partnership between a city and its utilities to explore not only the two-thirds of climate emissions that are the result of electricity and gas consumption that the city really didn’t have any opportunity to influence before. But also that 450 million dollars that’s being spent in the local economy and how that can be kept more local.”

As one testifier at city council said, ‘Our job now is to figure out how this doesn’t become the quarterly coffee clatch for the city folks and the utilities, and how do we make sure we actually have real substantive conversations about it.’”

“What are the possibilities?”

Three Big Opportunities
“There are three key things at stake. The first one is, what ideas can we generate that are innovative and ambitious and measurable and achievable within a short time frame? Because we’ve established for ourselves that this partnership can go on as long as ten years. We’ve got a check-in point of about five years. Which means we really have to start having stuff happen within two to three years if we want to know whether or not this is working.” All of the parties – Minneapolis Energy Options (Community Power), the city, and the utilities are going to come with great ideas. “What can this city put on the table with its regulatory authority over local property? What can utilities bring to bear with the data that they have about our local grid and the knowledge that they have about installing local solar?”

“Number two is, can we…set ourselves real benchmarks for accomplishing these things? Can we say two years from now that we are going to make meaningful and substantial progress on energy efficiency by retro-fitting a certain number of homes? Can we do it in a way that focuses on communities that have been traditionally disadvantaged, where folks pay a disproportionate share of their monthly income on energy? What can we accomplish with community solar over the next couple of years in Minneapolis? What are going to be the opportunities to get synergies between energy savings programs for electricity and gas?

Number three is, “how do we then let this be part of the bigger national conversation about how do we structure a utility business model (see forthcoming ILSR report, to be released 12/2/14) that serves the principles and goals not only of the city of Minneapolis, but – writ-large – all of the utility customers who care about things like clean energy?”

11/20/2014 0 comment

Energy Efficiency Renewable Energy

Are Utilities or States the Leaders in Renewable Energy and Efficiency?

written by John Farrell

A June 2014 study by Ceres highlighted the top electric utilities for renewable energy and efficiency. In an article discussing the findings, Utility Dive suggested that there are “wide disparities […] in the extent to which electric utilities currently deliver renewable energy and energy efficiency.”

To find the source of these disparities, look no further than the state policies governing these “leaders.”

For example, #1 ranked NV Energy (Nevada) is required to meet a 25% renewable energy standard by 2025. Xcel Energy, ranked #2 is required to deliver just over 27% renewable energy no later than 2020 (a weighted average across its service territories in Minnesota, Colorado, New Mexico, & Wisconsin).* Pacific Gas & Electric (#3), Sempra Energy (#4), and Edison International (#5) are California’s three investor-owned utilities, all facing a 33% by 2020 renewable energy standard.

State Policy Makes Renewable Energy Leaders Among Utilities

Five top-ranked utilities, serving five states with ambitious renewable energy policies. Hardly coincidence.

The top utilities for energy efficiency? Four of the five from above, substituting Northeast Utilities for NV Energy. Let’s see how the energy efficiency policies in the states where they operate stack up.

The three California utilities make the top 5 list, and the American Council for an Energy-Efficient Economy (ACEEE) rates California’s energy efficiency policy #2 in the nation. Northeast Utilities serves primarily Massachusetts and Connecticut customers, ranked #1 and #5 respectively. Xcel Energy may be the only surprise. The weighted average of state energy efficiency policies where it serves is #15. And why didn’t NV Energy make the list? Perhaps because state energy efficiency policy in Nevada ranks #33 according to ACEEE.

State Policy Makes Energy Efficiency Leaders Among Utilities

Five top-ranked utilities, and at least four in states with ambitious energy efficiency policies. Hardly coincidence here, either.

There’s nothing wrong with applauding electric utilities for advancing toward a more efficient, low-carbon electricity system, but neither should we overlook who’s responsible. It’s state legislators that have forced these energy companies into leadership, and who have received plaudits or penalties at the ballot box.

As for the utilities, there’s no doubt they are competent at complying with the law.

11/12/2014 0 comment

Renewable Energy

Why Haven’t Cities Covered Their Buildings in Solar?

written by John Farrell

The city of Beaverton, OR, is getting a new solar array that will offset energy use at an underground reservoir, saving taxpayers $95,000 per year, with no upfront cost. Ventura County, VA, has a 1-megawatt solar array on its jail facility, that’s cash flow positive. Denver, CO, has nearly 4 megawatts of solar, with power sold to the city on contract and no upfront cost.

If cities can cut their energy bills and save energy from day one, what’s standing in the way of a PV pave-over of every public building in America with a suitable roof?

Opportunity
The potential for rooftop solar PV (on any building) to meet American electricity demands is phenomenal, with enough suitable, sunny rooftops to provide nearly 20% of the power in every state.

Public buildings are in almost every community, many with the flat roofs perfect for solar. For example, K-12 public schools in Minnesota could host enough solar to power nearly 125,000 homes. In New York City, Mayor Bill deBlasio’s new energy initiative promises to install at least 100 megawatts of solar power on public buildings. In Washington, DC, the city recently issued a request for private sector partners to install 10 MW of solar on nearly 50 city-owned buildings.

