by Cesar Prieto and Seth Gunning
Electricity revolutionized the world when geniuses like Edison and Tesla found ways to harness it. Since its inception, the electric utility business model had pretty much remained the same for more than a century: big centralized power plants generating energy, transmitting it through high voltage power lines and then distributing it to end users through utilities with local or regional jurisdictions. The flow of electrons always followed this one way street from generation to consumption.
This old business model is now being turned upside down by technologies like solar PV, which allow any suitable roof to be turned into a decentralized “mini power plant”, producing electrons that will be consumed “in-situ”. The industry uses the term ‘Distributed Generation’ (DG) for this type of model. The spill-over or excess power from DG goes through the utility meter “in-reverse” and back into the grid, serving the demand of neighboring buildings.
In Georgia there are over 100 electric utilities that can be categorized in three groups: (1) large investor-owned-utilities like Georgia Power; (2) Electric Membership Corporations that that re-distribute profits among their member base; and (3) municipal utilities owned by local governments. They have clearly marked geographical jurisdictions. In practical terms they are highly regulated monopolies that face limited competition. For many of them, but especially for the municipal utilities, DG represents a new unexpected source of competition from within their own customer base that threatens to reduce their revenue. Others, like Walton EMC and Cobb EMC are more progressive in their approach toward solar.
In 2016 Georgia made it into many solar-related headlines. In that year more than 1 GW of utility-scale capacity came on-line, more than all previous years combined. Nonetheless today less than 2% of the state’s electricity comes from solar. Out of this fraction, we estimate that less than 10% is generated from non-utility DG sources. There is a vast amount of suitable unused roof space available for growth!
A recent analysis by Cape Analytics showed that in Atlanta only 64 out of every 100,000 homes have solar installed on their roofs. In Denver, by contrast, 1,776 out of every 100,000 homes host a rooftop solar energy system. There are many factors that can help explain the low level of penetration of rooftop solar in Georgia when compared to other states or when compared to large systems owned by utilities within the state. Yes, the [still] abundant tree canopy in Georgia creates more shade than in other places with less dense vegetation. Yes, economies of scale make it cheaper to build solar farms on large parcels of land than on rooftops. Nonetheless, there are many other less evident factors that come into play. This uneven distribution of Georgia’s growing solar capacity means that home and business-owners are missing out on the financial benefits that can come along with rooftop solar: dramatically lower utility costs, attractive tax-benefits and the stabilization of operating costs for decades to come.
Utilities’ Roadblocks to Rooftop Solar
To explain the hidden side of this unusually low adoption of rooftop solar energy, we turn to the punitive distributed generation and metering policies of many Georgia utilities. These policies, directly or indirectly throttle down the financial benefits of customer-owned clean energy. Those utilities that see solar technology advancements in the hands of their customers as a threat to their century-old business model are protecting themselves in numerous ways. They have built a complex jumble of regulations and rate structures that reduce the value of rooftop solar. Here are seven of the most commonly used roadblocks:
1. Solar stand-by capacity fees: This is arguably the most punitive way of preventing rooftop solar. Stand-by capacity fees are calculated on the nominal power rating of the array and are charged every month irrespective of the amount of energy produced. The standby fees significantly dilute the potential savings of solar, making it uneconomical within their jurisdiction. For example, a homeowner living in Fort Valley, the “Peach City of Georgia” will have to pay around $48 in monthly fees to the municipal utility for a 5kW rooftop system that would save him/her $65/month. This is like being taxed 74 cents on the dollar!. No wonder why peaches are the only ones taking advantage of the sunshine in Fort Valley.
2. Monthly fixed fees or administrative charges: Fixed fees are a reasonable way of recovering the cost of the infrastructure required to bring electricity to our homes and businesses, but high fixed fees make solar less attractive. Higher fixed fees shift the proportional cost paid to the utility away from the electricity consumed. This reduces the consumer’s ability to lower their overall utility costs with solar, energy efficiency, or even energy conservation. This is a way for utilities to lock the consumer into higher bills no matter how much electricity is used. Pricing mechanisms like these also disproportionately affect low income families, regardless of their capability to access distributed generation sources.
3. Buy-back rates based on “avoided cost”: As opposed to places like California or South Carolina, with net metering policies that put solar on a level playing field, the vast majority of electric providers in GA will buy your excess solar power at a wholesale price that is often only 25% of the average retail residential price. These buy-back rates constrain the size of roof-top solar systems because the higher the amount of energy that is exported to the grid, the longer the payback for the owner.
When calculating their avoided cost, most Georgia utilities overlook the side benefits to the grid that arise from having mini-power plants dispersed across their service territory. For instance, reducing consumption and having solar resources that are generating power inside the neighborhoods where the electricity is consumed reduces the utility’s cost of building and maintaining big, long, power transmission infrastructure. In California, distributed generation (DG) and energy efficiency have accounted for savings of approximately $2.6 billion on utility transmission costs.
In markets with high solar penetration, it is clearly not a sustainable business practice for utilities to purchase excess solar energy at the same retail rate they sell it for. There should be a fair balance between the buy and sell rates. Figuring out this fair balance has been and will continue to be the subject of much debate within Public Utility Commission hearings for years to come.
4. Fair monthly billing vs instantaneous netting: Power consumption in one particular location is not a smooth line. For example, power demand spikes when your A/C kicks in and drops at the end of the cycle. Most utilities on locations with rooftop solar will install a bidirectional meter that is able to monitor the flow of electrons into the building and out of the building when solar production exceeds the building’s load (consumption). The cutoff window to calculate net energy flows determined by the utility is one of the least understood factors with the highest impact on a customer’s power bill, even to a greater extent than the buy-back rate.
