Why some states are making going solar more expensive
It’s getting harder to figure out whether converting your home to solar energy makes financial sense as utilities adopt new ways to pay customers who pump electricity into the electric grid.
Most utilities buy homeowners’ excess solar power for the same price they sell power from the grid. This idea, called net metering, is easy to understand: Buyer and seller get the same price.
But some utilities around the country complain that net metering doesn’t cover their costs of accommodating solar. With support from regulators, they’ve started paying for home solar at lower prices than grid power.
Consumers need to pay attention to these changes. Most home solar systems export 40% to 60% of their electricity production back to the power grid, says Mark Dyson, a manager at the Rocky Mountain Institute, which studies alternate energy. Lower payments for that power have a big impact on whether home solar is cost effective.
In Hawaii — where utilities have griped that rooftop solar stresses parts of the power grid — regulators in October replaced net metering with a new price structure that slashes solar reimbursements.
In Honolulu and the rest of Oahu, rooftop solar owners have been reimbursed at Hawaiian Electric Co.’s retail price, which in 2014 averaged 35.48 cents per kilowatt hour. Under the state’s new rules, Oahu residents installing new rooftop systems will be paid around 15 cents per kilowatt hour — 64% less.
On Hawaii’s other islands, utilities won’t reimburse new solar customers more than 25 cents per kilowatt hour — the exact rate varies by company. The new price setup applies only to new solar installations. Homeowners who’ve already installed rooftop solar will continue to be paid at net metering rates.
Hawaii’s sky-high power prices make solar more popular there than anyplace else in the U.S. One in eight Aloha State homes has solar panels. Hawaii’s average retail electricity price in 2014 was 37.03 cents per kilowatt hour, the nation’s highest. That’s more than double the 18 cents it costs to produce a kilowatt hour of solar in Honolulu, according to an online calculator posted by the U.S. National Renewable Energy Laboratory.
Solar is so cheap compared with Hawaii’s grid power, it’s still a good deal despite the state’s new price rules. “Even with the reduced benefit, you still save money,” said Colin Yost, chief executive of RevoluSun, a Honolulu solar installer. “But it becomes a little less valuable.” Yost thinks the new tariffs will force lower-income customers to think twice about switching over to solar.
Hawaiian Electric Co. says the state’s new solar price plan ensures “fair treatment for all customers.” Hawaiian Electric is a subsidiary of Hawaii Electric Industries HE, +1.19% , which serves 95% of the state’s electric customers. State officials call the plan a temporary “transitional market structure” that will stay in place while they overhaul rules for rooftop solar and other home electricity generating systems.
The solar industry is pushing back against a new price plan imposed by Arizona’s Salt River Project, or SRP, a public agency that powers most of the Phoenix area.
The Salt River Project in February instituted a complicated set of fees and charges for new home solar installations that increases the cost of solar by about $50 a month, or $600 a year. The new payment plan “better aligns costs SRP incurs from solar customers with the revenue SRP receives from them,” said utility spokesman Scott Harelson.
SolarCity SCTY, -0.69% , the country’s biggest rooftop solar marketer, says the new fees hurt its business. In a federal lawsuit, it calls the Salt River Project’s solar fees “profoundly uneconomical,” and alleges that the utility is “committed to using its monopoly power to eliminate rooftop solar competition” that threatens its generating business.
The government’s solar price calculators back SolarCity’s claim that solar is uneconomical in SRP’s territory. Solar there costs about 16 cents per kilowatt hour, while SRP charged an average 11.32 cents per kilowatt hour in 2014.
Solar pricing plans being weighed in other states could work out better for consumers.
Maine’s Public Utilities Commission in March published a study that valued rooftop solar at 33.7 cents per kilowatt hour, more than twice the state’s 2014 average residential price of 15.27 cents. Maine’s study considered that solar panels curb spending on fuel, generating plants and transmission equipment. Included in the 33.7 cents per kilowatt hour figure is a calculation that the societal benefits of reduced fuel price volatility and reduced pollution from solar panel use is worth 19.9 cents per kilowatt hour.
It’s unclear how Maine will use this study to set the electricity prices — the issue now rests with the state’s Legislature.
Minnesota already offers utilities rates set along the lines of the Maine study. If a utility doesn’t want to use net metering, it can ask the state for a solar tariff based on “the value of energy and its delivery, generation capacity, transmission capacity, transmission and distribution line losses, and environmental value.” So far, no utility company has pursued such a rate plan.
Rooftop solar panels are a 20-year investment that can cost homeowners tens of thousands of dollars. Solar proponents say less-friendly utility and government rules will slow the technology’s spread.
“Now the customer has to do harder math,” said Dyson of the Rocky Mountain Institute. “The end result is that it’s harder to sell solar photovoltaic systems because the economic benefits are lower. Probably just as important, the economic benefits are hard to understand because the tariffs are more complicated.”
But RMI is convinced that cheaper and better technology make solar a good deal in much of the country even if it’s reimbursed at lower rates.
“The cost reductions from solar and its related technologies are dramatic and do not show signs of slowing down,” said RMI researcher Jamie Mandel.