Solar potential on schools is pretty remarkable, according to SEIA and the Solar Foundation. In Austin, TX, public buildings could host over 50 MW of solar. In San Francisco, it’s 31 MW. If the share of public building space for schools in these cities mirrors Minnesota (where schools represent about half the square footage of all public buildings), then all public buildings (schools, libraries, city property) in each city could host nearly 100 MW or 62 MW, respectively, of solar.

The solar potential is matched by the solar economic opportunity. Maximizing rooftop solar on schools in Minnesota could cut energy bills for the school system by 30%, saving $110 million per year. Every dollar saved is a public good, another dollar that can be spent on teachers, or librarians, or police officers. And with solar leasing or power purchase agreements, schools can tap into this energy savings opportunity with very little upfront money. [note: direct solar ownership typically trumps these third party ownership models, but not when federal incentives are inaccessible to the public sector]

Policy Barriers
As mentioned above, the poor policy choice to use the tax code for federal solar incentives as tax credits makes the public sector ineligible. Additionally, although the 3rd party ownership model has arisen to solve this design flaw, it’s only legal in about half of U.S. states. In the remainder, state law either prohibits or is ambiguous enough to make this deal structure too risky to attempt.

What’s Holding Cities Back?
Despite the policy barriers facing cities going solar, there millions of unused, publicly owned rooftops in places where the state and federal rules are not barriers. Why?

It could be bureaucracy. A representative of Borrego Solar said of the process to install solar on a city building in Beverly, MA, that, “the approval process involved five city council meetings, three subcommittees and two public meetings.”

It could also be city inexperience with electricity infrastructure. Despite its rapid growth in the past decade, prior to this time few cities had ever owned or installed electricity generation of any sort on their property. And admittedly, the complexity of net metering, incentives, and ownership structures pose a substantial barrier to determined solar lovers, whether or not they are cities.

It could be something else entirely. Have a story to share about getting solar on a public building in your community? Have you worked with a city to install solar? Share your story in the comments or with me at jfarrell@ilsr.org!

11/03/2014 1 comment

Renewable Energy

We Have “Value for Solar,” but Should We Use It?

written by John Farrell

Earlier this year, Minnesota became the first state to formalize dozens of studies by adopting a “value of solar” formula that would fundamentally change the relationship between solar energy producers and their utility. It’s designed to have the utility accurately compensate solar energy producers for the value of solar electricity to the utility, its customers, and society. And by separating solar production from consumption, it also ensures that all electric customers are paying for their share of the electric grid. So far, no Minnesota utility has adopted the voluntary formula.

But do we really want utilities to adopt value of solar? (share your thoughts in the comments)

The Case for Value Of Solar
In an extended post in May, I made a strong case for the economic rationale behind the value of solar (as compared to net metering). I also highlighted the political consequences of ignoring the increasing gap between the cost and value of solar, and between those figures and the retail electricity price. That issue was captured in this slide from my Future of Solar presentation:

The issues raised in that post and the above chart remain true because net metering is an accounting policy, not an engineering one. It allows customers to pay the net between their solar production and on-site electricity use, even though much of the energy off their solar panels will spill back onto the grid. So even though much of the electricity produced doesn’t actually offset on-site use (because, for example, people use electricity at 9pm when solar production is virtually nil), customers with solar arrays reduce their bill as though they do offset their energy use.

Utilities suggest this the above chart illustrates a big problem, but their solution – big fixed charges on electric bills – hardly encourages any socially desirable behavior. Rather it’s a great ploy to defend a business model of a monopoly utility that’s rapidly going out of date in an era of smart grids and distributed renewable energy.

What Change to Choose?
We have better options than cementing a utility’s grid monopoly, but all options aren’t equal.

Alternative 1 – Value of Solar
Value of solar is a compromise position. It says that compensation should follow the electrons, with producers paid for what they produce and consumers paying for what they use. When well designed, value of solar is an economist’s dream: transparently setting prices on the basis of all necessary costs and benefits.

But what if we believe that customers have a right to generate their own power and to offset their own energy consumption, and should not be compelled to sell their output to utilities? Or what if we believe (as discussed more below) that power supplied at the retail level should be compensated at the retail price? Or what if we feel like it’s the utility’s job to come up with a palatable alternative to net metering and not the advocates of a distributed renewable energy future?

Alternative 2 – Net Metering + Value of Solar
Another option would be to combine the best of both policies, using net metering to credit customers up to their monthly bill total (allowing them to zero out their bill), and paying them the value of solar price for excess generation instead of a generic avoided cost or the retail electricity price. This is a pretty small tweak, since many net metering customers don’t actually produce more than they use, but it would respond to the criticism that solar produced for the grid be paid a price commensurate with its grid value, not the delivered retail electricity price.