There are utilities that will calculate excess net energy exported at the end of the month. This allows for hourly and daily fluctuations to even out. However, there are others like Georgia Power that will account for any power that is exported to the grid on a real-time basis. In two homes with the same consumption profile and the same solar system, this simple “accounting practice” as they call it, can significantly reduce the savings. Consider the case of a residential customer, for which any electricity produced by solar that is not immediately consumed in the building will be “exported” to the grid at 3.8¢/kWh. Should this same customer need this energy back from the grid 15 minutes later, it will now cost him/her 12¢/kWh. This is equivalent to a 400% guaranteed margin on a commodity trade! Today’s “shark lending” practices would look more like a “guppy” if this exchange had been with money instead of energy.
To ensure that the electricity produced by a solar energy system is consumed on-site and therefore retains its full financial value, customers with instantaneous netting of energy have to either significantly undersize rooftop solar energy systems or couple them with energy storage systems.
5. Power demand charges (Commercial Customers only): Imagine energy as the equivalent to the fuel that goes in your car’s tank. Power is the rate of flow of the fuel into your tank, and energy is the total amount of fuel you fill it with. Now imagine a gas station that would charge you not only for the gallons pumped into your tank but also for the speed at which the tank is filled. In this scenario, filling a 15-gallon tank in a minute would cost you more than filling that same tank in three minutes. A gas station could rightly argue that they need bigger hoses and more modern pumping stations that will allow you to draw the same amount of fuel (energy) in less time.
Similarly, most electric utilities’ demand charges are calculated based on the highest level of energy flow in a 15 or 30-minute interval during the last 12 months. At the end of each month, demand charges are either added to the cost of the energy supplied to calculate the final bill or used to calculate energy tiers (more about this on the next section). The issue with roof-top solar is that even if it were to produce 100% of the energy consumed in the building, it will not reduce the demand charges from the utility. All you need is a 15 or 30- minute interval of high power demand during the night or on a rainy day for that demand to be used as a factor in calculating the next 12 months. Rate structures in which demand charges represent a sizable portion of the total bill extend the payback of solar because they in fact have the same effect as a fixed fee, but labelled differently. Solar Energy systems coupled with batteries have the ability to offset both the energy and demand portions of a company’s utility bill. Unfortunately, the average cost of batteries for these types of applications in Georgia is still not low enough to make most projects pencil out.
6. Energy tiers with diminishing pricing (Commercial Customers only): When you visit the websites of electricity providers you will often find recommendations and policies intended to promote conservation. Many of these are effective and well-intended, but when it comes to some rate structures, their actions are not aligned with their words. If energy conservation was an honest driver, rates would reflect relatively low prices for base-load consumption and increasingly higher prices for what would be considered as excess consumption (relative to the building’s size or commercial activity). With some rate plans the opposite takes place; the higher your energy consumption, the lower the rate paid for that energy. For example, a building using 10,000 kWh a month may see an average energy cost of $0.10/kWh, which is a result of $0.13/kwh for the first 5,000 kWh and $0.07/kWh for the second 5,000 kWh. In cases like these, a competent solar installer would do a careful design to maximize the value of the system for the owner. If one were to install an array that offsets 50% of the building’s total consumption, the value of solar energy produced would only be $0.07/kWh. It would be inaccurate to say that the value of the energy produced is equal to the average monthly rate ($0.10/kWh) because energy is effectively being accounted for on a LIFO (Last-In-First-Out) basis. Building a bigger system would allow us to tap into the more expensive energy IF there is no export to the grid. However, the bigger the offset generated by the solar system, the higher the likelihood that some energy will be exported at a devalued price, which increases the overall time it takes for the system to pay for itself.
7. Cogeneration and Distributed Generation Act of 2001: Last but not least, Georgia’s Legislature enacted a law that regulates electrical service. It contains specific provisions limiting distributed generation. In general it gives utilities the discretion to limit residential systems to 10kW and commercials systems to 100 kW. It also provides utilities discretion to deny buying excess power from solar customers in their territories once 0.2% of their peak generation capacity has been reached by distributed generation sources. No, this is not a typo. Zero-point-two percent! This means that the legal framework helps confine solar rooftop penetration to the equivalent of a rounding error.
We can’t think of a sound technical reason to merit such an artificially low ceiling on rooftop solar. As a matter of fact, some Georgia utilities already generate over 30% of their demand in certain parts of the year from solar resources on their system. The difference is that when the utility owns the solar generation, none of these restrictions apply. Fortunately, very few utilities to-date have cited this law as the reason to deny interconnection of new solar energy systems, perhaps because solar penetration behind the meter is still so small that they don’t want to bother, perhaps because it is overkill when layered on top of all the other barriers previously described.
Solar Energy has become one of the cheapest ways to generate electricity. This time around, access to the technology to produce it is available to everyday home and business-owners not just to a handful of regulated corporations. Utilities and regulators who are hired/elected to ensure they act in the best interest of the public, can embrace distributed generation by changing policies that unfairly limit the value of solar within their own customer base. In Georgia, where power demand is directly correlated with sun exposure (highest demand is during the day in the summer months), the expansion of hundreds of thousands of new solar “mini power plants” will allow these utilities to have access to excess power from their customer base at a low cost when it is needed the most.
You can learn more about your utility’s solar energy policies and get a free estimate on solar energy savings by contacting the expert consultant team at Creative Solar USA at 770-485-7438 or check out the database of utility policies compiled by the Southern Environmental Law Center on www.rateofsolar.com