Opinion: Controversy Over Net Metering Laws
Net metering and the solar investment tax credit
Net metering, according to Michael J. Sandoval, research associate for the Independence Institute’s Energy Policy Center, is a gift funded by ratepayers that benefits solar companies like SolarCity. But the issue is larger than net metering, and has its roots in the Solar Investment Tax Credit, or ITC, of 2006.
Originally drafted to benefit a wide array of electricity consumers, the 30 percent (investment) tax credit, or ITC, has since become the “sweet spot” for solar firms operating as leaseback entities, for tax equity investors, and for companies who install solar panels using federal, local or regional tax benefits that they can “swap” for additional credit. Originally written to expire at the end of 2008, the ITC – a part of HR6111, passed by the 109th “lame duck” Congress – now “steps down” to 10 percent at the beginning of 2017.
Tax credits are essential to the solar industry
The ITC, notes one report, has failed to encourage serious uptake at the consumer level. In fact, solar policy makers and advocates find that only the most affluent ratepayers have opted into – or been allowed to opt into – solar leaseback programs. This gives solar companies like SolarCity tremendous financial clout, as SolarCity itself conceded during a Treasury Department investigation in 2013.
The charge, that third-party ownership entities like SolarCity inflated the value of their installations by about 10 percent overall (or as much as 50 percent in certain instances) when applying for ITC credits between 2007 and 2011, has reportedly allowed SolarCity itself to garner more than $326 million in secured investments which have since delivered a “windfall” for investors.
SolarCity has admitted as much: “Our business currently depends on the availability of rebates, tax credits and other financial incentives. The expiration, elimination, or reduction of these rebates, credits, and incentives would adversely impact our business.”
Net Metering As Part of the Debate
But the real issue, according to Sandoval and others, is the fact that net metering – a direct result of the ITC – remains a political and financial football. So far, a Democratic Congress has kept the ball moving downfield. In 2015 and beyond, a GOP-dominated Congress is likely to drop the ball altogether.
In the meantime, large investor-owned utilities like Xcel Energy debate the net metering price point. Xcel, operating from a generation profile that still includes 43 percent coal, is heavily vested in wind (3 percent in 2014, as much as 22 percent by 2020), but only imperceptibly in solar (0.5 percent). Moreover, only a fraction of that is rooftop solar, which is why Xcel is reluctant to continue paying 10.5 cents per kilowatt-hour to consumers who have solar panels and send the electricity back to the grid under a net metering agreement.
Why 10.5 cents per kWh? That is the current average of residential retail rates, but – argues Xcel, quite fairly – not the true value of solar electricity, because so many adjustments have to be made to incorporate renewable energy into the grid. For example, while a coal-fired or nuclear-powered plant can be relied on to deliver X number of kilowatt-hours of electricity at a steady rate, solar and wind are highly variable. The wind doesn’t always blow – at least at speeds that will trigger wind turbine activity. Even more so, the sun doesn’t always shine, particularly in one of Xcel’s largest service territories, the Upper Midwest.
Who Really Ends Up Paying?
Thus, while solar energy is nice for those who can afford the initial investment, it’s not so nice for other ratepayers, who have to pick up the cost differential between its real value and the net-metering payout. Nor to mention the costs involved when the grid acts as an “exchange mechanism” (when rooftop solar panels stop producing electricity and the customer has to draw power from the grid). All this fancy electronic (and manual) footwork costs, and ratepayers pick up that cost along with the subsidy for net metering.
Or, as Sandoval writes: “Cost shifting disproportionately affects lower-income ratepayers, who can’t afford the solar panels anyway. Further, some solar installations don’t deliver the promised generation and end up costing the customer double, as they pay for the panels and the grid-based electricity.”
The Colorado Public Utilities Commission, which has met several times to resolve the issue, will have to hand down a decision sooner or later. Expect solar proponents to respond with a petition. Expect a Republican-dominated Congress to laugh or give them the finger.