Alternative 3 – Actual On-Site Production + Value of Solar
Alternatively, we could require that solar energy produced on-site only reduces the electricity bill if it’s used on-site. Thus, if a customer wanted to “net meter” they would have to store noon-time energy in excess of their on-site use (e.g. in a battery) to use later in the day. Excess power sent to the grid would be compensated at the value of solar price.

This is a fundamental change that’s also economically inefficient. We have an electric grid with a multitude of energy sources, and often plenty of nearby demand that a rooftop solar array can serve. Why balkanize the grid with millions of solar + energy storage systems unnecessarily?

Alternative None – Net Metering
A solar producer whose energy spills onto the grid is replacing a utility’s retail delivered power to nearby load. And if that’s the case, then why shouldn’t that customer be paid the same price the utility is paid – the retail rate – for every single kilowatt-hour put onto the grid? Is it simply because it’s costing the utility market share that we “need” a net metering alternative?

The Issue of ‘Fair Share’
The crux of all these policy options is the notion of whether solar energy producers (who rely on the electric grid for energy at night or when it’s cloudy) are similarly supporting the maintenance of the electricity system as customers that don’t net meter. Given utility “solutions” that include taxes/fees on solar producers and fixed charges, it’s clear that they believe a fair share has to be a set-aside – if you don’t send the utility some money every month, it’s not “fair.”

But numerous studies show that solar energy producers provide something of value to the utility, often in excess of their compensation. Even if a solar producer pays zero for electricity bill, the utility has received something of value, just not cash.

Nor is there anything holy about using fixed charges to cover fixed costs. There’s no cover charge at Starbucks, but there are enormous fixed costs in keeping locations open, lit, and operational. What makes a utility system any different? (and if utilities have major rate design problems, why is it only the advent of widespread solar adoption that’s motivating a change?)

Net Metering: a Proxy in the Battle for a Democratic Energy Future
Utilities rightly see the end of an era, with technological change revolutionizing their business. Value of solar (if properly calculated) is a terrific, economically efficient policy for addressing customer and utility concerns about fair compensation.

On the other hand, it’s a drop in the sea change happening to the electricity business model.

There’s $364 billion in revenue from electricity sales in the U.S. every year, and much of that is up for grabs due to the opportunity from widespread, distributed renewable energy. Residential solar alone accounts for 9% of new power plant capacity in early 2014; the entire paradigm of the electricity system is shifting.

The question to ask is not whether value of solar or net metering are the best policy for compensating on-site solar energy producers issues, but which policy will lead to a better energy future. Which will unlock more of the potential for communities to capture their energy dollars and empower individuals and communities to be their own power company?

On the issue of economic purity, value of solar makes a lot of sense. But it also cements the notion that all people are utility customers, even if they are producing power to sell to the utility. Net metering may be imperfect, but in allowing people to offset their energy use with their production, it supports a philosophy of energy self-reliance. Today’s transformation of the electricity system could accommodate utility market power or upend it. And the policy we choose for solar compensation – value of solar or net metering or something else – will play a role in that outcome.

10/23/2014 1 comment

Renewable Energy

Solar and the New (democratic) Energy Economy

written by John Farrell

I spent three days recently with some of the biggest minds behind the “new economy” movement because their core theme – economic democracy – fits like a glove over ILSR’s work on democratic energy.

The big takeaway? Solar power is the spark to energize a new energy economy from the bottom up.

This new solar-sparked energy system will look entirely different from the old energy economy, because the technology to meet the energy needs of the 20th century are fundamentally different from those needed to meet the needs of the 21st century.

Building out the original electric grid in the early 1900s was a monumental task, requiring vast amounts of capital to finance poles, wires, and power plants. Since we only needed one electric grid, and since government saw electricity as a luxury at the time, it led to a market dominated by first natural and then regulated, corporate monopolies. Without competition, it was easier to finance grid infrastructure and to build ever-larger power plants to serve endlessly increasing demand.

For the first 50 years or so, this arrangement served the public and private interests, driving down the cost of electricity and expanding access.* But beginning with the Energy Crisis in the 1970s, the public and private interests in the electricity system have steadily diverged. Utility companies continued to pursue more and more electricity sales even as efficiency became a clear least cost supply. Utilities kept building fossil fuel power plants even as it became clear that wind and solar power could dramatically shrink the environmental footprint of electricity generation at competitive cost. Finally, utilities have fiercely defended their market turf, even as customer ownership of small-scale power generation has proven that communities no longer need a private utility to manage all of their energy dollars.

Solar power is the catalyst for the new energy economy because customers can for the first time cost-effectively supply electricity from their own home or business. Solar provides more utility than energy efficiency, which is limited to reducing energy consumption (even if it is the lowest cost resource). Solar provides more opportunity than large-scale renewable energy, which can at best reduce pollution and wholesale energy costs. Decentralized solar is democratic because it provides both political and economic power by allowing people, individually and collectively, to challenge the utility monopoly over energy supply.

For the first time in forever (sorry, parent of young kids here), solar offers communities a chance to reverse the flow of energy dollars out of their community. Every megawatt of solar installed adds $2.5 million dollars and 20 construction jobs to the local economy. In its 25-year lifetime, a locally owned solar project will redirect an additional $5.4 million of electricity spending back into local pockets. With new (crowd financed and maintenance free) solar loans, solar ownership is getting easier than ever. And with expanding opportunities for community solar projects, solar is increasingly available to the 75% of Americans who don’t own a sunny rooftop.

Despite solar’s small size (the individual panels are often just 200-300 Watts each), its cumulative impact is very large. In 2013, for example, rooftop solar power on homes represented 7% of all new power generation in the United States. In Germany, 80% or more of the 36,000 megawatts of solar energy is supplied by projects 100 kilowatts and smaller, each less than the size of grocery store roof.

Decentralized, rooftop solar could provide enormous amounts of electricity, 15% or more of total electricity sales in most states.

It’s not just electrons, but competitive pricing that makes solar attractive. By 2022, 312,000 megawatts of solar could be installed across the United States at prices competitive with utility retail rates. It could be higher, but this conservative estimate limits solar to 20% of each utility’s total sales.

Altogether, this 312,000 megawatts of cost-competitive, unsubsidized solar would supply over 9% of total electricity sales in the United States, redirecting nearly $33 billion in electricity spending back into local communities.

Solar isn’t just energy for the economy, but it provides power for the people. And while solar energy systems may derive their energy from the top down (sunshine), decentralized solar power promises to build a new energy economy from the ground up.

*Note: at least to urban areas. It took federal intervention via the Rural Electrification Administration to get electricity to farms and rural communities.

09/29/2014 2 comments

Renewable Energy

The Ultimate Solar Calculator Helps You Choose: To Own or Lease?

written by John Farrell

A few weeks ago I wrote about the comeback of solar ownership relative to leasing, as the cost of rooftop solar PV continues to fall and new financing options make ownership easier than ever.

Is owning a solar panel right for you? Find out now!

The solar calculator below lets you compare (leasing) apples to (ownership) apples, and the chart below the calculator shows the value of your solar investment over 15, 25, and 30 years.

The default inputs are good estimates based on ILSR’s research, but you can customize the comparison extensively. The key elements in the ownership v. leasing comparison are in orange, but other options (like nearest city) will make the actual numbers accurate to your location.

Scroll below the solar calculator for explanations of the inputs.

Keep in mind that solar panels typically carry a 20-year warranty, but most panels are expected to continue producing electricity for 30 years or more.

Solar Calculator Terms
Solar project size, cost, and electricity production

Annual kWh – the estimated amount of kilowatt-hours of electricity produced by the solar array each year.
Nearest city – (used to estimate the solar production)
Annual output degrade – the annual decrease in the solar production of the solar array, typically 0.5%
System size – the size of the solar array in kilowatts
Cost per Watt – the cost, including hardware and labor, to install the solar array per Watt of capacity
Total installed cost – self-evident, I hope
30% federal tax credit – the cash value of the 30% federal tax credit (available through 2016)
State tax credit – state tax credit, if applicable
Utility/State rebate – utility or state rebate, if applicable

Economic Assumptions

General price inflation – estimated inflation in prices, for estimating the long-term investment value
Discount rate – an economists calculation of the time value of money. Default of 8% suggests that you’d value 92¢ today as much as $1.00 next year
Real discount rate – discount rate minus inflation rate
Net metering rate per kWh – the price for solar energy produced, in dollars per kilowatt-hour. Typically the same rate as is paid for electricity from the utility.

Financing Terms

Interest rate – the interest rate on the loan
Down payment (financing terms) – the down payment on the loan
year term – the term, in years, of the loan
Note: some solar loans now include a maintenance-free contract, like a solar lease

Leasing Terms

Down payment (leasing terms) – the down payment on the lease
Lease price inflation – the annual increase in the lease payment
1st monthly payment – the initial monthly payment for the lease
Electricity. price inflation – the expected annual increase in electricity prices (historically 3%, but higher in many areas in the past 5-10 years)
15-year buyout price – the price, in dollars, for a leasing customer to buy the solar array after the lease expires (if available)

09/10/2014 1 comment

Renewable Energy

A Few Weeds in Minnesota Decision to Allow Community Solar Gardens to Grow

written by John Farrell

Earlier this month, Minnesota regulators made a decision that may finally allow community solar projects to move forward (for Xcel Energy customers) in the Land of 10,000 Lakes. However, the Public Utilities Commission decision also highlighted the shortcomings of the legislature’s distributed solar policy adopted in 2013.

What was missing? Minnesota’s increasingly well-known “value of solar” formula was not selected, but rather an “applicable retail rate” that’s much more similar to traditional net metering.

The decision settled a months-long debate about how subscribers to community solar projects in Minnesota will be compensated, nearly four months after the Commission approved program rules in April. The crux of the matter was that the value of solar formula is mandatory, but utility adoption of it is not. Since Xcel Energy, the only mandatory host of community solar projects, has yet to adopt the value of solar, they successfully lobbied the Commission for an alternative.

That meant looking to traditional net metering, with customers of solar gardens receiving compensation for their share of power generation at a rate comparable to their own electricity rate. However, the law was also clear that the rate paid to subscribers had to be enough to make community solar work, and developers were clear that the “applicable retail rate” (and the value of solar rate of approximately 12¢ per kilowatt-hour) were both insufficient.

The Commission responded by requiring an additional payment from the utility to solar garden subscribers for solar renewable energy certificates, boosting the total compensation rate to about 15¢ per kilowatt-hour. While not every developer saw this as enough, it’s likely to result in at least a few community solar projects, especially as solar costs continue to fall.

But why, after a 2013 “solar session” at the Legislature, was the Public Utilities Commission forced to cobble together a compensation scheme for community solar gardens?

Basically, the Commission had to fulfill the legislative intent that community solar actually work, but saw that neither the value of solar nor the retail rate would be sufficient to cover the cost of financing a community solar project in Minnesota (yet, just wait a couple years). The legislative intent was clear, but the mechanism was left blank.

The original, not the adopted, legislation would have made the PUC’s work a lot easier.

The original bill would have set aside funds from a small fee on electricity bills to provide production-based incentives for individually-owned and community-based solar projects. The incentives would have served the same purpose as the solar renewable energy certificates adopted by the Commission, but would have been guaranteed over the long term and supported a wide array of distributed solar projects. Combined with the value of solar rate, the incentive pool would have ensured a robust solar market development and transparent separation between the cost of the energy and the publicly financed incentives.

But while there were a few leaders at the Capitol who saw the complete picture, ultimately the incentive fund concept died, and with it the simple method for making community solar and distributed solar easy to finance.

Pay attention to one other significant item in the decision. Xcel Energy got what it wanted: the “applicable retail rate” rather than the value of solar for compensating community solar participants. This may be an indication that it has no intention to adopt the voluntary policy, despite its clear and powerful contribution to the pool of knowledge about the costs and benefits of solar energy nationally. Of course, Xcel is embroiled in a net metering dispute in Colorado where it is arguing that the value of solar is much lower than the 12¢ per kilowatt-hour, so perhaps that’s no surprise.

The Commission’s decision in Minnesota will finally get some community solar projects built, but it highlights the limitations of what was otherwise a terrific suite of solar policies passed in 2013.

08/18/2014 0 comment

Renewable Energy

Can PUCs Lead on Distributed Renewable Energy?

written by John Farrell

If you’re like most renewable energy advocates that have interacted with a Public Utilities Commission, you probably don’t think they’re a repository of progressive policy toward distributed renewable energy. In general, you’re right.

But it’s worth sharing a few, promising examples of Public Utilities Commissions around the U.S. that are actually making things better for distributed solar and other means of customer control over their energy future.

A good summary is, “your mileage may vary,” depending on your state and the changing composition of your commission. But it’s worth noting that most commissions are given pretty broad authority to initiate activity on behalf of energy consumers, and maybe all yours needs is a little proof of concept.

Arizona
The Arizona Corporation Commission had a few very busy years encouraging distributed renewable energy without legislative direction. Beginning in 2006, the elected Commission established the state’s renewable energy standard, with 30% of the program’s capacity reserved for distributed generation. In cooperation with the state’s regulated utilities, it also established the Arizona Goes Solar program to simplify the process of installing solar electric and hot water systems. Finally, in 2008, the Commission adopted very robust net metering rules that allow installation of customer-sited power generation of any size, as long as it does not exceed 125% of annual energy use, with compensation at the retail energy rate.

The Commission was recently in the news for slapping a monthly fee on solar net metering customers, but its track record is impressive.

California
A state known for its leadership on clean energy, it may be no surprise that the California Public Utilities Commission has helped moved distributed renewable energy ahead. Despite failures to initiate a major solar program at the legislature, the Commission moved ahead with the $3 billion California Solar Initiative program in 2006, that’s helped develop over 2 gigawatts of distributed solar energy in the state.

The Commission also moved ahead with the Renewable Auction Mechanism (building off of a legislative direction for a feed-in tariff). While the focus on an auction may not be as cost-effective as a pure-play feed-in tariff, the program has moved forward with procuring 1300 megawatts of distributed renewable energy projects sized from 3 to 20 megawatts.

The Commission has also adopted the first energy storage mandate in the U.S. While the legislature asked the Commission to consider it, the Commission moved ahead with it based on the accelerating deployment of distributed renewable energy.

Georgia
Though more in response to utility proposals than of its own volition, the Georgia Public Service Commission has nonetheless stood up for distributed solar in several ways recently. They tripled the Georgia Power proposal for purchasing distributed solar from its customers (and centralized solar) and recently rejected a proposed fee on solar customers.

New York
The Empire State’s Public Service Commission has taken leadership on energy policy in several ways. In the 1990s, they implemented a systems benefits charge, whose funds have supported distributed generation and energy efficiency for many years, including customer-owned solar and energy storage. The Commission was also responsible for the adoption of the state’s renewable energy standard in 2004. More recently, the Commission has entered the Utility 2.0 debate, with a discussion of fundamental reform of the state’s energy system.

08/13/2014 1 comment

Renewable Energy

With Liberty and Solar for All

written by John Farrell

For over 100 years, the American economy has been fueled by enormous expansion of fossil fuel energy. It has emitted a disproportionate share of its environmental impact (too much) and economic rewards (too few) on those less fortunate.

More than any 21st century energy source, solar can power an equitable and environmentally sound energy future. Solar can mean reversing decades of environmental injustice.

Consider the results of the 20th century model of centralized control and generation of energy:

Sixty-eight percent of African Americans live within 30 miles of a coal plant, as opposed to 56 percent of whites (source)
71% of African Americans live in counties that violate federal air pollution standards, compared to 58% of the white population (source)
The median per capita income in counties with coal power plant is 15% lower than for the overall U.S. (source)
The 8.1 million Americans who live within 3 miles of coal power plant have a per capita income 15% lower and are 25% more likely to be people of color (source)

The following map provides a full color illustration of the data. In the twin cities of Minneapolis and St. Paul (MN), air emissions and hazardous sites are disproportionately in communities with below median incomes.

A Solar Solution?

Solar can help reverse the injustice of the 20th century energy system in two ways: by reversing the flow of energy dollars back into disadvantaged communities and to reverse the environmental harm by offering zero-emission electricity generation. Not only does solar represent clean, local energy, but every local solar array will reduce the demand for importing dirty energy from power plants that disproportionately spew their emissions on low-income folks and people of color.

Solar is a technology uniquely suited to this task because it is inherently decentralized, mass produced, and installed in small pieces that can add up to big amounts of energy. And it’s already becoming cost-effective enough to work for the communities that can benefit the most.

The following chart gives the big picture on solar costs with the most conservative example: solar energy in the Midwest – a modest solar resource and very low electricity prices. Within five years, solar (with or without subsidies) will provide cheaper power to electric consumers than their utility.

Even by 2020, however, the upfront cost of a solar array will still approach $10,000 for a typical home. Fortunately, two key strategies are already in play to smooth access to low-cost solar energy.

Financing

There are several options for reducing the upfront cost of solar energy for low-income people. One, for those that own their home, is solar leasing. A solar lease can offer access to solar to those (with a good credit rating) that can’t afford solar’s upfront cost. But the cost of a lease is the middleman, where much of the profit goes.

Another strategy is PACE – Property Assessed Clean Energy – programs that allow property owners to pay for solar via their property bill. As long as the home has some equity and the homeowner a good history of property tax payment, PACE programs offer low-interest financing that is tied to the property. While the Federal Housing Finance Agency sharply curtailed residential PACE programs several years ago, California and other states are identifying ways to re-open the local finance spigot.

There are several other programs that have had some limited success. The Northeast Denver Housing Center integrated solar on several affordable housing units in a recent development. California’s Solar Initiative program offered substantial incentives for cutting the upfront cost of solar for single-family and multi-family dwellings, and has served approximately 1,000 households. Community Power Network and its partner organizations have also scoped out a variety of financing options and models.

Community Solar

The best strategy for solar access may be community solar, a solar array co-owed by multiple households that don’t need to own property. In November 2010, ILSR’s Community Solar Power report analyzed most of the existing community solar projects to assess which models had the best potential to replicate. Since then, community solar laws have been enacted in states from Colorado to Minnesota, with a total of 11 states allowing “virtual net metering” for electric customers to share the output from a shared solar array. Colorado’s law includes a set-aside for low-income participants.

SharedRenewables.org maps both the status of state policy supporting community solar and the completed community solar projects, and the Solar Gardens Institute has several more resources.

As enacted in most locations, community solar allows participants to buy shares of as little as a 1/2 a panel (100 watts) for $300-400. The electricity generated from that panel is credited back to the customer’s electric bill. It requires no credit check. Even in places with relatively low electricity prices, the panel will recoup $15 per year or more. And prices continue to fall rapidly.

The history of energy is one of haves and have nots, but the advent of cost-effective, widely distributed solar is an opportunity to reverse course and put the power and money in the hands of anyone.

08/06/2014 2 comments

Renewable Energy

A $6 Billion Opportunity for the Rural Energy Economy

written by John Farrell

One of the biggest barriers to making investments in energy efficiency and renewable energy is the upfront cost. So what if members of rural electric cooperative and rural municipal electric utilities could borrow money for small-scale improvements on the same terms as the utilities for their large-scale power plants?

Starting in 2014, they can.

The USDA’s Rural Utility Service’s Energy Efficiency & Conservation Loan Program (federal rule) allows rural utilities to borrow money at low rates – 30 years at 3.3% – for energy efficiency and renewable energy improvements at their facilities or properties owned by the customers it serves. The obligation to pay can be tied to the meter, allowing the energy savings and the financial obligation to pass from owner to owner of the property.

In 2014, the Rural Utility Service authorized $250 million in loans, but will ramp that up to as much as $6 billion in 2015. What could $6 billion buy?

$6 Billion for Rural Energy Efficiency could…

Save $32 billion in electricity costs for rural electric customers over 20 years
Create 81,000 rural jobs installing energy efficiency improvements
Provide enough power for 32 million homes for a year
Cut carbon dioxide emissions by 223 million metric tons
Note: energy savings estimates based on a real program covered in this EPA study. Job estimates based on the Sonoma Energy Independence program, covered here. Power savings estimates assume 1 home uses ~10 megawatt-hours per year. GHG emission estimates from EPA.

Let’s not forget that most of the money spent on a rural electric bill leaves the community, to pay for importing power from a remote supplier. Estimates suggest that 70% of the savings ($22 billion) will be retained within the community.

But it’s not just for energy efficiency. What if all that money was invested in renewable energy like solar power?

$6 Billion for Rural Solar Energy could…

Install 2,000 megawatts of solar power, 7 times more than is in the entire Midwest
Save $5.3 billion in electricity costs for rural electric customers over 20 years
Create 14,000 rural jobs installing solar power
Provide enough power for 265,000 homes for a year
Cut carbon dioxide emissions by 1.8 million metric tons
Note: Installed cost of $3/Watt, output of 1322 kilowatt-hours per year per kilowatt of DC capacity, 7 jobs per megawatt. GHG emission estimates from EPA, as above.

But the rural utilities can also make money offering this program. The USDA allows utilities to re-loan the money to individuals at up to 1.5% interest above their own borrowing rate of 3.3%. On loans of $6 billion, rural electric utilities would have a margin of $59 million per year re-loaning the money to their customers. Certainly there’s some program overhead, but cooperatives could likely aggregate their efforts, much like they’ve done by creating cooperative institutions like CoBank, and generation and transmission cooperatives.

It’s rare to find an energy program that can make a significant dent in energy consumption, save energy customers big money, make utilities winners, and juice the rural economy. Rural utilities shouldn’t miss this chance.

07/30/2014 1 comment

Renewable Energy

California’s Reserve Fund Won’t Lift the FHFA Boot From PACE’s Neck

written by John Farrell

Earlier this year, the state of California announced a $10 million loan-loss reserve to solve the Federal Housing Finance Agency’s severe restrictions on using property-tax based financing for energy efficiency and renewable energy on residential property.

It’s a great concept, but evidence from one of California’s best property assessed clean energy (PACE) programs suggests the reserve should be three times larger, at a minimum.

An Innovation in Energy Efficiency Financing
PACE was a concept pioneered by Cisco DeVries in 2009 in Berkeley, CA, meant to solve two problems of making homes more energy efficient:

1) The average American moves every 5 years, less than the loan term or life of a typical energy efficiency retrofit

2) Getting information about energy savings opportunities is a challenge, and information is very disjointed.

The solution? A city-sponsored energy efficiency effort that allowed homeowners to repay energy efficiency and renewable energy improvements fixed to their property via their property taxes. The city would be a one-stop shop, homeowners would have simplified financing via a bill they already pay, and the cost (and benefit) of any improvements would pass to future owners of the property.

The Feds Slam on the Brakes
PACE was taking off big-time in 2010 when the Federal Housing Finance Agency (FHFA) issued “lender letters” saying that the liens (loans) taken against the property when doing PACE-sponsored retrofits were a threat to mortgage lenders, and that they would not buy or refinance mortgages on properties with PACE improvements (because PACE loans were senior to – paid before – the mortgage).

Why FHFA Was Wrong
Evidence from the $40 million in PACE-financed residential energy projects suggested that default rates were far below that of traditional mortgages (less than 1 percent), and that owners of energy efficiency homes were one-third less likely to default than owners of traditional homes. After all, energy saving improvements provided revenue for homeowners to repay their loan.

Despite the evidence (and a lawsuit), FHFA’s revised rules, released in 2012, doubled down on their PACE hate.

A Few Programs Soldiered On
While many of the existing residential PACE programs closed up shop, a few worked around the FHFA roadblock by providing homeowners with a robust disclosure. Others tried making the lien junior to the mortgage (but also less attractive to investors). In Sonoma County, and the Western Riverside area of California, hundreds of homeowners (particularly those who had no mortgage) were able to move ahead with PACE financing.

However, while PACE for commercial property – unaffected by the lender letters – continued to grow apace, the federal ruling gutted the opportunity for PACE to add momentum to the residential energy savings market.

California’s Solution: Right Concept, Too Small
The $10 million loan loss reserve in California ostensibly solves the lender problem. The fund will hold lenders harmless in event of a default. But based on progress of the PACE program on Sonoma County, CA, California’s state loan loss fund needs to be at least three times as big.

In their September 2013 report, the Sonoma County Energy Independence Program reported an average residential project cost of $28,000. If we assume a default rate of 1% (higher than the actual) for PACE projects, then California’s $10 million reserve can cover $1 billion of residential PACE projects. It seems like a lot, but that’s only 35,700 average projects (based on Sonoma county), out of approximately 9.5 million housing units that are not multi-family, or 0.37% of all properties.

The Sonoma County program already served 1558 projects by the fall of last year, nearly 1% of the county’s single-structure housing units.

In other words, California’s reserve fund is likely to be used up in a hurry, especially given the opportunity to serve the pent-up demand created by the FHFA’s four-year lull.

It’s a great concept and a good start, but when Fannie and Freddie put their boot on your neck, you’ll need more than a modest loan reserve fund to get property-based financing for residential property back in the race.

07/20/2014 0 comment

Renewable Energy

Is Solar Ownership Poised for a Comeback?

written by John Farrell

With “no money down” and “zero maintenance” to attract homeowners, solar leasing has become the overwhelming favorite for residential solar installations. And with the complexity of tax incentives, rebates, and financing, it’s hard to find fault with homeowners that choose this low-effort option.

But giving up ownership means giving up a big share of the profits of going solar, and it may mean more expensive solar for society. So it’s good news that there are new options for making solar ownership as simple as a solar lease.

Why Lease
Solar leasing exploded in 2011, doubling to 46% of residential solar installations in California, then rising to nearly three-quarters in 2012 (with similar results in other states where 3rd party ownership is allowed). It’s no surprise.

Ownership of solar either requires a fair amount of cash ($10,000 or more) or financing. Financing for solar installations is not easy, since many banks (other than those financing leased systems) are still intimidated by what they see as a new technology. Financing is complicated by figuring out how to gain the 30% federal tax credit and state or utility incentives like rebates.

Add to that the responsibility of cleaning and maintenance of the solar array, and it’s no surprise that over two-thirds of the nearly 400 megawatts of solar installed on home rooftops in California since 2011 are owned by a third party.

The Losses of Leasing
But while leasing is simpler than ownership, any car buyer can tell you that ownership tends to be a better deal than leasing. That’s why only 25% percent of new cars were leased in 2013. The same is true for solar: ownership (while involving more risk) means better financial rewards.

Over the first 15 years, the various options are fairly comparable, with a financed and owned system providing the best “net present value,” followed by leasing, and a cash purchase coming in last (due to the high upfront payment). But over time, the benefits of ownership (via cash purchase or financing) grow to outstrip the value of leasing. (scroll to the bottom for our assumptions)

As shown here, the EnergySage website offers a comparison of a solar cash purchase v. a solar loan v. a solar lease, as well, but doesn’t disclose their assumptions. For example, do their financing options include deducting the loan interest? Do the lease terms last 15 or 20 or 25 years? Can a homeowner buy the system after their lease expires?

Robert Borlick of Harvard’s Electricity Policy Group finds an even larger gap between ownership (via cash purchase) and leasing (you’ll have to forgive his ignorance on the value of solar). In his very specific example from Southern California, he finds that solar homeowners give up 80% of their project’s value over the first 10 years by opting for a lease.

The bigger societal problem for solar leasing is that leasing may save individual electricity customers money on their electric bill, but the high cost of the solar middleman means more expensive purchases solar electricity for other electric customers. This chart, from the Massachusetts Department of Energy Resources, suggests that the cost of making solar leasing work is far higher than having the site host own the system.

New Options for Ownership
Fortunately, several new options are available for owning solar that lower the risk and increase the reward.

Mosaic, a company best known for providing crowd financing for community solar projects, has made inroads on simplifying individual home solar installations. Earlier this year they started providing crowd-financed home solar loans in Connecticut, and earlier this week they announced a solar loan product that includes maintenance, combining ownership via financing with the maintenance-free feeling of a solar lease.

Aleo, a subsidiary of solar-panel manufacturer Bosch, began offering zero-down loans at interest rates as low as 3% for home solar in 2013.

Add in Sungage and Renewable Funding (plus many banks), and it’s no surprise that GreenTech Media is suggesting that the market share for leasing residential solar will peak this year.

Solar leasing has helped the residential solar market grow significantly, and it’s help solved a problem of poor policy that requires individuals wanting solar to become tax and finance experts. But in the years ahead, the expiration of federal tax incentives and simplified options for ownership (and its significantly better long-term value) will mean a surge back toward solar ownership.

Solar cost comparison assumptions

Solar array
- 5 kW solar array, $4/Watt installed cost
- 30% federal tax credit, no state/utility incentives
- 1300 kWh AC output per kW DC per year, degrading 0.5% per year
- $1000 inverter replacement in year 16 for all systems
Solar loan
- 5% interest on $0 down loan, 20-year term
- Interest tax deductible at 25% marginal rate
Lease
- 15-year term
- $50 initial monthly payments, inflating at 3%
- Buyout in year 15 at 40% of original value
Electricity and Present Value
- Initial retail price of 15 cents per kilowatt-hour, inflation at 3% per year
- Discount rate of 5%, accounting for inflation

07/11/2014 3 comments

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